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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 since then, with its workforce diminished almost by half, the department has been operating in a significantly reduced way.
More recently, on March 19, 2026, the Trump administration announced that the Treasury Department would take over the federal government’s student loan portfolio in a transition that would take place in three phases.
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 issued an executive order to close down the Department of Education (DOE) in March 2025; since then, the DOE’s workforce has been reduced by almost half.
• Borrowers must continue making student loan payments to avoid default; they should keep records of their loan payments.
• In March 2026, the Trump administration announced that the student loan portfolio would move from the DOE to the Treasury Department in three phases.
• Lawsuits have been filed against the Department of Education’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.
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, enforcing Title IX guidelines, and investing in education research and development.
The department has 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 late August 2026, there are more than 100 lawsuits challenging the Trump administration’s education policies, including some lawsuits that specifically challenge the potential shutdown of the DOE.
One of those lawsuits was filed by Massachusetts school districts, the American Federation of Teachers, and labor unions, and it challenges the legality of shutting down the DOE. That suit has since been combined with a separate lawsuit filed by a coalition of 21 state attorneys general challenging the mass layoffs at the DOE as well as the department’s plans to move its core functions to other agencies.
While lower federal courts issued injunctions to stop parts of the mass staff reductions and transfers of core functions of the DOE to other agencies, the Supreme Court blocked those injunctions, allowing some reductions and restructuring of the DOE to proceed while the underlying litigation works its way through the appeals process.
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. The department is the largest source of student loans in the country.
As of late August 2026, 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 Treasury Department.
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
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 in public service 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.
As of late August 2026, the DOE says a court order has prevented it from enforcing changes to PSLF employer eligibility. Although PSLF forms had been updated ahead of time to include language about blocked certification for “illegal activities,” the DOE says that new language will have no effect for now, and that the current version of the PSLF form can be used.
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
Income-driven repayment (IDR) plans are based on a borrower’s discretionary income and family size. IDR plans currently include three existing plans — Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), and Pay As You Earn (PAYE) for borrowers with loans disbursed before July 1, 2026 — as well as the new Repayment Assistance Plan (RAP) for new borrowers.
While the ICR and PAYE plans will close to new enrollments as of July 1, 2027, IBR will remain open and available to borrowers whose loans were issued before July 1, 2026. Borrowers who are on the PAYE and ICR can switch to the IBR plan by July 1, 2028.
The IBR plan sets payments at 10% to 15% of a borrower’s discretionary income, with a repayment term of 20 to 25 years. The IBR plan forgives any remaining balance at the end of the loan term.
The new Repayment Assistance Plan (RAP) was created under the One Big Beautiful Bill Act (OBBBA). RAP is the only IDR plan available to student loan borrowers whose loans were issued on or after July 1, 2026. Existing borrowers (with loans issued before July 1, 2026) can choose RAP or IBR.
On RAP, your payment will be 1% to 10% of your adjusted gross income (AGI). The loan term on RAP is up to 30 years. Any remaining balance will be forgiven at the end of the loan term.
You can find out more about court actions affecting IDR plans 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 currently, you must be experiencing such situations as economic hardship, cancer treatment, military service, unemployment, or be attending school. However, be aware that under the One Big Beautiful Bill Act, loans made after July 1, 2027 will no longer be eligible for deferments based on unemployment hardship.
If you qualify for deferment, it 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 currently. 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. However, general and mandatory forbearance may only be granted for up to nine months in any 24-month period for loans borrowed on or after July 1, 2027.
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 are some strategies for staying on top of your student loans 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 may be subject to certain changes, such as changes to repayment plans like IDR plans. There might also be changes to the way loans are administered, such as potentially transfer of the student loan portfolio to the Treasury Department. Be sure to stay up to date on the latest news regarding student loan policies.
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, although future policy changes could potentially impact the process of administering and disbursing financial aid.
However, annual and overall borrowing limits changed for new graduate and professional students as of July 1, 2026, as well as for Parent PLUS loans. The new borrowing limits are:
• $20,500 a year for graduate students with a lifetime limit of $100,000
• $50,000 a year for professional students with a lifetime limit of $200,000
• Parent PLUS loans will be capped at $20,000 per student per year with a lifetime limit of $65,000.
Also, new Grad PLUS loans are no longer available as of July 2, 2026.
The Takeaway
In late March 2025, President Trump signed an executive order to close down the Department of Education, and in 2026, the administration announced that the Treasury Department would take over the federal government’s student loan portfolio. Lawsuits have been filed against the administration saying that such changes violate federal law.
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 August 2026, 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 job eliminations at the agency, it’s possible that there could be 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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