{"id":12171,"date":"2025-03-22T06:46:42","date_gmt":"2025-03-22T06:46:42","guid":{"rendered":"https:\/\/finderica.com\/?p=12171"},"modified":"2025-03-22T06:46:42","modified_gmt":"2025-03-22T06:46:42","slug":"student-loan-repayment-may-get-much-worse-as-trump-seeks-to-privatize-system-close-department-of-education","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=12171","title":{"rendered":"Student Loan Repayment May Get \u2018Much Worse\u2019 As Trump Seeks To Privatize System, Close Department Of Education"},"content":{"rendered":"\n
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US President Donald Trump signed an executive order March 20, 2025 to start dismantling the … More<\/span> Department of Education. By law, the Education Department \u2014 created in 1979 \u2014 cannot be shuttered without the approval of Congress, and Republicans do not have the votes to push that through. (Photo by Mandel NGAN \/ AFP) (Photo by MANDEL NGAN\/AFP via Getty Images)<\/span><\/p>\n

<\/fbs-accordion>AFP via Getty Images<\/small><\/figcaption><\/figure>\n

The federal student loan system is in crisis, and advocates for borrowers are warning that the situation will likely get even worse for those in repayment and for borrowers pursuing student loan forgiveness, following President Donald Trump\u2019s executive order on Thursday calling for the U.S. Department of Education to be eliminated. The order also suggested that the federal student loan system should be privatized.<\/p>\n

Millions of borrowers, particularly those in income-driven repayment plans or who are pursuing student loan forgiveness, are currently facing major challenges. The SAVE plan, a Biden-era repayment program that lowered payments for many, remains frozen as a legal challenge continues, and more than eight million borrowers who had enrolled in the program remain in a forbearance. Earlier this month, the Trump administration effectively shut down the entire income-driven repayment application system, causing a myriad of issues including skyrocketing payments and effectively blocking borrowers from accessing legally required affordable repayment plans, as well as Public Service Loan Forgiveness. A major labor union filed a legal challenge against the administration earlier this week to force the reopening of income-driven repayment applications and PSLF.<\/p>\n

But borrower advocates are warning that President Trump\u2019s latest move to try to shut down the Department of Education \u2013 which comes on the heels of mass layoffs at the department earlier in March \u2013 is only going to worsen the situation for borrowers, jeopardizing their access to affordable payment plans and congressionally authorized student loan forgiveness programs. Trump also suggested in the order that the federal student loan system should be effectively privatized. Here\u2019s what borrowers need to know.<\/p>\n

Can Trump Privatize Federal Student Loan Forgiveness And Repayment Programs?<\/h2>\n

President Trump\u2019s executive order on Thursday calls for the closure of the Department of Education. But most legal experts agree that the president has no legal authority to do so. The department was created by Congress, and can only be eliminated by Congress (where there are likely insufficient votes in favor of such a move). The executive order appears to concede this.<\/p>\n

\u201cThe Secretary of Education shall, to the maximum extent appropriate and permitted by law, take all necessary steps to facilitate the closure of the Department of Education and return authority over education to the States and local communities while ensuring the effective and uninterrupted delivery of services, programs, and benefits on which Americans rely,\u201d reads the order<\/a>. The phrase \u201cto the maximum extend appropriate and permitted by law\u201d may be a tacit acknowledgment that only Congress has the ability to close the department.<\/p>\n

But another section of the order referencing the student loan system is notable, and suggests that a private entity would be better suited to operating federal student loan forgiveness and repayment programs. This echoes Project 2025, the conservative blueprint for government reform, which called for a larger private sector role in the federal student loan system.<\/p>\n

\u201cThe Department of Education currently manages a student loan debt portfolio of more than $1.6 trillion,\u201d reads the order. \u201cThis means the Federal student aid program is roughly the size of one of the Nation\u2019s largest banks, Wells Fargo. But although Wells Fargo has more than 200,000 employees, the Department of Education has fewer than 1,500 in its Office of Federal Student Aid. The Department of Education is not a bank, and it must return bank functions to an entity equipped to serve America\u2019s students.\u201d<\/p>\n

