President Trump’s executive order on Thursday starting the process of dismantling the Department of Education could throw federal student loan programs into disarray and lead to frustration for millions of borrowers, according to experts.
The Education Department’s remit is broad. The agency manages student loans for more than 40 million Americans; oversees $18 billion in Title I funding for elementary and secondary education in low-income areas; issues Pell Grants to help low- and middle-income students pay for college; and administers the Free Application for Federal Student Aid, which lets students apply for loans, grants and other college aid.
“It takes resources to manage that asset, including trained staff to make sure borrowers have good information and colleges can administer loan programs properly,” said Peter Granville, a higher education finance expert and fellow at The Century Foundation, a progressive think tank. “It takes technical expertise that only Education Department officials have.”
Ahead of the Thursday signing ceremony for Mr. Trump’s order, White House press secretary Karoline Leavitt told reporters that the Education Department “will be much smaller than it is today.” She said at the time that the agency would, for now, retain oversight of student loans and Pell grants.
Mr. Trump, in remarks from the Oval Office on Friday, said the Small Business Administration (SBA) would assume oversight of student loans.
“I have decided the the SBA, the Small Business Administration … will handle all of the student loan portfolio. We have a portfolio that’s very large, lots of loans,” Mr. Trump said.
Trump administration officials had previously said such programs would eventually be transferred to another federal agency, such as the Treasury Department, Commerce Department or SBA.
“Closing the department does not mean cutting off funds from those who depend on them — we will continue to support K-12 students, students with special needs, college student borrowers and others who rely on essential programs,” Education Secretary Linda McMahon said in a statement after Mr. Trump signed the order. “We’re going to follow the law and eliminate the bureaucracy responsibly by working through Congress to ensure a lawful and orderly transition.”
Though the Trump administration wants to dismantle the Education Department, eliminating it completely would require an act of Congress — a significant political hurdle given that most Senate legislation requires a filibuster-proof 60 votes to pass.
“Recipe for chaos”
Despite the Trump administration’s expectations for a smooth wind down of the Education Department, experts warn that the administrative challenges in transferring oversight of student loans from one part of government to another are significant. They also note that prior to Friday, the White House had not released a plan for overseeing student loans as the Education Department shrinks, or specified which department would inherit its duties.
“It doesn’t pass the sniff test that you’d summarily move a complex, large student debt portfolio from the Department of Education, where it’s already lived, and just plop it over to the Treasury,” Jessica Thompson, senior vice president at The Institute for College Access and Success, a nonprofit group focused on education policy, told CBS MoneyWatch. “We are concerned that there is not a serious, detailed thoughtful plan for reform around what to do with the student loan portfolio.”
Granville concurred with that assessment. Gutting the Education Department before articulating a plan to reassign student loan oversight “is not a recipe for efficiency or innovation,” he said. “It’s a recipe for chaos and frustration for millions of people who rely on the student loan program.”
The Trump Administration has already slashed the Education Department’s staff in half, dismissing employees tasked with managing $1.6 trillion in student loan debt.
“The department was already understaffed, and with the breadth and depth of the firings last week, we have big questions about the ability to provide service to 40-plus millions borrowers,” Thompson said.
She points to the long wait times Americans with student loans face in reaching agency staff by phone to get their questions answered. “We were already in a situation where we needed improvements in customer service, so there is no conceivable way you could gut the institutional expertise that occurred last week and not have repercussions,” Thompson said.
That could lead to confusion for current and future student borrowers seeking information about loan payments and other servicing issues, duties now handled by the Education Department. Thompson also worries that a sudden vacuum in such information could lead to a spike in loan defaults.
“Now, they can’t call and get advice or have questions about how much their loan payments will be and can they afford them, answered,” she said.
“[W]e are barreling toward another student default crisis with less commitment and capacity to help borrowers repay,” Granville added.