In March, the Trump Administration announced plans to close the Education Department and move the federal student loan portfolio of $1.7 trillion to the Small Business Administration (SBA).
He told White House reporters that the move would happen “immediately,” though he didn’t say how that process would work. Currently, federal law requires the Education Department to manage student loans, causing this plan to raise concerns over the president’s authority to actually move the portfolio.
It also raises concerns about the SBA’s capacity to maintain its core mission of supporting small businesses, especially since cuts were also recently announced to the organization.
SBA Job Cuts
While the recently announced cuts to the SBA are considerable, the SBA has seen significant fluctuations in overall staffing nearly every year since the beginning of the pandemic, according to Ben Johnston, chief operating officer of Kapitus.
“As the SBA’s mandate grew to include management of the PPP program in 2020 and 2021, its staff grew as well, from 4,432 in 2019 to a peak of 9,806 in 2021,” Johnston says. “As the PPP program ended and the loans issued were either forgiven, repaid or charged-off, SBA headcount dropped, reaching 6,279 in 2024.”
With the announced staff reductions, expected credit tightening and the additional responsibilities of managing student loans, it’s safe to assume that fewer SBA loans will originate in 2025.
“Note that the SBA in 2024 oversaw only $31 billion in total originations, and did not perform the function of underwriting or servicing of most of these loans,” Johnston explains. “Merging the lending apparatus of the Department of Education with the existing infrastructure of the SBA is a huge undertaking and will inevitably impact the performance of both departments.”
Small Businesses Challenges and Disruptions
During the Biden Administration, certain origination fees were reduced in order to make SBA loans more affordable, according to Johnston, and certain underwriting guidelines were relaxed in order to expand access.
“Over the past several years, losses on the SBA portfolio have risen, and in 2024 the SBA, which is normally a self-funding agency, experienced negative cash flow for the first time in years,” says Johnston. “In its announcement of staff reductions in March 2025, the new leadership of the SBA explicitly identified changes made to the 7(a) program under the Biden Administration as responsible for rising delinquency rates and the resulting shortfall.”
As a result, Johnston expects to see higher fees and restricted underwriting guidelines on the 7(a) product going forward. This will ultimately restrict access to capital for many small businesses and will make it harder for many entrepreneurs to obtain capital for growth.
How Small Businesses Can Navigate the SBA Changes
For business owners who borrow money to purchase inventory, acquire equipment and fund expansion, Johnston advises that it’s important to maintain multiple financing relationships.
“Banks have been pulling back from lending to small businesses over the past several years, and now the SBA is likely to reduce its exposure to small business as well,” he says. “Having contacts at both bank and non-bank lending institutions can help ensure access to capital in a challenging financing environment.”
When seeking financing, businesses with long operating histories, strong credit profiles, positive net income, unencumbered collateral and detailed financial plans will be the most able to obtain capital from banks. However, many non-bank lenders are able to offer capital to companies with shorter operating histories and less robust financial positions based on current cash flow and the expectation for continued strong cash flow performance.
“When seeking financing, it’s a good idea to compare offerings from both bank and non-bank lenders to determine what your business will qualify for and which offer is best for you,” Johnston advises.
