Trump Administration Considers Selling Off Student Loans To Private Investors
As the price of a university education swells and the federal student loan program approaches $1.5 trillion, the government is seeking ways to dump potential losses by selling off some of the debt to private investors, The Wall Street Journal reported.
Outstanding student loans exceed credit card and mortgage debt, raising questions about whether the Department of Education can handle such a large loan portfolio, according to CNN.
Women bear the brunt of student loan debt and Black women are hit hardest.
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More than 10 percent of borrowers who started paying back student loans in 2015 defaulted within three years, according to government data. The government lends money to students regardless of their potential income as long as they’re enrolled in an accredited university.
Consulting firm McKinsey was hired on an “urgent” basis, department officials wrote. The firm will analyze the student loan portfolio and make recommendations on how to manage it, officials said. The White House is also considering a potential sale of federal student loans, WSJ reported.
The McKinsey study is “about getting a clear understanding of the state of the portfolio,” Education Department spokeswoman Liz Hill told WSJ.
Selling off parts of the federal student loan portfolio would be unusual, if not unprecedented, Politico reported. The move would have face legal and political complications.
“Most federal student loan programs operate at a profit to the government, so their sale would likely be booked as a cost to taxpayers, at least under the current accounting rules,” Michael Stratford reported for Politico.
Democratic presidential candidate Sen. Elizabeth Warren said she wants to forgive $50,000 in student loans for Americans in households earning less than $100,000 a year, and make public colleges tuition-free.
Education Secretary Betsy DeVos has described the amount of outstanding federal student loan debt as a crisis in higher education.
“In the commercial world, no bank regulator would allow this portfolio to be valued at full, face value,” DeVos said in a speech at an annual student financial aid conference.