Education Department Confirms Ongoing Talks to Privatize Over $1 Trillion in Student Loans

KEY TAKEAWAYS

• The Department of Education is still considering privatizing its almost $1.7 trillion student loan portfolio.
• Since the start of President Donald Trump’s second term, his administration has sought to sell borrowers’ federal student loan debt to a private lender and to close the Department of Education to help lower federal spending.

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The possibility of privatizing more than a trillion dollars’ worth of federal student loans is still on the table.

In a letter to Sen. Elizabeth Warren (D-Mass.) in early February, the Department of Education confirmed it is still exploring the possibility of selling the federal student loans to a private lender.

“We have met with a variety of stakeholders to discuss ideas to reform the student loan portfolio since President Trump took office on January 20, 2025,” wrote Nicholas Kent, undersecretary for the Department of Education. “The Department has not taken any final actions or made final decisions regarding selling all or part of the student loan portfolio.”

Why This Matters

Privatizing student loans could increase competition between lenders, incentivizing them to offer better terms for more borrowers. At the same time, this move could block some borrowers from receiving student loans, especially those with lower credit scores or those pursuing lower-paying degrees.

In March 2025, when President Donald Trump began the process of closing the Department of Education, he hinted at transitioning the handling of federal student loans from the government to a private bank or financial institution.

The Trump administration has criticized current student loan policies, especially those created under the Biden administration, for using too much tax money to subsidize federal student loan programs. Moving federal student loans to a private lender would remove the funding and responsibilities from the government’s hands.

Using a private lender to provide federal student loans wouldn’t be anything new. At the inception of federal student loans, the Department of Education used private lenders to facilitate federal student loans under an effort called the Federal Family Education Loan Program. The FFEL program ended July 1, 2010, after which the Department of Education began directly distributing federal student loans.

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Although the Department of Education has experience working with private lenders, it would be a different story to transfer the nearly $1.7 trillion in federal student debt from the government to a private lender. Firstly, the Trump administration would need Congressional approval to privatize the student loan portfolio.

The process would also likely require the federal government to sell the student loan portfolio to a private lender, which is unlikely, student loan expert Mark Kantrowitz told Investopedia last year, when Trump first discussed privatizing federal student loans.

Most private lenders do not have the capital to purchase the entire student loan portfolio from the government, and the portfolio may have to be discounted to spur a sale.

Advocates Are Concerned About This Change

Student loan borrower advocates and lawmakers are concerned that the privatization of federal student loans would strip borrower access to income-driven repayment plans and forgiveness programs that reduce their burden.

Currently, borrowers with a FFEL loan, the previously private student loans that the Department of Education now controls, are ineligible for most forgiveness programs and income-driven repayment plans.

In November, several members of Congress signed a letter expressing their concerns about the privatization of student loans. Mainly, Congress members were worried that private lenders would not support borrowers as the federal government could. Generally, existing private student loan lenders have more borrower complaints and typically charge higher interest rates than federal loans.

The Department of Education did not address these specific concerns in its letter to Sen. Warren, but said it “adheres to ethics protocols and takes steps to eliminate conflicts of interest when meeting with any stakeholders.”

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