President Trump Signs Executive Order to Close the Dept of Education – March 20, 2025.
Recently, President Donald Trump initiated drastic reductions in the size and scope of the Department of Education in preparation for an eventual shutdown of that industry. At the Cato Institute, Andrew Gillen discusses the future of America’s student loans, currently administered by the Department of Education. Gillen correctly explains that student loans should be privatized, but will probably be moved. Gillen notes that the most likely destinations for the program are the Small Business Administration or the Treasury Department. Gillen makes the case that Treasury is the better choice, writing:
First, just under 40 percent of students are repaying through an income-driven repayment (IDR) plan, which requires information on income, information that the Treasury already has but SBA does not. Under IDR plans, payments are a set percentage of income (typically 10 percent) each month. With monthly payments varying, the length of the loan varies too, with high earners repaying their loans more quickly. Since the Treasury already collects income information (through the Internal Revenue Service) needed for IDR, it is better positioned to manage IDR plans than the SBA.
Second, the Treasury already has systems set up and running to deal with troublesome loans. For example, the Treasury Offset Program is used to collect unpaid taxes and student loans from borrowers who default by garnishing their tax refunds and other government payments. The SBA would have to set up its own system or outsource the task to Treasury.
Third, SBA’s experience facilitating loans is irrelevant for student loans. One of the main things the SBA does is provide loan guarantees to private lenders, which means it has considerable experience evaluating the quality of loans (often called underwriting). But student loans do not go through underwriting as eligibility and loan terms are all set by Congress, which renders SBA’s greater experience in underwriting irrelevant. Relatedly, SBA’s experience with loan guarantees is likewise irrelevant, because student loans should not have loan guarantees.
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