Consultants set to analyze national student loan portfolio

22 May 2019 3 min. read
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The US Department of Education has hired two consulting firms to examine and analyze the student loan portfolio as part of the Trump administration’s ongoing consideration of its sale to private investors. The portfolio is valued at $1.5 trillion. 

Economic consulting firm FI Consulting will examine the portfolio’s costs in an effort to determine its economic value. Big Three strategy firm McKinsey & Company will make recommendations on the best ways to approach the portfolio’s management.

“Selling off the portfolio isn’t what we’re doing,” Liz Hill, an Education Department spokesperson, said in an email to Politico. “There might be some folks who are misinformed or misinterpreting our actions.” Hill also stated that seeking outside help in the form of consultants “has nothing to do with selling off the loan portfolio. It’s about getting a clear understanding of the state of the portfolio, which is the responsible thing to do since we’re charged with overseeing it.”

Consultants set to analyze national student loan portfolio

Unpaid student loans currently outweigh debt from credit cards and mortgages. The alarming growth of the federal student loan program has government officials on edge.

“I’m not surprised they’ve reached outside for help understanding the portfolio, but in doing so, it highlights how the Department of Education isn’t staffed accordingly to administer the student loans,” Beth Akers, a senior fellow at the Manhattan Institute, told CNN. Akers was part of President George W. Bush’s Council of Economic Advisers, which worked on federal student loans.

The current loan program allows those with student loans to sculpt payments around personal income, forgiving remaining debt after 20 years of payments. The result is “uncertainty” surrounding the rates of repayment and losses as the portfolio continues to grow.

Sale of the loans’ debt would be labelled as a cost to taxpayers, as student loan programs operate at a profit to the government. The Higher Education Act gives the Education Departments the power to enact such a sale.

As the 2020 election campaign trail begins to take shape, the issue of student loans and how best to approach them is a point of contention. Democratic candidate and Massachusetts Senator Elizabeth Warren, for example, proposed a plan that would immediately forgive $50,000 of debt for all Americans earning less than $100,000 per year. The proposal would also make tuition at public universities free.

The Education Department last year revealed in a press release that approximately 5 million people entered repayment in the period between October 2014 through September 2017. Of those, nearly 11% defaulted on their loans. Universities with particularly high default rates run the risk of losing their eligibility to participate in the student loan program.

Related: Universities face post-marketization reckoning as student loan debt soars