(NewsNation) — President Donald Trump’s plan to eliminate the Department of Education and leave school policy to the states has raised concerns about the future of federal student loans and how they will be managed.
The outstanding federal student loan balance is $1.693 trillion, and 42.7 million student borrowers have federal loan debt, according to the Education Data Initiative. Currently, the Education Department oversees the federal loan system.
Last week, Trump told reporters that he doesn’t believe the Education Department should be handling student loans, instead suggesting they be run under the Treasury Department, the Small Business Administration or the Commerce Department.
Federal student loan site down Wednesday, a day after layoffs gutted Education Department
A change of that sort isn’t set in stone, but student borrowers could feel the impact of recent department cuts before the issue is settled.
On Tuesday, Education Department officials said the agency’s workforce would be cut roughly in half, with over 1,300 workers laid off. Of those, more than 300 people were let go from the office of Federal Student Aid, a division that manages the federal student loan portfolio, according to The Associated Press.
A day later, access to the online Free Application for Federal Student Aid (FAFSA) went in and out for hours, and hundreds of users reported issues completing the form.
The outage reinforced concerns that rapidly gutting the department will hurt students and those who rely on federal financial aid.
Linda McMahon, Trump’s education secretary, maintains that the layoffs are a positive step toward “restoring the greatness of the United States education system.”
“Today’s reduction in force reflects the Department of Education’s commitment to efficiency, accountability and ensuring that resources are directed where they matter most: to students, parents, and teachers,” McMahon said in a statement.
McMahon told NewsNation she believes education is better handled at the local level and wants to “take the bureaucracy out of education.”
Here’s what the Trump administration’s actions could mean for the future of student loans.
Your student loans won’t be forgiven if DOGE violated FERPA
What happens to student loans if the Education Department closes?
Eliminating the Education Department won’t erase student loans. Borrowers will still be responsible for repaying their debt.
According to Trump, student loans would most likely be overseen by another federal agency, potentially the Small Business Administration.
Andrew Gillen, research fellow at the Cato Institute for Economic Freedom, told Time Magazine the SBA would be a “strange choice” and “doubts” they’d be set up to handle the size of the task.
What happens if the Department of Education is abolished?
Instead, Gillen said the Treasury Department makes more sense because it already has access to a lot of information that would be needed to implement student loan programs.
In her NewsNation interview, McMahon echoed Trump’s desire to change things up and said that Pell Grants and student loans “might best be served in another department.” She said the administration is “looking as to where that could best be handled.”
For now, the Education Department said it will “continue to deliver on all statutory programs that fall under the agency’s purview,” including student loans and Pell Grants.
Will the recent layoffs impact student borrowers?
Some experts are worried that the Trump administration’s swift downsizing efforts will cause disruptions for students and families.
“Claiming that eliminating half the Department won’t affect its services — without any clear plan to redistribute the workload — is, at best, naive and, at worst, deliberately misleading,” Beth Maglione, interim president and CEO of the National Association of Student Financial Aid Administrators, said in a statement.
Maglione said the department cuts also raise “serious concerns about how billions of dollars in federal student aid will continue to be disbursed to students without interruption.”
Sameer Gadkaree, president of The Institute for College Access & Success, said he’s particularly concerned about how the recent layoffs could “threaten college students and student loan borrowers.”
Linda McMahon: Federal student aid could shift to another department
“Core functions of the Department could experience outages or breakages, leaving students struggling to get or renew financial aid or campus-based aid,” Gadarkee said in a statement.
He’s also concerned that student borrowers won’t be able to get “reliable, accurate advice on student loan repayment.”
In her NewsNation interview, McMahon insisted that the administration’s decisions have been made methodically and said it’s not a “turn off the lights and walk out of the department” situation.
Will FAFSA be affected?
The Free Application for Federal Student Aid is a form that students and families fill out to apply for federal student aid. Many states and colleges also use FAFSA information to determine eligibility for state and school aid.
The form was overhauled under the Biden administration, but the relaunch didn’t go well and was riddled with technical glitches. Now, some worry Trump’s cuts could hamstring the FAFSA further.
“There’s now no one here to oversee the system that ingests IRS data or the entire data center that hosts the FAFSA,” an anonymous employee at the Education Department told Inside Higher Ed.
Wednesday’s outage did little to allay concerns about the FAFSA’s stability. A person with knowledge of the outage told The Associated Press that the entire team responsible for systems supporting the FAFSA form had been cut.
Education Department spokesperson Madi Biedermann told the AP that the layoffs didn’t affect employees working on the FAFSA form or student loan servicing.
“They are strategic, internal-facing cuts that will not directly impact students and families,” she said.
Can Trump end the Education Department on his own?
Shutting down the Department of Education would have to be approved by Congress, and McMahon said Trump knows he needs to work with federal lawmakers.
“The president campaigned on this. He’s been crystal clear that he wants to see the Department of Education closed, and he’d like to see it done sooner rather than later,” McMahon told NewsNation. “But he understands that we need to work with Congress. There are certain things that are in statute.”
The education secretary added: “I think my job is to convince Congress that the steps that we are taking are in the best interest of the kids.”
Still, Trump is expected to challenge the authority of Congress by issuing an executive order aimed at dismantling the federal agency.
A draft of the order, viewed by The Wall Street Journal, reportedly directs McMahon to “take all necessary steps to facilitate the closure of the Education Department” based on “the maximum extent appropriate and permitted by law.”
On Thursday, Democratic attorneys general in Washington, D.C., and 20 states sued the Trump administration over its efforts to lay off nearly half of the Education Department workforce.
The group, led by New York Attorney General Letitia James, argue that the cuts were “illegal and unconstitutional.”
Biedermann said the reduction in force was done “carefully and in compliance with all applicable regulations and laws.”
