Another Federal Agency Wants In On Student Loans

The Trump administration is exploring how to launch a new student loan program — without the Education Department, an agency the president has promised to dismantle.

Administration officials, who have been discussing the idea in small industry groups, are trying to attract the private sector, according to two people who participated in one of the meetings. The plan, they said, involves having the Small Business Administration spearhead the program, even though the agency was passed over as the new home of the nation’s student loan portfolio.

Experts and former agency officials see two compounding problems: A similar program failed spectacularly not that long ago, and SBA, a small agency that typically works with businesses rather than individuals, has a history of failing to combat fraud and conduct oversight.

Many of the details remain unsettled, but the debate underscores how President Donald Trump’s effort to shut down the Education Department is pushing issues it traditionally handles to other agencies. It also suggests that the administration sees a need to create new ways for people to borrow for their education after last year’s Republican domestic policy law set new limits on how much the federal government can loan, a move that may price out low-income students.

“Some of the changes in [the GOP law] creates an opportunity,” said Ray Jones, chief product officer at South Carolina Student Loan, a private nonprofit lender, who was at a conference where an SBA official floated the plan. “You have gaps that students are going to see due to some of those changes, and I think this type of product can help fill those gaps in a responsible way.”

Many school leaders believe the new borrowing caps that went into effect July 1 will push more students to borrow from banks to cover their costs, but those with riskier finances might not get approved for loans. The plan, which Josh Carter, associate administrator at the Small Business Administration, discussed at a conference of the National Council of Higher Education Resources last month, aims to give students a new option somewhere between a fully private loan and the low-interest lending Republicans have now capped.

This program wouldn't replace any existing federal student loan programs. It would be completely new. But consumer advocates worry this idea sounds similar to an Education Department program through which the government partnered with banks and commercial lenders that issued the loans that the agency ultimately insured against default.

The program, known as the Federal Family Education Loan, was criticized by federal government watchdogs, Democratic lawmakers and consumer advocates for its lender practices. Congress eliminated it in 2010 largely due to high costs.

Mike Pierce, who worked at the Consumer Financial Protection Bureau from 2011 to 2018, said a major pitfall of a program like the one SBA is hashing out is that it might not include the protections promised to borrowers under the Higher Education Act, the law that governs how the Education Department handles financial aid.

“It’s measurably worse than access to a traditional federal student loan that has income-driven repayment, public service loan forgiveness, the ability to get your debt canceled if you become disabled or defrauded by a school,” said Pierce, who is now the executive director of Protect Borrowers, a Washington-based nonprofit that advocates for debt relief. “That set of protections exists for federal student loans and for federal student loans only.”

Pierce sees the new concept as “damage control” after Republicans set caps on student borrowing to offset other parts of the GOP law.

SBA did not answer questions about Carter’s remarks or whether it was considering creating a student loan program. SBA spokesperson Caitlin O’Dea said in a statement that the agency continues “to support the U.S. Department of Education and promote key priorities on Main Street, including Trump Accounts and the Workforce Pell Program,” referencing the administration’s savings accounts for children and the grants for short-term education programs for low-income students.

Carter said during the conference that SBA’s proposal would not be a reboot of the failed FFEL program. One key difference is it would not have a 97 percent guarantee, according to one conference attendee, opting instead for something lower that would limit how much of the loan the federal government would insure. Carter said there would be some risk for private lenders but did not provide specifics about what the guarantee would be, said the attendee, who was granted anonymity to speak candidly.

The program may also be more narrowly focused. Carter mentioned it could target students pursuing fields where there is high demand for workers, according to Jones and the attendee.

Some former SBA officials are also worried about what staffing looks like the agency, which has seen major workforce cuts over the past year.

“Not all lending is created equally,” said James Ballentine, a former agency official who has since spent years lobbying on behalf of the American Bankers Association. “This would certainly be a different type of lending, a different type of constituency that they would be reaching out to. I’m really concerned on the personnel side whether they have the personnel to do this.”

SBA officials privately met several months ago with a higher education finance expert for an exploratory conversation about how student lending works. And a policy analyst familiar with the conversations also confirmed the agency was considering starting its own loan program. These people were granted anonymity to speak candidly about private conversations.

The only person that seems to have spoken publicly about the possibility of SBA taking on student loans is the president, who announced in March 2025 that the agency would be taking over the Education Department’s $1.7 trillion student loan portfolio. Trump’s comments broke with the conversation happening among staff within his own administration and people working with them to move the portfolio to the Treasury Department.

Some conservatives voiced skepticism about potentially moving the portfolio to SBA, which has not handled a program of that size and has been operating with a smaller staff after the Trump administration’s government-wide federal employee purge.

Despite Trump’s comments, Education Secretary Linda McMahon ultimately chose Treasury to handle such a complex program.

But even if SBA is only responsible for a new, smaller program, there is still uncertainty about whether the agency has the resources to make it a reality.

Michael Negron, who worked on small business and student loans for the National Economic Council and as an adviser to SBA during the Biden administration, also fears that student loans are outside of the SBA’s expertise.

“SBA has a longstanding experience and relationship lending to small businesses,” said Negron, who is now a senior fellow for economic opportunity at the Center for American Progress. “Anything where you venture outside of that, there are just more risks, not only to the federal government, but also to the borrower.”

Ballentine, who now runs his own lobby shop, said it seemed like a similar thought process when Congress gave SBA the Paycheck Protection Program, a Covid-era relief program that was beset with fraud, during the first Trump administration.

Still, he noted that PPP was an emergency program that had to be rolled out quickly, a major stumbling block for any agency.

“Nothing is impossible, but recent history indicates it would be a really tough challenge,” he said.