On March 20, 2025, President Donald Trump signed an executive order instructing the U.S. Secretary of Education to close down the Department of Education (DOE) “to the maximum extent appropriate and permitted by law.” Because the department was created by Congress, closing it fully would require an act of Congress. But with its workforce diminished, the department will presumably operate in a significantly reduced way.
On March 21, President Trump also announced that the Small Business Administration would take over the federal government’s student loan portfolio, though details and timing have not been shared.
What does this mean for student loan borrowers? Regardless of these potential changes, borrowers are still required to pay off their loans. Read on for more information about the proposed Department of Education shutdown, the ramifications for federal student loan borrowers, and how to handle student loan payments.
Key Points
• The President has issued an executive order to close down the Department of Education (DOE).
• Borrowers must continue making student loan payments to avoid default.
• The student loan portfolio may move from the DOE to the Small Business Administration.
• Lawsuits have been filed against the department’s closure.
• Currently, federal financial aid is still being disbursed, and loan servicing is continuing as usual.
• Borrowers can stay informed by checking updates regularly at StudentAid.gov; they should also keep records of their loan payments.
Overview of the Department of Education’s Role
While education in the U.S. is primarily handled by states and localities, the DOE provides funds to help schools achieve their goals.
The department has been responsible for overseeing 100,000 public and 34,000 private schools in the U.S., providing federal grants for needy schools and programs, evaluating public and private schools for curriculum quality, enforcing Title IX guidelines, and investing in education research and development.
The department also managed the nearly $1.7 trillion in federal student loans held by tens of millions of Americans, as well as approximately $30 billion in Pell Grants for lower-income college students. The DOE is the largest source of student loans in the U.S.
Legal Challenges to the Department of Education’s Potential Shutdown
As of March 25, two lawsuits have been filed against the Trump administration over the executive order to close the DOE. One of the lawsuits was filed by the National Education Association, public school parents, the NAACP, and a labor union; the other lawsuit was brought by two Massachusetts school districts, the American Federation of Teachers, and a coalition of labor unions, among other groups.
Both lawsuits say that closing the Department of Education and shifting student loans to the Small Business Administration violates federal law and the Constitution because only Congress can shut down the DOE and make these kinds of changes.
In a response to the lawsuits, a spokesperson for the Department of Education said the Trump administration has pledged to work with Congress to close the department.
Impact of the Potential Shutdown on Student Loans
Student loan borrowers may be confused by the proposed changes. Here are some possible effects of shutting down the Department of Education.
Disbursement of Federal Student Aid
The DOE awards more than $120 billion per year in grants, work-study, and federal student loans. As noted, the department is the largest source of student loans in the country.
As of late March 2025, Pell Grants and federal Direct student loans were still being disbursed. And the application process for financial aid, including filling out and submitting the Federal Application for Federal Student Aid (FAFSA) is not expected to change for the moment. It’s not yet clear, however, what might happen if or when the student loan portfolio moves to the SBA.
Loan Servicing and Repayment Processes
The DOE contracts with private loan servicing companies to manage student loan repayments. Loan servicers process loan payments, maintain loan and payment records, and provide borrower assistance. Your loan servicer can help with changing your student loan repayment plan, for instance.
These loan servicers, such as MOHELA, Aidvantage, EdFinancial, and NelNet, are expected to continue operating as usual. Student borrowers should keep making their monthly student loan payments.
Access to Borrower Support Services
As noted, borrowers should continue to have access to their loan servicers’ support services for their student loans. Be sure to keep your own records of your loan principal, what you owe, and the payments you’ve made.
New borrowers who are taking out loans to attend school should keep all the paperwork they receive about their loans. Check with your servicer if you have any questions.
Effects on Loan Forgiveness and Assistance Programs
Borrowers who are enrolled in federal loan forgiveness and assistance programs, such as Public Service Loan Forgiveness, income-driven repayment plans that can help lower student loan payments, and student loan deferment and forbearance, may encounter changes to some of these plans. This is what you need to know.
Public Service Loan Forgiveness (PSLF)
Public Service Loan Forgiveness (PSLF) forgives the remaining balance on your federal Direct loans as long as you make 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.
However, in early March 2025, President Trump signed an executive order to limit eligibility for PSLF. Organizations that do work involving what the order calls “illegal immigration, human smuggling, child trafficking, pervasive damage to public property and disruption of the public order” would be excluded from eligibility. But it is unclear exactly which organizations would no longer be considered a qualifying employer for the PSLF program.
Changes to PSLF likely won’t happen right away since the executive order requested an update to the program’s regulations, a process that can typically take at least a year. Currently, the DOE says PSLF is unchanged, and borrowers can continue to pursue forgiveness under the program.
In the meantime, it’s wise to save copies of any PSLF forms you submit, document all the qualifying payments you’ve made and continue to make, and keep records of your employment certification and recertification.
Income-Driven Repayment Plans
March 26, 2025: The SAVE Plan is no longer available after a federal court blocked its implementation in February 2025. However, applications for other income-driven repayment plans and for loan consolidation are available again. We will update this page as more information becomes available.Income-driven repayment (IDR) plans — which include Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Saving on a Valuable Education (SAVE) — are designed to make repayment easier for those who can prove that paying back their student loans is a significant financial burden. Payments are based on a borrower’s discretionary income and family size.
