WASHINGTON–With President Trump’s executive order seeking to shutdown the Department of Education, one key question of interest to credit unions is what will happen to the massive student loan portfolio it manages?

According to Trump, it will be taken over by the Small Business Administration (SBA).

Separately, Trump said the Department of Health and Human Services will take the lead on funding efforts for students with special needs.

The federal student loan portfolio is larger than all but three U.S. banks.

The transfer of the portfolio, which at $1.8-trillion is larger than all but three U.S. banks, comes at the same time the SBA has been ordered to reduce its workforce, and its director, Kelly Loeffler, said it will reduce headcount by 43%, or about 2,700 jobs. 

Plan Doesn’t Materialize

Prior to the announcement the portfolio would move to the SBA, the Office of Federal Student Aid had for several weeks had been working on a plan to transfer a portion of the portfolio to Treasury, which did not materialize, according to several media reports. 

The SBA will be taking over a portfolio that would be red-flagged during any credit union exam, as approximately 40% of its loans are in some form of delinquency, sources told the New Yori Times. 

The SBA “is prepared to work with Congress and the Administration to bring accountability back to America’s student loan program,” SBA Director Kelly Loeffler said in a post on X in which she cited the  agency’s experience as “the government’s largest guarantor of business loans.”

Potential ‘Avalanche’

“Experts warn that an avalanche of new defaults could be approaching as borrowers come to terms with the end of a multi-year pause on loan payments and changes to more affordable payment programs,” the Times report added.