Wall Street Journal: McKinsey hired to review federal student loan program

WASHINGTON, DC - MARCH 28: U.S. Secretary of Education Betsy DeVos testifies during a Senate Labor, Health and Human Services, Education and Related Agencies Subcommittee discussing proposed budget estimates and justification for FY2020 for the Education Department on March 28, 2019 in Washington, DC. (Photo by Zach Gibson/Getty Images)

Washington (CNN)The Trump administration is retaining the consulting firm McKinsey to assess the federal student loan portfolio as the government weighs selling off some of the debt to private investors, The Wall Street Journal reported Wednesday.

A sale is just one of several options the White House is considering to address potential losses on student debt, the paper reported, citing administration officials familiar with the matter.
As the price of college has surged, the federal student loan program has grown to nearly $1.5 trillion. Outstanding student loans now top both credit card and mortgage debt -- raising concerns about whether the Department of Education has the capacity to handle such a large loan portfolio.
Nearly 11% of borrowers who entered repayment in 2015 defaulted on their loans within three years, according to government data. Unlike a mortgage, the federal government lends to students regardless of their potential income as long as they're enrolled in an accredited college.
    "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," said Beth Akers, a senior fellow at the Manhattan Institute who worked on federal student lending policy at the Council of Economic Advisers under President George W. Bush.
    The cost of the lending program has grown as the government created new repayment plans for struggling borrowers. One allows people to tie monthly payments to their incomes and forgives remaining debt after making 20 years of payments.
    Those programs can create uncertainty about repayment rates and potential losses. But Akers said the government would likely have to pay a premium to a private investor to take on the debt, raising questions about why it would offload the loans.
    Democratic presidential hopefuls are starting to talk about their own plans to address the growth in student debt. Massachusetts Sen. Elizabeth Warren unveiled a proposal last week that would immediately forgive $50,000 in student loans for Americans in households earning less than $100,000 a year, as well as make public colleges tuition-free.
      Education Department spokesperson Liz Hill told the Journal that the McKinsey study is "about getting a clear understanding of the state of the portfolio."
      Neither Hill nor McKinsey responded to requests for comment from CNN.