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Key Points:
- A federal judge stopped President Donald Trump’s plan to move $1.6 trillion in student loans from the U.S. Department of Education to the Small Business Administration (SBA).
- Trump proposed transferring 40 million student loan accounts to the SBA in March 2025.
- The transfer needs Congress to change the Higher Education Act of 1965.
Judge Stops Trump’s Loan Plan
On May 22, 2025, Judge Myong J. Joun in Massachusetts issued a preliminary injunction. It blocks President Trump’s plan to shift $1.6 trillion in federal student loans from the U.S. Department of Education to the Small Business Administration (SBA).
The judge ordered the reinstatement of 1,300 employees from the Education Department. He also halted Trump’s order to move student loan and special education tasks. Currently, 40 million student loan accounts remain with the Federal Student Aid office.
On March 21, 2025, Trump announced the loan transfer plan. “They’re all set for it,” he said of the SBA. “They’re waiting for it.” He claimed it would make the Education Department more efficient. But the SBA planned a 43% staff cut, leaving fewer workers to manage millions of accounts. The Higher Education Act of 1965 states that the Education Department is responsible for handling student loans, so any change requires congressional approval.
Madi Biedermann, a spokesperson for the Education Department, criticized the ruling. “A far-left Judge has overstepped his authority,” she told CNBC. She said the decision, based on biased complaints, blocks legal efforts to improve the department. The Trump administration requested a pause in the order during the appeal. On X, users, such as @EducationNews, supported keeping loans with the Education Department. They praised its experience over the SBA’s.
The ruling helps borrowers, said Sarah Sattelmeyer of New America. “Moving loans would have caused chaos,” she said. “It would weaken programs students need.” Past smaller transfers between loan servicers caused errors and privacy leaks. A massive SBA transfer could be worse. Borrowers fear losing Public Service Loan Forgiveness, a program that cancels debt for public workers. On X, @StudentDebtCrisis called the plan “a disaster waiting to happen.”
The SBA has no experience with student loans, said expert Mark Kantrowitz. “It’s not built for this,” he told CNBC. Moving $1.6 trillion in loans needs Congress to rewrite the law. The Higher Education Act assigns loans to the Department of Education. On X, @HigherEdWatch called Trump’s idea “reckless.” The SBA’s planned staff cuts would make managing 40 million accounts nearly impossible, they said.
The court order delays Trump’s plan, but an appeal could alter the situation. Borrowers face stress as loan collections restarted in May 2025. Defaulted borrowers risk wage garnishment. Advocates want Congress to set clear rules. A New America report stated that the transfer could disrupt payments and harm credit scores. For now, the Education Department keeps control, but the fight isn’t over.