Trump Floats Radical Overhaul of Federal Student Aid, Eyes Transfer to Small Business Administration

Former President Donald Trump has reignited debate over the future of federal student loan management, suggesting a dramatic shift in the oversight of the massive portfolio currently housed within the Department of Education. In remarks made at the White House, Trump outlined preliminary discussions about relocating the Federal Student Aid (FSA) office, the entity responsible for managing loans for millions of borrowers, to a different agency within the federal government.

Trump explicitly questioned the Department of Education’s suitability for managing student loans, arguing that facilitating college affordability and repayment fell outside its core mission. "That’s not their business," he stated, hinting at a potential restructuring of the agency’s responsibilities under his leadership.

The most striking aspect of Trump’s proposal involved a potential transfer of the FSA to the Small Business Administration (SBA), an agency that provides financial and counseling support to entrepreneurs and small businesses. This idea immediately raised eyebrows due to the seemingly disparate mandates of the two agencies. Linda McMahon, who previously served as SBA Administrator during Trump’s first term and was recently confirmed to lead the Education Department, may be considered to carry out this plan if Trump were to be elected again.

Trump further indicated that Kelly Loeffler, the current head of the SBA and a former Republican senator from Georgia, had expressed enthusiasm for overseeing the student loan portfolio. "Kelly really liked it and would like to do it," Trump stated, suggesting her willingness to assume responsibility for the FSA’s functions.

However, the implementation of such a monumental change faces significant hurdles. Legally, the transfer would require an act of Congress, a scenario that is unlikely in today’s politically polarized environment. Senate filibuster rules would necessitate Democratic support, which is widely considered improbable given the partisan divide on education policy and the overall skepticism surrounding Trump’s proposals.

Beyond the legislative challenges, the logistical and technical complexities of moving the FSA are immense. Trump himself acknowledged the difficulties involved, describing the FSA as "the most complicated thing" to relocate. The FSA is responsible for managing a portfolio that is on par with some of the largest financial institutions.

The proposed transfer is also taking place amid broader uncertainty regarding the fate of the Department of Education itself. A White House official revealed that Trump is considering executive action to re-evaluate the agency’s future role and structure. A draft executive order, obtained by the media, instructs the education secretary to close the agency to "the maximum extent appropriate and permitted by law." It remains uncertain whether the administration will actively pursue this drastic measure.

Compounding the uncertainty is the recent reduction in the FSA’s workforce. According to internal reports, approximately 10% of the agency’s employees accepted buyout offers initiated by Elon Musk. These departures occurred before the Department of Education extended buyout options to all agency staffers, offering $25,000 or less to those willing to resign or retire.

The potential transfer of the FSA aligns with proposals outlined in Project 2025, a conservative policy blueprint that has influenced many of Trump’s actions in office. Project 2025 recommends moving the FSA to the Treasury Department, rather than the SBA.

Financial aid administrators have expressed concern. Karen McCarthy, the vice president of public policy and federal relations at the National Association of Student Financial Aid Administrators, noted the intricate nature of the FSA’s functions and the potential for disruption if its operations are uprooted. She likened the situation to the challenges that would arise if two major banks attempted to merge, emphasizing the complexity and time required for such a transition. "Nobody could really imagine that Chase could fold into Citibank quickly or easily," she explained.

The suggestion of moving the Federal Student Aid office to the Small Business Administration raises several questions. The two agencies have very different missions and expertise. The SBA focuses on supporting small businesses and entrepreneurs, while the FSA is responsible for managing a large portfolio of student loans.

Some worry about the potential for conflicts of interest if the SBA were to oversee the FSA. The SBA provides loans and other assistance to small businesses, and it is possible that some of these businesses could be involved in the student loan industry. This could create a situation where the SBA is both regulating and supporting the student loan industry.

Others worry about the SBA’s lack of experience in managing student loans. The FSA has decades of experience in this area, and it has developed a sophisticated system for managing student loans. The SBA does not have this level of expertise, and it is possible that it could make mistakes that would harm student borrowers.

The proposal to move the FSA to the SBA is a radical one, and it is likely to face significant opposition. It is unclear whether the proposal will ever be implemented, but it is a sign that the future of federal student aid is uncertain. If this does happen, the FSA is bound to face some turmoil with employees and efficiency. This could bring a lot of changes to the loan system.