On March 20, 2025, President Trump signed an executive order to begin shutting down several functions within the Education Department. He also ordered Education Secretary Linda McMahon to facilitate her department’s closure within the confines of the law.
A day later, Trump announced that the Small Business Administration (SBA) would take over the Education Department’s $1.7 trillion federal student loan portfolio. In May 2025, however, a federal judge blocked the transfer, and it is now on hold. But the situation remains uncertain and in flux, creating confusion for student loan borrowers.
If the order blocking the transfer is reversed, and the SBA does take over the federal student loan program, what would that mean for borrowers? And what changes might take place for student loans, the SBA, and the Education Department? Read on to learn about the possible ramifications and what borrowers can do.
Key Points
• The proposal to transfer student loans to the SBA involves moving the Office of Federal Student Aid functions, including FAFSA® (Free Application for Federal Student Aid) applications, loan disbursements, and default management.
• The shift could affect borrowers through changes to current loan programs and concerns about data handling and safety.
• The SBA may struggle to manage millions of small federal student loans, increasing the risk of servicing errors due to limited resources and staffing.
• To prepare for these potential changes, borrowers should download and save all loan records and monitor servicer communications closely.
• Borrowers concerned about the transition could refinance with a private lender for stability, but doing so forfeits federal loan benefits like forgiveness, income-driven repayment, and deferment.
What’s Being Proposed: Transferring Student Loans to the SBA
The SBA is an independent federal agency dedicated to helping small business owners by providing counseling, capital, and contract expertise. It was created in 1953 under the Small Business Act to develop small businesses after the Great Depression, World War II, and the Korean War.
President Trump has said that moving student loans to the SBA would result in more effective loan management. The SBA does have some experience handling loans: In fiscal year 2024, the SBA supported financing for 103,000 small businesses, the highest level since 2008. The agency increased its annual capital impact to $56 billion, a 7% increase over fiscal year 2023.
However, the SBA does not directly provide loans. Instead, it acts as a guarantor for loans to make it easier for small businesses to secure financing. By comparison, the Education Department offers federal student loans directly to students and their parents through the Federal Direct Loan program. In fiscal year 2024, the ED gave out $85.8 billion in loans to more than 6.7 million borrowers. By taking over the duties of ED, the SBA would likely need to provide billions of dollars in loans directly to millions of individuals each year, something the agency has never done.
The SBA would also need to take on other responsibilities. In addition to loan portfolio management, the agency would assume functions of the Office of Federal Student Aid (FSA), such as managing and administering the FAFSA; loan disbursements; oversight and compliance of borrowers, schools, and financial entities; program reviews, loan cancellation programs, loan default management, and collections of federal student loans.
Despite Trump’s executive order, it’s possible the Executive Branch does not have the statutory authority to move the federal student loan program from the Education Department to the SBA. According to the Higher Education Act of 1965, the Education Department is solely responsible for the administration of student loans. Transferring this program to the SBA might very well require an act of Congress.
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Challenges of Moving Student Loans to the SBA
The biggest challenge of moving student loans to the SBA is whether the agency could handle such a major undertaking. On March 21, 2025, the same day President Trump said that the student loan portfolio would be transferred to the SBA, the SBA announced that it would cut 43% of its staff. With significantly fewer employees, the agency would likely have a difficult time managing the extensive and complex student loan program.
The Education Department currently oversees and contracts with five different loan servicers that handle the billing, payments, and management of student loan accounts. Loan servicers also provide customer service, like assisting borrowers with repayment plans, providing information and assistance regarding student loan forgiveness programs, and answering questions. Under the transfer, the SBA would be in charge of overseeing all of this, which could prove to be an immense operational challenge.
Additionally, the SBA’s work with business loans is very different from what the agency would need to do to service student loans. Pivoting from aiding about 100,000 small businesses to managing complex consumer student loan debt for tens of millions of borrowers — and having to balance both tasks at the same time — could indeed prove demanding. Some experts have questioned the SBA’s capacity to take on student loans, particularly due to the layoffs within the agency. The SBA would need to come up with an effective strategy, put the right staffing in place, and build the correct infrastructure, all of which could be difficult, time-consuming, and disruptive to the federal student loan system.
Potential Risks to the Borrower of Moving Student Loans to the SBA
For student loan borrowers, the transfer of student loans to the SBA could be rocky. While it’s too early to say exactly what the risks might be, several potential problems could arise. (It’s important to note that these risks wouldn’t apply to borrowers with private student loans — only to federal student loan borrowers.)
Servicing Errors
The SBA may find it challenging to handle such a large number of loans and payments. As noted, the agency made just over 100,000 loans last year, while the FSA made 12.6 million loans in 2023 for an average of $7,000 per loan. Transferring such a large number of loans might lead to servicing errors — and possibly missed payments — for borrowers.
