President Donald Trump has taken some major steps toward dismantling the Department of Education and has directed Education Secretary Linda McMahon to “start eliminating” the decades-old Cabinet Department. This will impact student loans which is the major concern for America’s youth.
While it is only Congress and not the president who has the authority to close the department, an executive order was signed by Trump on Thursday instructing McMahon to “take all necessary steps to facilitate the closure of the Education Department.”
Ironically enough, the development of the department has come after almost half of the workforce was terminated last week.
The Department of Education has a lot of responsibilities, that includes conducting education research and enforcing federal civil rights laws. However, one of its main functions is to distribute and regulate federal student financial aid, including student federal loans.
🚨🚨 BREAKING…
THE FEDERAL STUDENT LOAN PORTFOLIO WILL BE MOVED TO THE SMALL BUSINESS ADMINISTRATION.
Probably a vestige of Linda McMahon’s previous tenure there…
Every move they make only further undermines public confidence in the lending program.
Over 80% of all… pic.twitter.com/guJZqkaSGm
— STUDENT LOAN JUSTICE (@StudentLoanJus1) March 21, 2025
Till now it is pretty unclear as to how McMahon will carry out the President’s executive order, but Trump has said that some of the key functions that the department does, like overseeing student loans and Pell Grants, will remain as it is. Even though they may move to a different department in some time.
Trump has encouraged Congress to pass the necessary legislation to fully close the department.
Here’s what we know about how your student loans could be impacted:
According to Karen McCarthy, vice president of public policy and federal relations at the National Association of Student Financial Aid Administrators, there is no guarantee that federal student loan programs will end, even if the Education Department closes. Recipients will still be required to repay their loans.
If the Education Department shuts down, its $1.7 trillion loan portfolio might be taken over by another organisation, such the Treasury Department.
It’s official: @POTUS has issued an executive order directing Secretary McMahon to dismantle the Department of Education.
From PPSL’s @ei_conn: “Forty-four million American citizens put their faith in the government and borrowed federal student loans, and now the President… pic.twitter.com/PZA7mMj8nF
— Project on Predatory Student Lending (@EdDebtJustice) March 21, 2025
Trump’s executive order directly hints at this, noting: “The Department of Education is not a bank, and it must return bank functions to an entity equipped to serve America’s students.” But such a massive transition could prove disruptive to borrowers, according to McCarthy.
“It would be an entirely new undertaking for Treasury, and so if that were to happen, it seems really unlikely that untangling all of that and redistributing the work of federal student aid in the student loan servicing space would proceed either quickly or without any disruptions,” McCarthy told.
The recent major cuts to the federal workforce could also impact the transition. “We are to identify which of the department’s functions, programs, and offices are not mandated by statute, and eliminate them,” the draft memo states. “This reorganization will impact staff, budgets, reporting, and more — and in the coming months, we will determine how it can be accomplished with minimal delay and disruption.”
So if the department of education shuts down then what happens to student loans that are owed to the department of education? https://t.co/GvWCYksdV4
— Thomas C Golembeski (@TomGolembeski) February 4, 2025
Given the uncertainty surrounding the department’s future, student loan payment schemes are already experiencing difficulties. In response to a court order, the agency had previously blocked applications for income-driven repayment plans, which let borrowers create manageable repayment plans and find ways to get their loans forgiven. According to Forbes, this action may cause plans to halt or force millions of borrowers into overpriced plans.
“Borrowers and students need more stability, and this would create chaos,” said Michele Shepard Zampini, senior director of college affordability at The Institute For College Access and Success, in an interview with CNBC. It is estimated that the transfers could take months.
