There’s a number floating around Washington that should concern anyone with a financial stake in the American system: $1.6 trillion. That’s the face value of the federal student loan portfolio, an asset book larger than the GDP of Spain. And according to recent reports, the Trump administration is exploring the possibility of selling a portion of it off to private investors, raising the question for many: Trump wants to sell some student loans. What if yours is one of them?
On the surface, this sounds like a dry, administrative maneuver. Lenders sell loan portfolios all the time. But this isn't a bundle of mortgages or car loans. This is a portfolio uniquely intertwined with public policy, social mobility, and a web of borrower protections built up over decades. The quiet consideration of this sale represents a potential tectonic shift in how America views educational debt—not as a social contract, but as just another asset class to be securitized and traded.
The proposal itself is a masterclass in contradiction. The law stipulates that any sale of the federal student loan portfolio cannot come at a cost to the taxpayer. This is where the plan immediately runs into the inconvenient wall of reality. I've looked at hundreds of these filings, and this particular footnote about the portfolio's health is unusual for its starkness. A 2019 McKinsey analysis, commissioned by the government itself, estimated that 45 percent of the loans in the portfolio were not expected to ever be repaid.
Let that sink in. Nearly half the book value is functionally impaired. What private entity would pay par for an asset with a 45% default projection? The answer is none. They would demand a steep discount, which means the government—and by extension, the taxpayer—would absorb a colossal loss on the sale. The idea that this could be a "cost-free" transaction is, to be blunt, a mathematical fantasy.
A System at War With Itself
The absurdity of the situation is compounded by the fact that while one part of the government is contemplating this fire sale, another is actively forgiving debt. Just this past week, the Department of Education resumed processing loan forgiveness for borrowers on Income-Based Repayment (IBR) plans, a development confirming that Student-loan forgiveness is back on for 2 million borrowers. Emails are going out to the first wave of recipients, informing them that after 20 or 25 years of payments, their remaining balances are being discharged. As of the second quarter of 2025, about two million borrowers were enrolled in IBR plans.
This creates a bizarre split-screen reality. On one channel, the government is fulfilling a long-standing promise of relief. On the other, it’s drafting a plan that would strip future borrowers of the very protections that make such relief possible. Because once a federal loan is sold to a private bank, it loses its federal character. The new owner would have no obligation to offer income-based repayment, forbearance during a crisis, or, crucially, forgiveness. Selling off these loans would, as one analyst put it, "reduce the ability for future administrations to try to create loan pauses." That isn't a side effect; it's likely the primary objective.
This ideological conflict is stated outright. James Bergeron, the acting head of Federal Student Aid, drew a clear line in a recent statement: "Unlike the previous Administration's focus on loan forgiveness, the Trump Administration is taking action to implement meaningful and necessary enhancements to the way student loans are serviced." The language is telling. The focus is shifting from the borrower's outcome ("forgiveness") to the system's efficiency ("servicing").
And there’s a ticking clock. A provision in the American Rescue Plan that makes federal student loan forgiveness tax-free is set to expire after January 1, 2026. So even for the lucky few whose IBR forgiveness is being processed now, there’s a race to get it done before they’re hit with a potentially massive tax bill on the discharged amount. It’s a perfect microcosm of the current chaos: a relief program operating under the shadow of both a looming tax penalty and a proposal to dismantle the system entirely.
The State-Level Lifeboats
When the federal apparatus becomes this incoherent, states are forced to build their own lifeboats. Look at North Dakota, where the recent government shutdown has left an estimated 9,200 federal employees without pay. The state’s response wasn't to wait for Washington to resolve its impasse. Instead, the North Dakota Industrial Commission, chaired by Republican Governor Kelly Armstrong, approved the Furloughed Federal Employee Relief Program.
Leveraging the state-owned Bank of North Dakota (a unique institution in itself), the state is offering 2% interest loans to cover up to three months of take-home pay for affected workers. The loans are effectively guaranteed by the back pay the employees are legally owed once the shutdown ends. This is a remarkably pragmatic, almost elegant solution. And this is the part of the recent data flow that I find genuinely puzzling. Here we have a Republican governor in a deeply conservative state deploying a state-owned bank to provide low-interest social insurance—a policy that, in another context, might be labeled socialist.
It’s a stark contrast to the federal strategy. While the White House contemplates financializing student debt and offloading risk to the private market, North Dakota is internalizing risk to protect its citizens from the fallout of federal dysfunction. It’s a patchwork solution, a localized fix for a national problem. But it highlights the core tension: is debt a problem to be managed with public tools for the public good, or is it an asset to be sold for maximum financial extraction?
The entire premise of selling the student loan portfolio hinges on that "cost-free" clause. The portfolio is worth $1.6 trillion—or more precisely, that's its face value on the government's books. Its actual market value, considering private buyers would have fewer collection powers (they can't garnish wages without a court order, for example), is a far lower, and more troubling, number. Arguing that you can sell these impaired assets at no loss isn't just optimistic; it defies the basic laws of finance.
An Asset Stripped of Its Purpose
Ultimately, the proposal to sell federal student loans isn't a financial strategy; it's an ideological one. It seeks to reclassify education financing from a public good, with embedded social protections, into a simple private debt obligation, indistinguishable from a credit card balance. The goal isn't to save taxpayers money—the numbers make that claim highly suspect. The goal is to permanently remove the government's ability to use the student loan system as a tool of public policy, whether through payment pauses, targeted forgiveness, or income-based repayment plans. It's an attempt to take policy options off the table for good by selling the very assets the policies depend on. The chaos we're seeing now—the simultaneous forgiveness and privatization talks, the state-level workarounds—is merely a symptom of this fundamental, unresolved conflict over what, exactly, this $1.6 trillion portfolio is for.