In this work we discuss a theoretical model for the electronic states of the 2DEG that forms at the interface of the two insulating oxides SrTiO₃ (STO) and LaAlO₃ (LAO). We review recent magneto-transport data that show a sharp transition in the magnetic behavior as a function of the gate voltage (or 2d electron density). We argue that the data implies coupling between conduction electrons and localized magnetic moments near the interface, which we expect is strongly density dependent. The observed transition can be understood within our model as establishment of Kondo screening of the magnetic impurities.