Trump plans to sell off portions of the federal student loan portfolio to private investors, which has left many wondering what would happen to a borrower whose student loan is one of those being sold. Here, the author explains how borrowers may be impacted if their federal student loans are sold to private investors as part of the Trump administration’s push for privatizing the student loan program.
History of the student loan sale proposal
The Trump government is considering selling chunks of the federal government’s $1.6 trillion portfolio of student loans to private institutions or investors as part of its broader strategy to reduce the size of the federal student loan program and unwind pieces of the Department of Education. Senior officials at the Treasury and Education Departments have been considering the move, seeking to sell high-performing portions of the government’s student debt holdings to the private sector.
This program is consistent with policy goals outlined in the Project 2025 playbook, which proposes to rebalance student loans into the private sector and establish a new agency for federal loans to be managed under Treasury oversight[3]. The scheme is part of broader efforts to decrease the federal government’s presence in lending to students and education.
What happens if your loan is sold?
If a federal student loan is re delegated into private investors, the terms of the loan and outstanding principal amount should follow along with it. However, some differentiating realities may be present with private ownership:
- Loss of federal protections: Federal student loans come with borrower benefits such as income-driven repayment plans, automatic deferment, loss discharge for death or disability, and Public Service Loan Forgiveness eligibility. Private investors tend not to possess such protections.
- Tighter repayment terms: Private lenders usually require tighter repayment terms, higher fees, lower flexibility for deferment or forbearance, and less forgiveness. Students may have higher monthly payments and tighter delinquency charges.
- Collection practices: The federal government has been more forgiving and gracious with borrowers, with open-ended collection periods and relief provisions during economic distress. Private lenders may seek repayment more aggressively without such magnanimity.
- Impact on borrower costs: The majority of experts warn that privatization has the potential to raise borrowing costs, restrict minority and other underrepresented groups’ access to loans, and propel more borrowers into default and financial distress.
Potential benefits and drawbacks
Proponents of the sale argue it would reduce taxpayer risk and federal administrative cost by putting debt management in private hands. Opponents warn this move would worsen financial performance as well as heighten barriers for already indebted students.
The transition to private ownership is particularly dangerous to at-risk borrowers who rely heavily on federal loan protections to manage payments or qualify for loan forgiveness programs. Blocking access to these safeguards can cause higher defaults and financial hardship.
Federal selling of student loans is historic in scale and represents a movement toward reduced government involvement in education funding. The move is also consistent with other Trump administration policies that have undone borrower protection and put some forgiveness programs on hold.
Experts caution that tapping the private market for the supply of student loans will prioritize profits over borrowers’ welfare, potentially leading to usurious lending and fewer choices for affordable repayment.
Read more: What is the difference between total and partial student loan forgiveness?
Read more: What are the eligibility criteria for Public Service Loan Forgiveness (PSLF)?
Read more: What is the monthly payment on a $140,000 Student Loan?
