Trump Administration Shifts Student Loan Management to Small Business Administration: What This Means for Borrowers

As of March 22, 2025, millions of student loan borrowers are facing significant changes in how their loans will be managed following President Trump’s announcement that the federal student loan portfolio will be transferred from the Department of Education to the Small Business Administration (SBA). This major shift comes amid record-high student debt levels and raises questions about how borrowers might be affected by this administrative transition.

Trump’s Announcement and Administrative Changes

On Friday, March 21, 2025, President Donald Trump announced that the federal student loan portfolio would be immediately transferred to the Small Business Administration. This announcement came just one day after Trump signed an executive order to dismantle the Department of Education2 4 10.

“I have decided that the SBA, led by Kelly Loeffler, will take over the entire student loan portfolio,” Trump told journalists in the Oval Office. “We have a portfolio that is very large, lots of loans, tens of thousands of loans, pretty complicated deal. This is being transferred out of the Department of Education right away.”4 10

The president indicated that the SBA was prepared for this transition, stating, “They are all set for it. They are waiting for it.”4 Simultaneously, the administration announced that programs for students with disabilities and school nutrition programs would be transferred to the Department of Health and Human Services (HHS), to be overseen by Secretary Robert F. Kennedy Jr.10 11

Current Student Loan Statistics

To understand the scale of this transition, it’s important to recognize the magnitude of the federal student loan system. As of early 2025, the statistics are staggering:

Federal Student Loan Portfolio

Total student loan debt in the United States stands at $1.77 trillion, having roughly tripled since 20071 3 6
Federal student loans account for $1.64 trillion (approximately 92.4%) of all student debt1 4
Private student loans make up the remaining $134.3 billion (7.6%)1
Approximately 42.7 million Americans currently have federal student loan debt1 6

Average Student Debt

The average federal student loan debt per borrower is $38,3751 6
The median student loan debt is between $20,000 and $24,999, meaning half of borrowers owe more and half owe less1
The average undergraduate student debt is $29,3003 8
Higher degrees carry substantially higher average debt: Medical school ($296,500), Dental school ($212,341), Pharmacy school ($170,956)3

Student Debt Demographics

52% of federal student loan borrowers are over the age of 35; 20% are over 501
Black borrowers typically have higher student debt levels than borrowers of other races1
States like Georgia, Maryland, Mississippi, and Virginia have among the highest levels of student debt1

The Small Business Administration’s Current State

The SBA’s capability to manage this massive portfolio is being questioned by experts, particularly in light of recent developments:

SBA Downsizing

The announcement of the SBA taking over student loans coincided with the agency’s declaration that it would cut 43% of its workforce, eliminating approximately 2,700 jobs7 10. Currently, the SBA employs only about 6,500 people total—less than half a percent of the entire federal workforce7.

Historical Performance

During the COVID-19 pandemic, the SBA was responsible for administering loans representing a ninefold increase in their normal business volume. According to the Office of the Inspector General, the agency struggled to “detect and prevent fraud and effectively service and oversee billions of dollars of loans”5.

SBA Administrator Kelly Loeffler stated that the reorganization “will not impact its core services” and that the agency will refocus on “supplying capital, fostering innovation, supporting veteran small business owners, and providing timely disaster relief.”7 However, she did not specifically address how the agency would manage the addition of the student loan portfolio.

Potential Impact on Student Loan Borrowers

The transfer of the federal student loan system to the SBA raises several concerns about potential impacts on borrowers:

System Disruptions

The Institute for College Access & Success (TICAS) warned that “system failure is inevitable” with this transfer. Jessica Thompson, Senior Vice President for TICAS, stated: “With no clear strategy, the Administration has decimated staffing and oversight capabilities at both agencies while simultaneously announcing its intent to immediately transfer a more than $1.5 trillion loan portfolio between them. This can only result in borrowers experiencing erratic and inconsistent management of their federal student loans.”5

Agency Experience

Higher education specialist Mark Kantrowitz pointed out to CNBC that “neither Commerce nor SBA possesses any relevant experience” in managing student loans4. The Treasury Department, which was previously considered as a potential manager for the loans, would have been a more logical choice given its existing involvement in collecting overdue debts via the Treasury Offset Program.

Existing Borrower Issues

Borrowers are already facing significant challenges within the federal student loan system that may be exacerbated by this transition:

The SAVE plan, a recently introduced income-driven repayment initiative, is currently halted due to a court order2
The Department of Education suspended the income-driven repayment system, preventing millions from enrolling in repayment plans they are legally entitled to2
Borrowers with medical disabilities who qualify for discharge are currently unable to obtain relief as the Total Permanent Disability program remains in a ‘paused’ state2

Legal Questions

Many experts believe that Congressional approval would be needed to transfer management of the loan portfolio to the SBA5 11. This suggests that the transition announcement may face legal challenges before implementation.

What This Means for Current Borrowers

Despite the administrative changes, experts emphasize that the terms and conditions of federal student loans will remain unchanged, regardless of which agency oversees them4. Your rights, as established when you signed the master promissory note at the time of loan origination, are still legally protected.

However, consumer advocates have expressed concerns that the large-scale transfer of loan accounts may result in mistakes, potential privacy issues for borrowers, and impacts on protection programs like Public Service Loan Forgiveness4.

What Does It All Mean?

The transfer of federal student loans to the Small Business Administration represents a significant shift in how the government manages its $1.64 trillion student loan portfolio. With the SBA simultaneously reducing its workforce by 43% while taking on this enormous responsibility, questions remain about the agency’s capacity to effectively manage these loans and provide adequate service to the 42.7 million Americans who hold federal student loan debt.

As this transition unfolds, borrowers should stay informed about changes to their loan servicing, carefully monitor their accounts for any irregularities, and be prepared for potential disruptions in customer service. While the legal foundation of their loan agreements remains intact, the administrative changes could introduce practical challenges in the coming months.