What Happens to Borrowers if the Government Sells Student Loan Debt?

What Happens to Borrowers If the Government Sells Student Loan Debt?

The potential sale of federally-held student loan debt is causing stirrings of concern among borrowers. If the government goes ahead with selling part of its $1.6 trillion portfolio to private lenders, many worry about how collections and repayments might shift. The Trump administration is reportedly considering a move to transfer some student loan management responsibilities from the Education Department to the U.S. Treasury.

Impact on Collections and Repayments

This sale could mean that private lenders might be less forgiving than the federal government. While private companies often lack the powerful debt-collection capabilities of the federal government, such as garnishing tax returns or Social Security benefits, borrowers might find themselves facing stricter terms and less flexibility.

Valuation of Student Debt

Valuing the debt has also been a topic of conversation. Discussions suggest that consulting firms might evaluate how the private market values these loans before any sale occurs. Federal law permits the Education Department to sell the debt if it does not impose costs on taxpayers.

Current Status of Student Loan Debt

There are approximately 42.3 million borrowers with a total of $1.67 trillion in student loans. As of June 2023, around 5.3 million borrowers were in default. New data from TransUnion reveals troubling trends, as many borrowers struggle and are falling behind on payments.

Next Steps in the Process

The Treasury Department is conducting a “Restructuring Review” of the federal student loan system slated for completion by the end of 2025. If the review recommends a sale or transfer plan, Congress will need to approve the next steps to proceed.