Notably, Trump\u2019s executive order was issued just a week after the Department of Education cut half of its workforce through mass layoffs and buyouts, which included significant reductions at the Office of Federal Student Aid \u2013 in particular the FSA Ombudsman group, and a unit that oversees the department\u2019s contracted student loan servicers. But Congress directed FSA and federal student loan operations to be housed at the Department of Education, and it may not be legally possible to move it to a different entity (federal or private) without congressional authorization. Privatizing the entire federal student loan system would likely also require an act of Congress. The Trump administration appeared to confirm this in a statement yesterday.<\/p>\n

\u201cWhen it comes to student loans and Pell Grants, those will still be run out of the Department of Education,” said White House press secretary Karoline Leavitt to reporters<\/a> on Thursday. \u201cBut we don\u2019t need to be spending more than $3 trillion over the course of a few decades on a department that\u2019s clearly failing in its initial intention to educate our students.\u201d<\/p>\n

But on Friday, Trump indicated that despite those assurances made only a day prior, the administration would be moving FSA and the federal student loan system to the Small Business Administration<\/a>.<\/p>\n

Advocates Warn Of Catastrophic Impacts On Student Loan Forgiveness And Repayment<\/h2>\n

But borrower advocates are warning that the ongoing efforts by the Trump administration to gut the Department of Education will have significant repercussions for student loan borrowers, even if it does not formally close down or its operations are transferred to states or the private sector. And borrowers are already experiencing significant problems after the department effectively shut down the income-driven repayment application system, leaving millions with no way to access affordable payments or pursue federal student loan forgiveness programs like PSLF.<\/p>\n

\u201cTens of millions of students and families rely on the functioning of federal student aid programs to pay for college and job training programs and to manage their federal student loans,\u201d said Abby Shafroth, co-director of advocacy at the National Consumer Law Center, in a statement on Thursday. \u201cRecent actions by the Trump Administration to block access to affordable student loan repayment plans and terminate staff in the Student Aid Ombudsman office and offices that oversee student loan servicers are already causing chaos for people trying to pay their student loans. Dismantling the Department of Education will make things much worse, creating new disruptions and costly and frustrating problems for students, borrowers, and their families in every state.\u201d<\/p>\n

\u201cThe purpose of the Department of Education is to serve all students and borrowers\u2014not special interests, billionaires, or politicians looking to dismantle vital offices and protections,\u201d said Sabrina Calazans, Executive Director at Student Debt Crisis Center. \u201cThe elimination of the Department will harm borrowers seeking relief via essential programs like Public Service Loan Forgiveness and income-driven repayment plans, leaving millions of families in further financial turmoil. Borrowers have already faced enough confusion and hardship. More chaos and less guidance is not the answer.\u201d<\/p>\n

Legal Challenges Over Trump Administration\u2019s Student Loan Actions Continue<\/h2>\n

The Trump administration is facing an increasing number of legal challenges over efforts to dismantle the Department of Education and block critical federal student loan relief programs.<\/p>\n

This week, the American Federation of Teachers, a major national labor union, filed a lawsuit against the department for cutting off access to income-driven repayment plans and effectively preventing borrowers from pursuing student loan forgiveness through PSLF. The AFT noted in its complaint that the administration\u2019s decision to take down income-driven repayment applications and halt all processing is happening as \u201cgovernment offices meant to assist borrowers with their loans are being shuttered.\u201d<\/p>\n

Earlier this month, more than a dozen states led by Democratic attorneys general filed a separate lawsuit challenging the Trump administration\u2019s authority to cut nearly half of its staff.<\/p>\n

\u201cThis administration may claim to be stopping waste and fraud, but it is clear that their only mission is to take away the necessary services, resources, and funding that students and their families need,\u201d said New York Attorney General Letitia James in a statement. James and the other states attorneys general argue that by laying off much of the Department of Education\u2019s staff, the Trump administration will prevent the department from fulfilling legally required obligations as set out in federal laws enacted by Congress.<\/p>\n

The Department of Education has maintained that all operations, including those related to student loan forgiveness and repayment, will remain intact. The department \u201cwill continue to deliver on all statutory programs that fall under the agency\u2019s purview, including formula funding, student loans, Pell Grants, funding for special needs students, and competitive grantmaking,” said a White House statement announcing the mass layoffs earlier this month.<\/p>\n<\/div>\n

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