Previously, the SBA has had management issues when it had to deal with a large volume of loans. During the Covid-19 pandemic, for example, the agency distributed loans and grants worth more than $1 trillion, but it did not implement a process for managing risks of fraud until more than half of the funding was already approved, according to the Government Accountability Office (GAO). As a result, some funding went to those who sought to defraud the government, the GAO said.
The agency also suffered system outages during that time. For example, after an aid program for small businesses launched, it crashed and then kept crashing as businesses tried to apply.
It’s possible that transferring student loans to the SBA could also create systemic disruptions. That, in turn, could increase the risk that borrowers might not receive timely information about their payment due dates. As a result, they could be hit with fees and accrued interest — and possibly negative impacts to their credit — through no fault of their own.
Longer Call Waits and Processing Times
While it’s impossible to predict what might actually occur, borrowers may face longer waits and processing times. Many borrowers currently struggle with wait times to contact their loan servicers as it is; an inability to process requested changes to repayment plans, resolve errors, and communicate any changes or updates regarding their loans could potentially lead to frustration, delinquencies, and student loan defaults.
Delays in Forgiveness
Forgiveness programs such as the Public Service Loan Forgiveness (PSLF) program currently rely on the Education Department to process applications. Transferring these programs to the SBA could result in confusion and delays, pushing back or complicating the student loan forgiveness process and timelines for borrowers.
Privacy Concerns
Transferring such a massive amount of personal and financial information could result in data breaches or loss of information, some experts warn, noting that similar problems have happened during smaller transfers between loan servicers.
What Borrowers Should Do to Prepare
There are several steps federal student loan borrowers can take now, in case student loans are moved from the Education Department to the SBA. Here’s what to do to help protect yourself.
Download and Save All Loan Records
Make copies of your student loan information. This includes:
• Loan balances and payment history
• Loan servicer contact information
• Repayment plan and terms
• Qualifying payments on any forgiveness program
You can download your federal loan information through your loan servicer or at StudentAid.gov by logging in with your FSA ID. Click on “My Aid” to view your loan summary and download a full copy. You can also take screenshots of your main dashboard, which will show your loan balances, payment progress, and other details, including payment information and approval letters if you are working toward PSLF.
Monitor Servicer Communications Closely
Your loan servicer is your main point of communication. They provide information about billing, student loan repayment, and the possible loan transfer process, typically by mail and email. Keep an eye out for updates, and respond to any requests for information as soon as possible.
Not sure who your federal student loan servicer is? You can visit your FSA account dashboard to find out. Click on the “My Loan Servicers” section or call the Federal Student Aid Information Center (FSAIC) at 800-433-3243.
Consider Private Refinancing for Stability
If you’re worried about what might happen with federal student loans, you could consider student loan refinancing. When you refinance student loans, you exchange your old loans for a new private loan. You might also be able to qualify for a lower interest rate, which could lower your monthly payments. Instead of the ED or SBA, you’ll be dealing with a private lender.
It’s important to be aware, however, that refinancing federal student loans means you’ll forfeit federal benefits, including income-driven repayment, forgiveness, and student loan deferment. If you think you may need these protections at some point, refinancing may not be right for you.
The Takeaway
The Education Department continues to manage student loans for now. However, the SBA is said to be working with the White House, the ED, and Congress to finalize plans to transfer the student loan program to the SBA if the legal hold is lifted. In the meantime, borrowers should continue making payments to their current loan servicers and watch closely for any updates regarding student loans moving to the SBA.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
What would it mean if student loans are moved to the SBA?
As of November 2025, federal loans still fall under the jurisdiction of the Education Department. If student loans do move to the SBA at some point, it would be a massive undertaking and mean a shift in loan management. Such a transfer could potentially affect loan applications, data handling, and customer service, among other things.
How could transferring student loans to the SBA affect borrowers?
There is no way to predict exactly how transferring student loans to the SBA will affect borrowers. However, given recent deep cuts to the SBA workforce under President Trump, there is concern that the organization will be ill-prepared to manage such a vast expansion of their responsibilities if they take on the student loan portfolio. Borrowers should closely monitor all communications with their loan servicers and keep records of their payments and other loan details in case of errors during the transition.
Could federal student loan protections be lost if loans move to the SBA?
It’s unclear how or if the SBA would change federal student loan protections. Borrowers should keep up with student loan news and stay in touch with their loan servicers. Some borrowers might also want to consider a switch to private student loans through refinancing if they’re worried about potential changes. But keep in mind that you’ll lose federal benefits, such as forgiveness benefits and deferment options, if you decide to refinance.
What should borrowers do to prepare for changes in loan servicing?
Borrowers should document their loan accounts. This means making copies of their student loan information, downloading their federal loan information through StudentAid.gov and/or their loan servicer, and taking screenshots of their main FSA dashboard, which includes loan balances, payment progress, and other details. In addition, they should closely monitor all communication with their loan servicers.
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