What Happens to Student Loans if the Education Dept. Closes?

What Happens to Student Loans if the Education Dept. Closes?

The White House released an executive order instructing the secretary of education to begin shutting down the department — but not to cancel your debt.

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By Ron Lieber

Ron Lieber has been writing about student debt since 2008.

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President Trump signed an executive order on Thursday in an attempt to shut down the Education Department.

“We are sending education back to the states, where it so rightly belongs,” Secretary of Education Linda McMahon said in a statement after Mr. Trump signed the order.

But they are not about to let debtors off the hook. Those states, after all, are not banks, and the Education Department is a big bank in all but name. It lends tens of billions of dollars to students and parents each year and oversees the collection of roughly $1.6 trillion in outstanding loans for over 40 million borrowers.

The debt-ridden federal government isn’t going to give up that money. So if the Education Department closed, another federal entity would take the loan system over. In the short term, any agency inheriting the loan portfolio would need to keep the servicers that collect and track payments.

What else might change? Here are some possible answers.

Can the president shut down the Education Department with an executive order?

Probably not. Congressional approval is needed to shut down a federal agency, as Ms. McMahon noted in her confirmation hearing.

“This is political theater, not serious public policy,” said Ted Mitchell, a former undersecretary of education who is now the president of the American Council on Education, a university membership group.

This could be true or largely so — unless the White House shuts the department down without congressional approval and tries to win the lawsuits that would most likely ensue. Mr. Trump signaled Thursday that he may also ask Congress to act.

What if a shutdown happens anyway — whether via a vote in Congress, a court ruling or some other way?

Some other federal entity will need to take over debt issuance and collection. Mr. Trump announced Friday that student loans will move under the Small Business Administration.

Education Department employees could change departments in order to preserve institutional memory on how to run the often complex loan programs and interpret their terms.

Just how messy could any transfer of my loans end up being?

Pretty messy. The debt repayment system is complicated, with highly technical rules and repayment plans and many student loan servicers tracking and collecting payments. Borrowers should always maintain records of their loans and all previous payments.

Could disbursements of new loans be delayed?

It’s possible. Presumably, any new overseer would aim to make the transition orderly and schedule the handover during a part of the year when not many people were getting new loans.

On March 11, the Education Department sent layoff notices to over 1,000 employees as part of its effort to reduce its work force by half (including people who have already left since Mr. Trump’s inauguration).

While those layoffs are the subject of lawsuits, other employees with relevant student loan expertise may have already left or will walk out under their own volition. It could be difficult for borrowers to get a speedy resolution to many complicated issues for an indefinite period to come.

“Claiming that eliminating half the department won’t affect its services — without any clear plan to redistribute the workload — is, at best, naïve and, at worst, deliberately misleading,” said Beth Maglione, the interim president of the National Association of Student Financial Aid Administrators. “It also raises serious concerns about how billions of dollars in federal student aid will continue to be disbursed to students without interruption.”

Should I keep making my student loan payments?

Yes.

My loans have been on pause. What now?

Read every communication from your loan servicer carefully, and follow instructions to the letter. Check your spam folders frequently, and double check to make sure the servicer has your correct paper mail address. If your servicer is no longer going to administer your debt, it should let you know months before any switch.

Will I be able to take out federal loans in the future?

If the Education Department closes, some other department or entity could become the lender.

Republicans have made it a long-term goal to have private companies handle student lending, with the federal government as a kind of guarantor backstopping the debt.

What will happen to popular programs like income-driven repayment, Public Service Loan Forgiveness and Pell Grants?

All of these programs exist because of laws.

“We certainly should honor those programs,” Ms. McMahon said of Public Service Loan Forgiveness during her confirmation hearing. She also promised to maintain Pell grants and said she supported their expansion.

So presumably some governmental entity would continue to oversee each of them. But Congress may well try to alter or end any one of them.

What other changes might come?

Mr. Trump issued an executive order in an attempt to prevent borrowers enrolled in the Public Service Loan Forgiveness program from having their loans canceled if they work for organizations disfavored by his administration.

This would include any entities supporting terrorism, “engaging in violence for the purpose of obstructing or influencing federal government policy,” child abuse “including the chemical or surgical castration or mutilation of children,” employers “engaging in a pattern of aiding and abetting illegal discrimination” and those that are violating state tort laws “including laws against trespassing, disorderly conduct, public nuisance, vandalism and obstruction of highways.”

Anything this sweeping is certain to trigger lawsuits. It is not clear how soon the Education Department will attempt to put any of it in place.

Allies of Elon Musk, who embedded themselves at Education Department headquarters soon after Mr. Trump’s inauguration, have also discussed using software-enabled chatbots to replace workers who help answer questions for parents and borrowers.

The Trump Administration’s First 100 Days

• The Musk Effect: Elon Musk is seemingly everywhere, dominating the news out of Washington and beyond. His influence in the White House has raised complicated questions about how he could reshape the nation.
• V.A. Mental Health System: Therapy and other mental health services for veterans have been thrown into turmoil amid the dramatic changes ordered by President Trump and pushed by Musk’s Department of Government Efficiency.
• Law Firm Bends: Paul Weiss was targeted by an executive order. Its chairman, who had worked against Trump during his first term, then went to the Oval Office and cut a deal. Many in the legal field are condemning the agreement.
• Migrant Children: The Trump administration notified aid organizations that it would cancel a contract that funds the legal representation of more than 25,000 children who entered the United States alone, a decision that leaves them vulnerable to swift deportation.
• Columbia Agrees to Demands: The university agreed to overhaul its protest policies, security practices and Middle Eastern studies department in a concession to the Trump administration, which has refused to consider restoring $400 million in federal funds without major changes.
• Attempts to Resolve Global Conflicts: Allies say the foreign policy version of “flood the zone” is working. But critics argue that the hurry-up approach in Israel, Ukraine and Iran may not lead to stable, durable solutions to conflicts around the world.
• What Is DOGE?: The Department of Government Efficiency described in court filings bears little resemblance to the no-holds-barred approach taken by Musk and praised by Trump.

How We Report on the Trump Administration

Hundreds of readers asked about our coverage of the president. Times editors and reporters responded to some of the most common questions.