Judge blocks Trump's student loan transfer plan

[UNITED STATES] A federal judge has issued a preliminary injunction that could derail former President Donald Trump’s proposal to move the federal government’s $1.6 trillion student loan portfolio from the U.S. Department of Education to the Small Business Administration.

In a ruling on May 22, U.S. District Judge Myong J. Joun of Massachusetts ordered the reinstatement of more than 1,300 Department of Education employees and barred the administration from proceeding with the transfer of student loan management and special education functions out of the department.

In short, federal student loans will remain under the purview of the Education Department — at least for the time being.

The ruling comes amid heightened debate over federal oversight of student loans. Critics have characterized Trump’s plan as politically driven and lacking a clear justification for placing student loan administration under an agency primarily focused on small business support. The SBA, they argue, lacks the experience and infrastructure to manage a portfolio of such scale and complexity.

Trump announced the proposal on March 21, touting the SBA as ready to assume responsibility for over 40 million loan accounts. “They’re all set for it,” he said at the time. “They’re waiting for it.”

The plan met resistance across party lines. Democrats voiced fears that the move could destabilize borrower protections and vital education programs, while some Republicans questioned the logistics and feasibility of the large-scale transition. The controversy has underscored the challenges and risks involved in overhauling the federal student loan system.

Madi Biedermann, deputy assistant secretary for communications at the Education Department, sharply criticized the ruling.

“Once again, a far-left judge has dramatically overstepped his authority, based on a complaint from biased plaintiffs, and issued an injunction against the obviously lawful efforts to make the Department of Education more efficient and functional for the American people,” Biedermann said in a statement to CNBC.

The Trump administration has requested that the injunction be stayed while it appeals the decision. Legal proceedings are expected to continue in the coming months, with significant consequences for student loan borrowers and broader federal education policy hanging in the balance. The case adds to the ongoing friction between the judiciary and the executive branch over presidential authority and agency oversight.

Critics Warn of Confusion, Risk

Sarah Sattelmeyer, a project director at New America and senior advisor under the Biden administration, welcomed the court’s decision, saying it could spare borrowers from added complications.

“Instead of increasing efficiency, the movement of the Department’s core functions would have increased confusion and decreased the effectiveness of programs that students depend on to access education,” Sattelmeyer said.

Consumer advocates have raised alarms about the possibility of widespread errors or privacy breaches in the event of a mass account transfer between federal agencies—issues that have surfaced even during smaller transitions among loan servicers.

Concerns also center on how such a shift might jeopardize borrower protections and programs like Public Service Loan Forgiveness.

Higher education expert Mark Kantrowitz emphasized that the SBA lacks the relevant experience to take over federal student loans and said the proposed move would ultimately require congressional approval. Under the Higher Education Act of 1965, federal student aid is the explicit responsibility of the Education Department.

The scale of the transition would have demanded extensive coordination across multiple agencies, further increasing the risk of bureaucratic inefficiencies. Dismantling the Education Department’s existing infrastructure for managing student loans, critics say, would have likely disrupted services for borrowers.

Further compounding concerns was a March announcement from the Trump administration that the SBA’s workforce would be reduced by 43%, raising additional doubts about the agency’s ability to absorb and manage such a massive new responsibility.