A major restructuring at the U.S. Department of Education, which will transfer numerous programs to other federal agencies, is raising concerns among financial aid experts and consumer advocates about the future stability of the federal student loan system.
Although the department’s initial announcement did not indicate that the federal student loan portfolio would be affected, the overhaul comes at a particularly challenging time. More than 40 million Americans hold over $1.6 trillion in student debt, with more than 5 million borrowers currently in default.
“What is concerning is the destabilization of the Department of Education and Federal Student Aid at the very moment when consistent, technically skilled oversight is most needed,” said Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York.
The restructuring coincides with President Donald Trump’s One Big Beautiful Bill Act, which eliminates several long-standing affordable repayment plans and relief options. “Student loan eligibility and repayment involve multiple systems working together, and institutions need that process to be seamless, current and accurate,” said Melanie Storey, president and CEO of the National Association of Student Financial Aid Administrators. “As the delivery of other programs moves to other agencies, these dependencies must be carefully considered.”
On Tuesday, administration officials confirmed they have signed agreements with four agencies, including the Departments of Labor and Health and Human Services, to begin managing programs currently under the Education Department. Experts view the move as part of the Trump administration’s directive to dismantle the agency. Education Secretary Linda McMahon has previously argued that a recent government shutdown proved the department was not essential, and the administration laid off nearly half of its staff earlier this year.
“They are attempting to hollow out the U.S. Department of Education, leaving behind a shell of the original organization,” said higher education expert Mark Kantrowitz.
### Privatization Concerns
While the current restructuring plan does not include the massive federal student loan portfolio, experts believe the administration may be trying to offload the debt to facilitate the agency’s downsizing. A recent Politico report revealed that Trump officials are exploring options to sell a portion of the student loan portfolio to the private market.
Consumer advocates warn that such a move could be detrimental to borrowers, who have historically faced more difficulties with private lenders. Rodriguez noted that under the previous Federal Family Education Loan (FFEL) program, which involved private companies, “borrowers saw their debt balloon with no end in sight due to loan mismanagement.”
“Any major loan transfer will also result in errors that could harm borrowers and push relief further out of reach,” added Aissa Canchola Banez, policy director at Protect Borrowers.
Highlighting these risks, lawmakers recently noted in a letter to administration officials that while private lenders hold just 8% of all student loans, they account for over 40% of student debt complaints filed with the Consumer Financial Protection Bureau.
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