Federal Student Loan Debt: What Trump’s Plan to Sell Loans Could Mean for Borrowers

The Trump administration is weighing whether to sell parts of the federal student loan portfolio — a move that could impact millions of borrowers holding federal student loan debt. The plan, confirmed by a source to USA TODAY, is still in discussion stages with no final decision announced.

If the government moves forward, it could transfer some of its $1.6 trillion student loan holdings to private investors. This comes as Donald Trump has pushed to downsize or even close the U.S. Department of Education, saying in March that the agency “is not a bank” and should return loan management to institutions better suited for it.

How Selling Federal Student Loan Debt Could Work

Experts say U.S. law allows the federal government to sell student loans if it doesn’t cost taxpayers. In practice, loans — like mortgages — are often sold to banks or investment firms to free up funds. When this happens, borrowers typically only notice a new payment address while their interest rate and repayment terms stay the same.

But federal student loans carry protections that private entities don’t offer. The government can pause payments during emergencies, forgive loans through programs such as Public Service Loan Forgiveness, and garnish wages or Social Security benefits without going to court. Private lenders lack many of these tools.

Kent Smetters, head of the Penn Wharton Budget Model, noted that selling loans could reduce a future administration’s ability to pause repayments — as President Joe Biden did during the COVID-19 pandemic. Another concern: private buyers may value the loan portfolio less than the government does. A 2019 McKinsey analysis found about 45% of federal loans were unlikely to ever be repaid. If the government sells at a lower price, taxpayers could lose money.

Additionally, if Congress changes repayment terms to fit private market rules, the government might need to compensate borrowers for lost protections — an expensive prospect if 45 million borrowers are affected.

Impact on Borrowers and the Loan System

If your loan is sold, you would most likely just send payments to a new servicer. However, certain safety nets — like long-term repayment options or automatic forbearance — could change. Consumer advocates warn that a large-scale transfer to private hands might make repayment stricter and less flexible.

Experts also highlight that courts could become the venue for wage garnishment, making collections slower for lenders but potentially more stressful for borrowers. Meanwhile, borrowers could benefit if compensation is required for any lost protections, but that would also undermine the government’s effort to save costs.

For now, no action has been taken. Borrowers are advised to continue monitoring official communications from the U.S. Department of Education and their loan servicers for updates on any potential changes to federal student loan debt management.

FYI (keeping you in the loop)-

Q1: Can the government sell my federal student loan without my permission?

Yes. Federal law allows the sale of student loans to private entities if it doesn’t cost taxpayers, and borrower approval isn’t required.

Q2: Will my interest rate or payment change if my loan is sold?

No. Your current interest rate and repayment terms should stay the same, though who you pay may change.

Q3: Could selling loans remove protections like forgiveness or pauses?

Yes. Some federal protections, such as broad repayment pauses, could be harder to apply if loans move to private hands.

Q4: Why does the Trump administration want to sell federal student loans?

Trump wants to reduce the Department of Education’s role in loan servicing and potentially save money, though experts warn it could cost taxpayers.

Q5: What should I do if my loan is transferred?

Keep track of any notices from your current servicer and confirm the new payment address. Your legal repayment terms remain in place.

References

USA TODAY. (2025). Trump administration weighs selling federal student loan portfolio, what borrowers need to know. October 7, 2025.

Politico. (2025). Trump team again explores privatizing student loan portfolio. October 7, 2025.

Reuters. (2025). Trump seeks to dismantle Education Department, transfer loan servicing. March 2025.