Typically, the remaining balances on eligible student loans are forgiven under IDR plans after a borrower makes a certain number of qualifying on-time payments over 20 to 25 years. But as of late March 2025, forgiveness has been paused on all of the IDR plans except IBR (the IBR plan is excluded because it was enacted separately by Congress).
Applications for IDR plans were also on hold beginning in mid-February 2025, after a federal court issued an injunction that prevented the DOE from implementing the SAVE plan as well as parts of other IDR plans. But as of March 26, online applications for three of the IDR plans are now available again, and loan servicers will begin processing applications soon.
However, the SAVE plan remains blocked by a federal court. Forgiveness has been paused for borrowers who were already enrolled in the plan, and they have been placed in interest-free forbearance.
You can find out more and get updates on the Federal Student Aid website.
Deferment and Forbearance Options
Borrowers can still apply for deferment or forbearance if they’re having trouble repaying their federal student loans. You can find deferment and forbearance forms on the FSA website. Fill them out and send them to your loan servicer.
To be eligible for a student loan deferment, you must be experiencing such situations as economic hardship, cancer treatment, military service, unemployment, or be attending school. If you qualify, deferment allows you to temporarily stop making payments on your student loans. Interest does not accrue on certain loans during deferment, including most subsidized federal loans.
During a student loan forbearance, you can stop making payments or reduce your monthly payments for up to 12 months at a time. But in most cases, interest accrues on your loans while you’re in forbearance. To qualify for forbearance, you must apply for either general forbearance, which includes undergoing financial difficulties or a change in employment, or mandatory forbearance for individuals pursuing a medical residency or serving in the National Guard, for example.
Recommended: Should I Consolidate My Student Loans?
Steps Borrowers Should Consider
Whether or not recent headlines have you feeling nervous about your student loans, here’s some good advice on how to stay on top of your student loans that’s relevant regardless of what’s happening with the DOE.
Monitor Loan Accounts Regularly
Check your student loan accounts on a regular basis to monitor your payments, current loan balance, and loan status. Keep any documents you receive about your loans, including statements, correspondence about repayment, and records about your process toward forgiveness, if applicable. If you see any errors or have questions, reach out to your loan servicer.
Maintain Communication with Loan Servicers
Stay in touch with your loan servicer. Bookmark their website and save their contact information. Watch out for emails and other communication from your servicer that might contain important updates.
And remember, your monthly student loan payments are still due, so be sure to make them on time to avoid possible student loan default.
Stay Informed About Policy Changes
Follow the news for policy changes regarding student loans. You can set news alerts on your phone or computer to help stay on top of any updates, and regularly check the FSA website for developments. Read emails and letters from your loan servicer.
Long-Term Considerations for Borrowers
Over the long-term, there are some other important student loan issues for borrowers to consider. These include:
Changes in Loan Terms and Conditions
The terms and conditions of federal student loans that have already been issued shouldn’t change, student loan experts say. Those terms and conditions were established when you took out the loan and signed the promissory note.
Impact on Future Borrowers and Financial Aid
At this point, eligibility to qualify for future federal financial aid, including student loans and Pell Grants, has not been affected. However, future policy changes could potentially impact the process of administering and disbursing financial aid.
The Takeaway
In late March 2025, President Trump signed an executive order to close down the Department of Education, and he later announced that the Small Business Administration would take over the federal government’s student loan portfolio. Lawsuits have been filed against the administration saying that these changes violate federal law as well as the Constitution.
While it’s not clear what might happen next, borrowers are responsible for their monthly student loan payments. They should also monitor their student loan accounts and payments, keep good records of all transactions, stay in touch with their loan servicer, and watch for updates and additional changes.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
Will my student loan payments be paused since the Department of Education may be shut down?
No, student loan payments will not pause whether or not the Department of Education shuts down. Borrowers must continue to make their monthly student loan payments, regardless. Be sure to keep good records of your payments and loan balance, and if you have questions, contact your loan servicer.
How does the proposed shutdown affect the processing of new federal student aid applications?
As of late March 2025, the application process for financial aid, including filling out and submitting the Federal Application for Student Aid (FAFSA) and the disbursement of loans is not expected to change. However, given recent job eliminations at the agency, it’s possible that there could be future delays or complications.
How can I contact my loan servicer if the Department of Education is closing?
Log into your StudentAid.gov account, and scroll down to the “My Loan Servicers” section on your dashboard to get your loan servicer’s name and contact information. Then you can reach out to them directly. Keep in mind that shutting down the DOE would require an Act of Congress, so the agency will continue to operate for the foreseeable future.
Are there any legislative proposals to eliminate the Department of Education?
In addition to President Trump’s executive order instructing the Secretary of Education to close down the Department of Education, there is also legislation in motion to eliminate the department. In late January 2025, H.R. 899, a bill to abolish the DOE by the end of 2026, was reintroduced in the House of Representatives by Rep. Thomas Massie (R-Kentucky).
Will interest continue to accrue on my federal student loans if the Department of Education shuts down?
Yes, federal student loans will continue to accrue interest, even if the Department of Education closes.
photo credit: iStock/Jacob Wackerhausen
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