By: Isha Jadhav

More than 40 million people currently hold federal student loans in the collective amount of $1.6 trillion.[1]  For the first time in history, Americans who graduate college with student loans have negative net wealth, leaving this demographic of individuals highly vulnerable to other predatory lending practices.[2]  In the wake of the 2008 financial crisis, the failures of consumer protection and an increase in predatory lending practices led to the creation of the Consumer Financial Protection Bureau (“CFPB”).[3]  The entity has oversight authority to ensure that financial markets, such as the student loan lending market, are not taking advantage of their consumers.[4]

Considering its purpose and function, it came as a shock to many when, on February 10, 2025, Russell Vought, the acting director of the CFPB, ordered all employees to cease operations and addressed intentions to shut down the agency as per executive order.[5]  Subsequently, on March 20, 2025, another executive order was signed to dismantle the U.S. Department of Education.[6]  President Trump announced his intentions to move the federal student loans portfolio, which had been handled by the Department of Education, to the Small Business Association (“SBA”).[7]

Shifting the burden of student loans to the SBA could lead to unprecedented uncertainty for borrowers.  In the past, when borrowers had their accounts transitioned from one servicing company to another, they had experienced loss of sensitive information and records.[8]   With a transfer of this size, there is no telling how much information could be compromised.[9]  Moreover, with the SBA’s lack of knowledge in handling student loans and with about 43% of the workforce expected to be removed, the opportunity for mishandling student loans is heightened.[10]  Amid concerns surrounding the student loan index transfer, on March 28, 2025, the United States District Court for the District of Columbia issued a preliminary injunction on the elimination of the CFPB based on the experiences of individual plaintiffs and because the injunction would be in the interest of the public.[11]

The D.C. District Court considered the repercussions of the elimination of the CFPB through one of many individual consumers affected in a Memorandum Opinion for National Treasury Employees Union v. Vought.[12]  Individual Plaintiff Revered Eva Steege was receiving services from the CFPB when the agency was ordered to stop functions.[13]  Steege, an 83-year-old pastor, had incurred significant student loan debt while pursuing higher education.[14]  Steege was in hospice care and hoped to resolve the debt and save her family the burden of repaying it after she died.[15]  Steege was told that she qualified for a loan forgiveness plan and significant refunds.[16]  Unfortunately, the CFPB cancelled her follow-up meeting upon notice of termination of the agency.[17]  She died on March 15, 2025, unable to fulfill her dying wish and leaving her husband to pursue the claim on her behalf.[18]  The Court held that Pastor Steege had experienced irreparable harm in her dying months due to the CFPB’s abrupt termination and was owed preliminary relief.[19]  They also recognized that the CFPB played a significant role in assisting consumers with applying to student loan forgiveness plans.[20]

In examining the necessity of consumer protection against student loan lenders, the harm of the president’s student loan transfer efforts to the SBA becomes more apparent.[21]  The SBA is an independent federal agency that provides loans and counseling to small businesses.[22]  Kelly Loeffler, administrator of the SBA, has expressed on social media that her agency is ready to take the lead and “restore accountability and integrity to America’s student loan portfolio.”[23]  Although how the agency plans to handle these loans remains uncertain, her statements hint that the SBA may be more aggressive in debt collection efforts.[24]  Additionally, while the transfer should not affect existing student loan forgiveness programs, it is possible that loan forgiveness will run into obstacles in the coming months, especially since the Department of Education had traditionally overseen the processing and approval of loan forgiveness applications.[25]

With a student loan portfolio transfer on the horizon, the CFPB is needed more than ever to protect borrowers’ interests.[26]  The D.C. Circuit Panel’s reinstatement of the CFPB is temporary; the future of the agency is still in limbo until the D.C. Circuit Court of Appeals addresses the bureau’s appeal.[27]  However, it is clear, through the D.C. District Court’s opinion, that the CFPB’s services are indispensable.[28]

 

[1] See Annie Nova, Trump Wants Small Business Administration to Handle Student Loans. Here’s What Borrowers Need to Know, CNBC (Mar. 26, 2025, 10:48 AM), https://www.cnbc.com/2025/03/26/student-loans-could-be-managed-by-the-small-business-administration-.html.

