Dismantling of education department casts US student loans into uncertainty

Donald Trump ordered the dismantling of the US Department of Education on Thursday, prompting uncertainty for those holding student debt and questions about what happens next.

Trump’s press secretary told reporters earlier on Thursday what remained of the department would continue to govern student debt.

“The Department of Education will be much smaller than it is today,” Karoline Leavitt said. “When it comes to student loans and Pell grants those will still be run out of the Department of Education … any critical functions of the department will remain.”

Her words echoed those of the department itself, which has said, while announcing a 50% staff cut earlier this month, it will “continue to deliver on all statutory programs that fall under the agency’s purview, including formula funding, student loans, Pell Grants, funding for special needs students, and competitive grant-making”.

In January, as the Biden administration ended, the education department said it had approved a total of $188.8bn in student loan forgiveness, affecting 5.3 million borrowers.

But according to Pew Research, one in four US adults under 40 (or more than 40 million adults) has student debt. The same source says median debt runs between $20,000 and $24,999, with median postgraduate debt about double those figures. Younger graduates, between 25 and 39, are more likely to say they are struggling financially than older graduates, though graduates still report higher income than those who do not complete college.

Many observers doubt that whatever remains of the Department of Education will be properly equipped to manage student debt.

In a statement to the Guardian on Thursday, Sameer Gadkaree, the CEO of the Institute for College Access and Success, said: “Shuttering the Department of Education would prove disastrous for students, borrowers, and our nation’s future workforce. Without the department, fewer students would be able to go to college, student loan borrowers would default in droves, and fraudulent colleges would prey on students with impunity. Separately, gutting education research would curtail our ability to track progress on national educational goals.”

Gadkaree added: “The administration claims that it can avoid these harms by shifting the department’s functions to the states – which, like shuttering the department, would require congressional approval. But states cannot effectively administer federal student loans, send out grant aid to millions of students across thousands of colleges, or compile national data.”

Beth Maglione, the interim president and CEO of the National Association of Student Financial Aid Administrators, said recently: “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.

“It also raises serious concerns about how billions of dollars in federal student aid will continue to be disbursed to students without interruption.”

Earlier this week, the American Federation of Teachers (AFT) sued the Trump administration, accusing it of unlawfully shutting down access to income-driven student loan repayment plans – a step taken last month, after a court ruled against Save, a Biden administration initiative to provide more generous terms than previous repayment plans.

The AFT president, Randi Weingarten, said the department was “effectively freezing the nation’s student loan system”.

A department spokesperson said it was working to ensure the programs conform with the court ruling “and anticipates the revised form allowing borrowers to change repayment plans to be available as soon as next week”.

Some observers do not think it is out of the question that student debt will not remain at the Trump Department of Education, but could be transferred to another department as Trump himself has suggested.

Mark Kantrowitz, a higher education expert, recently told CNBC that Trump could try to transfer student loans to the treasury or the Department of Commerce, though such moves might be stymied by a lack of expertise at those other bodies.

Such a move would in all likelihood lead to a period of bureaucratic disruption. Kantrowitz also warned that if student debt remains under the remit of whatever remains of the education department, borrowers may find existing loan forgiveness programs choked and stalled, with staff no longer able to cope.

Trump is also seeking to limit the public service loan forgiveness program, on ideological grounds.

Amid the chaos, CNBC said it was “important … to keep in mind” that “the terms and conditions of … federal student loans cannot change even if the agency overseeing them does”, because “borrowers’ rights were guaranteed when they signed the master promissory note when their loans were originated.”

Last month, the Trump administration removed an online application form for multiple popular student debt repayment plans including income-driven repayment plans.

The administration also removed an online application for students to consolidate their plans on the Department of Education website.

On Tuesday, the AFT – a major teachers union in the US – filed a lawsuit against the Department of Education after the department prevented applications from being processed on affordable repayment plans for student loans.

According to the complaint, ATF “brings this lawsuit to compel the department to abide by Congress’s command and provide borrowers with the ability to re-pay their loans through the affordable, income-driven repayment plans to which they are entitled.”

In a statement accompanying the lawsuit, Weingarten said: “By effectively freezing the nation’s student loan system, the new administration seems intent on making life harder for working people, including for millions of borrowers who have taken on student debt so they can go to college.”