Student Debt Landscape: Potential Changes and Concerns
The student loan system in the United States is facing potential shifts that could significantly impact borrowers and taxpayers alike. This article explores these potential changes, examining their possible consequences and the broader context of student debt in America.
Proposed Sale of Federal Student Loan Portfolio
Officials within the Trump administration are considering selling portions of the federal government's substantial $1.6 trillion student loan portfolio to private investors. This move, according to a Politico report, has sparked debate and raised concerns among experts. The discussions, involving senior officials at the Education and Treasury Departments, center on offloading select, high-performing segments of the government’s student debt holdings, which are owed by approximately 45 million borrowers nationwide.
The deliberations have also reportedly included outreach to figures in the financial industry, including potential buyers. While the extent of the administration's plans and the specific portions of the portfolio to be put on the market remain unclear, the proposal has significant implications for the student loan landscape.
Concerns and Potential Risks
Daniel Zibel, vice-president and chief counsel at the National Student Legal Defense Network, has characterized the proposed loan sale as a "complex and unprecedented" idea. He notes that it is essentially the reverse of the 2008 financial crisis, when the government bought privately held loans to stabilize the market.
A major concern is the potential impact on borrower protections. Shifting repayment and management responsibilities to private entities raises questions about enforcement, oversight, and the continuity of existing borrower protections. Zibel also points out that the sale could eliminate the government’s power to cancel the loan. "If you’re talking about unilateral cancellation, like what president Biden had been talking about, the department would certainly lose all authority to tell a private company that they had to cancel a debt," he said.
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Michele Zampini, associate vice-president of federal policy at the Institute for College Access and Success, echoes these concerns, emphasizing the lack of precedent for such a move. She suggests that a private purchaser's primary interest would likely be to maximize profit, potentially leading to less generous benefits or relief programs for borrowers. "There is no indication that there is, first of all, interest from the private market. And if there is interest, their interest would likely be to squeeze as much profit from the repayment as they could," she said.
Broader Political and Ideological Context
Some observers believe the proposal aligns with the Trump administration’s broader goal of reducing the federal footprint in the student loan system and encouraging more private-sector involvement. Mike Pierce, executive director of Protect Borrowers, suggests that the administration is determined to extract as much as possible from families with student debt to please Wall Street. "Now we know why President Trump and Secretary [Linda] McMahon are hell bent on squeezing every last dollar out of families with student debt," Pierce said in a statement.
Zampini links the plan to the Trump administration’s broader ideological aim of shrinking or dismantling the Education Department. "This is all part of that same conversation, because the department manages this huge, billion plus dollar loan portfolio," Zampini said. "You can’t really wind down the department while still having responsibility for this type of loan portfolio. It’s driven by their desire to wind down the department more broadly. This is the roadblock in their way in many senses."
The administration is reportedly exploring whether to transfer management of the loan portfolio, or segments of it, from the Education Department to the Treasury Department, an idea seemingly consistent with Trump’s stated desire to close the Education Department altogether.
Previous Attempts and Current Feasibility
This is not the first time the idea of selling off federal student loans has surfaced. During Trump’s first term, the Education Department hired consulting firms to evaluate the student loan portfolio and estimate its potential sale value. However, the analysis revealed that the loans were worth substantially less than government accountants had assumed, and the plan was shelved as the Covid-19 pandemic upended the economy.
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Now, with Trump back in office, the administration appears to be reviving the concept as part of a broader rethink of the student loan system.
Despite these efforts, it is not completely clear how feasible these plans are under the current legal system. Zibel notes that the law allows the Secretary of Education to work with the Treasury Department to sell loans, but only if it is in the best interest of the United States and does not result in any cost to the federal government. "The law does specifically allow the secretary of education to work with the treasury department to sell loans," Zibel said. "But it very clearly says that the secretary has to determine that it is in the best interest of the United States to do so, but also that there will not result in any cost to the federal government."
Impact on Access to Higher Education
Beyond the immediate concerns for current borrowers, there are worries that a student loan market controlled by private entities would increase the barriers to attend college. Zampini explains that federal student loans are unique because they are not originated with the goal of making a profit, but rather as an access tool to enable people to go to college who wouldn’t necessarily be able to access that same credit in the private market. "The federal student loan program is unique because the loans are not originated with the goal of making a profit on them," Zampini said. "They are essentially an access tool to enable people to go to college who wouldn’t necessarily be able to access that same credit in the private market."
