Since its establishment in 1979, the US Education Department (DOE) has shaped federal student loan policies, which, in turn, affect the increasing cost of an education and loans to pay for it. As President Donald Trump decreases significantly, and eventually shutter, DOE, a specialist says that a completely private loan system will work better than transferring administration to other government agencies.
“The Clinton Administration introduced a direct loan program, so it was a competitor for the semi-public-private-private system, where the government was now going to be the one who issued a loan, and both systems like co-existence for a couple of years, until 2010, by 2010, when we used some paper benefits to switch to all luns to look at Omiker,” Digital in an interview.
He said, “And therefore, since 2010, we have been especially in field-landing,” he said.
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Morning Sun, in front of the construction of education department in Washington on 4 February 2025. (Reuters/Kevin Lamark)
Initially, Trump destroyed the DOE after signing an executive order in March, the administration proposed to transfer $ 1.6 trillion student loan portfolio to the Small Business Administration (SBA). However, recent developments indicate that the Treasury Department may take responsibility for federal student loans.
The Trump administration is also proposing to transfer pel grants and titles to other federal agencies, making the department’s role effectively reduced effectively in overseeing major educational programs.
“If we just transfer the student loan to the Treasury and do not change anything about the system, I don’t think it would have any real effect,” Gilon said. “So, all these debt terms have already been determined by the Congress, and therefore changing the administrative house only that oversees paperwork, it is not going to have any effect.”
The current system encourages “poor investment” by students or education funding, without realistic expectations of repayment, Gilon said. Instead, private lenders, who prefer repayment risk, will probably avoid financing such loans. He suggested that going into a private system would give better incentives for both colleges and students, as universities will have to face pressure to produce students who can repay their debt, and students will be more likely to choose areas that lead to successful career.
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Linda McMahon, Secretary, Education, speaks with the main political anchor Bretr of Fox News after transferring President Donald Trump to end his agency. (Fox News / Special Report)
The government has made it difficult to discharge the student loan through bankruptcy, Gilon said only with a few exceptions, but this rule does not apply to private lenders.
He said, “There are some things that we can do to encourage private lenders so that basically are ready to create those loans. Therefore, one is making it clear how the bankruptcy law works with these income-operated loans,” he said.
Some MPs have made efforts to address the issue. Democratic Reps. Steve Cohen, Danny’s. Davis, and Eric Swallvel re -presented the private student loan bankruptcy fairness Act, which was demanding to discharge private student loans in bankruptcy, similar to other types of consumer loans.
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US Education Secretary Linda McMahon participates in an executive order signature ceremony to reduce the size and scope of the Education Department in the eastern room of the White House in Washington, DC on 20 March 2025. (Chip Somodeville/Getty Images)
Currently, the government can garnish wages without the need to undergo a lawsuit, allowing the process to be more efficient and less expensive, which will also be beneficial for private lenders.
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In the 1990s, the introduction of the income-operated repayment schemes launched in 1994 with the Income-Consmiresy Repayment (ICR) scheme under former President Bill Clinton. These schemes allowed borrowers to repay the loan on their income basis, expand the loan period and increase the total interest paid. While he provided immediate financial relief, he also increased the long -term cost for some borrowers.
By the financial year 2024, DOE organized around $ 1.6 trillion in student loans, released $ 85.7 billion in new loans, allocating $ 45.3 billion for graduation education and $ 40.4 billion for graduation education.
