Today, we are going to tell you about student loans. What does the dismantling of the Education Department mean for your student loans? Let’s get started:
The Trump administration is preparing for significant adjustments for the Department of Education, which, among its other responsibilities, manages the $1.6 trillion collection of student loans, the third-largest debt factor for households in the U.S.
More than 44 million Americans hold the loans. Many are pondering what it would take to end the agency that handles their debt.
It depends on what strategies the Trump administration will implement -and which can withstand legal opposition. Some of the policies being discussed include moving the federal student loan portfolio into Treasury the Treasury Department, changing the repayment options offered to borrowers, and, as the most drastic of changes, privatizing the entire system of student loans.
In the end, borrowers must be prepared for a stoppage of student debt relief programs implemented and expanded under former president Joe Biden. Biden’s initiatives have resulted in $188.8 billion in loan forgiveness for 5.3 million borrowers under his administration. Republicans have condemned the initiative in the past as an infringement on executive power, and some have advocated for clawbacks on some of the relief, although this is considered unlikely.
The relief was focused on the expansion or modification of forgiveness programs that were already in existence, such as the Public Service Loan Forgiveness and repayment plans based on income, following attempts to broaden debt relief was stopped by lawsuits filed by Republicans.
DOGE is no longer able to access student loan data
The student loan system is moving to a new place
Conservatives who support removing the Department of Education frequently advocate moving to transfer the Office of Federal Student Aid (FSA) to the Treasury Department, where it will continue to perform the routine duties of handling federal loans and recovering the funds.
FSA, an office of the Department of Education, is where people can apply for grants, federal loans, and work-study grants using the Free Application for Student Aid (FAFSA). It is also responsible for managing repayment processing.
Some legal experts have suggested that transferring FSA into a separate government agency will require approval from Congress. However, Trump may continue to push the boundaries of executive power like he has done with other agencies to test this hypothesis and ultimately leave it up to the courts to decide.
Rick Hess, a senior associate and director of policies on education at the right-leaning American Enterprise Institute, says FSA is more suited to the Treasury Department because it’s “essentially a mega-bank.”
“It’d make more sense to have it overseen by officials at Treasury who work closely with financial institutions and oversee federal revenue collection,” Hess wrote in an earlier blog post.
In an interview with ABC News, Hess said that if FSA moved their homes, there would be no negative impact on student loan borrowers, and the process would go forward.
“I would be surprised if it’s noticeable in any way compared to anything the borrowers have experienced in the last 4 years,” Hess spoke of the turmoil that surrounded the suspension of payment during the pandemic and the subsequent restart and the stop-and-start that arose from the lawsuits arising out of Biden’s forgiveness policies.
This optimistic outlook is the opposite of the experiences of most borrowers, said Persis Yu, vice executive director and managing counsel for the Student Borrower Protection Center, which promotes debt relief.
“No transitions in the student loan system have ever gone well, historically, and we have never tried to move the entire portfolio,” Yu declared.
You said student loan systems are “messy” in their current condition.
Many borrowers haven’t been able to repay what they owe since the pause of Covid was over, and a lawsuit that has halted a Biden-era loan repayment program, known as SAVE, has placed nearly 8 million people in a state of forbearance while they wait for further guidance.
“Having a huge shift is certainly not going to make things better,” she declared.
You expressed concern that she was concerned that the Department of Education oversees the loan system with a particular focus on the borrower’s rights and is acquiescing to the Higher Education Act of 1965. The Treasury Department would do so as a debt collector, which could result in the possibility of a “philosophical” difference in how the borrowers are treated.
“I am not here to defend [the Department of Education’s] track record because we’ve had a lot of critiques of their performance in the past,” Yu declared. “But this is a move that will hand the portfolio to people even less qualified to run it.”
Modifying the way that borrowers repay their loans
There is a smaller portion of the Republican Party that wants much more radical modifications regarding the current student loan system beyond the simple rehoming of offices to make the entire department less.
Project 2025, a conservative set of policies drafted for President Trump’s Administration, proposes completely privatizing the student loan system and transferring all government-owned loans to private lenders.
This would represent an essential change in how higher education gets funded. More than 92% of college students depended on federal loans in 2024 instead of private loans, according to the Education Data Initiative, and the depletion of the $1.6 trillion of federal student loans that the federal government currently has -or ceasing to provide loans in the future — requires congressional approval. (Project 2025 admits privatization of the system might not be “feasible.”)
It also requires the federal repayment of all loan programs that offer several choices to be combined into one plan and also for the end of Public Service Loan Forgiveness, also known as PSLF, which provides relief to those working in the public sector, such as firefighters and nurses, after they’ve paid off their loans for a minimum of 10 years.
However, the plan, presented by Republican president George W. Bush in 2007, was endorsed by Congress and was expected to be repealed by Congress, but this is doubtful.
Trump may significantly limit his access to the program during his first term but return it to its less efficient version.
The forgiveness program was vastly extended under Biden. However, during Trump’s first term in office, a study by the Government Accountability Office found that the Education Department rejected 99% of PSLF applications.
While Biden was president, the number of individuals eligible for PSLF increased from 7,000 to nearly 1 million throughout the program’s history.
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