[2] See Abbey Meller, Young People Are Payday Lenders’ Newest Prey, Ctr. for Am. Progress (Dec. 23, 2019), https://www.americanprogress.org/article/young-people-payday-lenders-newest-prey/.

[3] See Building the CFPB, Consumer Fin. Prot. Bureau (July 18, 2011), https://www.consumerfinance.gov/data-research/research-reports/building-the-cfpb/.

[4] See id.

[5] See Memorandum Opinion at 2, Nat’l Treasury Emp. Union v. Vought, No. 25-0381 (ABJ), 2025 BL 106250 (D.D.C. Mar. 28, 2025) [hereinafter Memorandum].

[6] See Collin Binkley & Chris Megerian, Trump Orders a Plan to Dismantle the Education Department While Keeping Some Core Functions, AP News, https://apnews.com/article/trump-education-department-shutdown-b1d25a2e1bdcd24cfde8ad8b655b9843 (last updated Mar. 20, 2025, 8:16 PM).

[7] See Alison Durkee, Trump’s Presidency and Student Loans: What Move to Small Business Administration Means for Borrowers, Forbes (Mar. 23, 2025, 4:06 PM), https://www.forbes.com/sites/alisondurkee/2025/03/23/trumps-presidency-and-student-loans-what-move-to-small-business-administration-means-for-borrowers/.

[8] See id.

[9] See id. (posing concerns about how much borrower data Elon Musk and DOGE have access to despite a federal judge temporarily blocking DOGE’s access to some Education Department data and addressing that mishandling data could affect loan forgiveness with no recourse).

[10] See id.

[11] See Memorandum, supra note 5 at 112.

[12] See id. at 2.

[13] See id. at 56.

[14] Id.

[15] Id.

[16] Id.

[17] See Memorandum, supra note 5 at 57.

[18] Id.

[19] Id. at 105.

[20] See id. at 57 n. 17 (addressing that while defendants in the case argued that the loan forgiveness plan programs were administered by the Department of Education, the court recognized that the CFPB worked alongside the Department to assist consumers in applying for student loan forgiveness and that many of the borrowers were put in these positions because of the practices of private student loan lenders).

[21] See Durkee, supra note 7 (reporting that the CFPB has obtained more than $5 billion in relief for Americans with student debt and have taken steps that led to the cancelation of $188.8 billion in student debt for borrowers).

[22] See Matthew Arrojas, Borrower FAQ: Trump Moves Student Loans to Small Business Administration, Best Colls. (Mar. 26, 2025), https://www.bestcolleges.com/news/how-moving-student-loan-portfolio-sba-impacts-borrowers/.

[23] See Katherine Knott, Trump’s Plan to Move Student Loans to SBA Raises Concerns, Inside Higher Ed (Mar. 21, 2025), https://www.insidehighered.com/news/government/student-aid-policy/2025/03/21/small-business-administration-take-over-student-loans#.

[24] See id.

[25] See Arrojas, supra note 22 (noting that the recent downsizing and a new department overseeing the Public Service Loan Forgiveness poses a possibility that bureaucrats will take longer to process applications).

[26] See id.

[27] See Stefanie Jackman et al., Court Orders CFPB to Reinstate Employees and Resume Operations; CFPB Promptly Files Appeal, Consumer Fin. Servs. Law Monitor (Mar. 31, 2015), https://www.consumerfinancialserviceslawmonitor.com/2025/03/court-orders-cfpb-to-reinstate-employees-and-resume-operations-cfpb-promptly-files-appeal/; see also Notice of Appeal, Nat’l Treasury Emps. Union v. Vought, No. 25-5091, 2025 BL 114761 (D.C. Cir. Apr. 3, 2025).

[28] See Memorandum, supra note 5 at 5 (“The CFPB is not ‘the only federal agency authorized to supervise the nation’s largest banks for their compliance with consumer financial market segments . . . as well as nonbank participants in other consumer financial market segments. . .”).