These factors make it less likely that such loans would generate a return for an investor, potentially leading to increased payment amounts and decreased relief programs and flexibilities.
Recent Developments in Student Loan Management
The potential sale of the student loan portfolio is occurring alongside other significant changes in the student loan system.
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Resumption of Collections on Defaulted Loans
The Department of Education's Office of Federal Student Aid (FSA) has resumed collections of defaulted federal student loans on May 5, 2025, after a pause since March 2020 due to the pandemic. The Department emphasizes that resuming collections protects taxpayers from shouldering the cost of federal student loans. Secretary of Education Linda McMahon stated, “The Biden Administration misled borrowers: the executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear. Hundreds of billions have already been transferred to taxpayers."
The FSA is conducting a communications campaign to ensure borrowers understand how to return to repayment or get out of default. The Department of Treasury is also involved in this effort. The FSA will send required notices later in the summer before beginning administrative wage garnishment and will authorize guaranty agencies to begin involuntary collections activities on loans under the Federal Family Education Loan Program.
Support for Current and Struggling Borrowers
The FSA is committed to providing borrowers with clear information about their payment options. An enhanced Income-Driven Repayment (IDR) process is being launched to simplify enrollment in IDR plans and eliminate the need for borrowers to recertify their income every year. The FSA is enlisting various partners to assist in this campaign.
Detailed information to help borrowers get out of default is available at StudentAid.gov/end-default.
The One Big Beautiful Bill Act (OBBB)
President Donald Trump signed the One Big Beautiful Bill Act (OBBB) into law, which includes several student loan provisions. The OBBB eliminates educational loan repayment plans not codified by Congress, such as Saving on a Valuable Education (SAVE), Pay As You Earn (PAYE), and Income Contingent Repayment (ICR). As of July 1, 2026, all borrowers will have access to the Repayment Assistance Plan (RAP) and the Standard Repayment Plan. Any remaining balance is forgiven after 30 years, with the forgiveness amount subject to federal tax at that time.
The OBBB also eliminates the Grad PLUS program and caps aggregate graduate borrowing at $100,000. It prohibits any undergraduate or graduate program with "low-earning outcomes" from participating in the federal loan system, requiring programs to demonstrate that at least half of their former students meet earnings benchmarks.
Economic hardship and unemployment deferments for new loans are also eliminated under the OBBB.
Student Loan Forgiveness Updates
Student loan forgiveness has restarted for a small number of Americans enrolled in Income Based Repayment (IBR) plans. The Education Department (ED) suspended forgiveness to update its systems to accurately account for qualifying monthly payments. Eligible borrowers will have their loans forgiven over the next several months unless they opt out.
To be eligible, borrowers must be enrolled in the IBR plan and have made 240 or 300 monthly payments (20 to 25 years), depending on when the loan was taken. Loans taken before July 1, 2014, require 300 payments, while those taken after require 240 payments. Payments on other Income Driven Repayment plans (PAYE, ICR, and SAVE) only count toward forgiveness if the borrower enrolls in IBR.
Government Shutdown Impact
The government shutdown has suspended the American Federation of Teachers’ (AFT) class action lawsuit accusing the Trump administration of slow-walking student loan forgiveness. The AFT is pushing for proceedings to resume as soon as possible to prevent delays that could affect borrowers' taxes, as the American Rescue Plan Act of 2021 exempted student loan forgiveness from federal taxes until the end of 2025.
The Rising Cost of Veterinary Education and Debt
The cost of veterinary education and the resulting debt are also significant concerns. The mean debt among veterinary graduates in 2024 was $164,325, and among only veterinary graduates with debt in 2024, that figure was $202,647. Thirty-nine percent of graduating veterinarians reported having debt between $200,000 and $400,000 in 2024, with just under 16.6% having no debt at all.
Federal student loan interest rates for the 2025-26 academic year for undergraduate loans will be 6.39%, a decrease from the previous year's 6.53%, and graduate and professional students will see a rate of 7.94% on direct unsubsidized loans. Direct PLUS, including Grad PLUS and Parent PLUS, will have an 8.94% interest rate.
Veterinary schools are offering more nonresident seats, driving up the cost of education. Some newer veterinary colleges are particularly expensive.
