Advertiser Disclosure

Are Student Loans in Danger if The Education Department Shuts Down?

Elite Personal Finance

Last Update: March 8, 2025 • Financial News •

This week, the Trump administration reported that the US Department of Education is dangerously close to being shut down. As the most prominent administrator of K-12 schools in the country, everyone is speculating about what will happen to the millions of existing college students and graduates who have amassed student loan debt.

In short, student loans will not be affected if the Education Department shuts down. Terms and conditions should remain the same, and previous qualifications under the FAFSA and Pell Grant programs will be honored unless Congress votes to approve a spending bill that cuts down on funds, tentatively scheduled for April or May 2025.

If the Department of Education shuts down, the responsibility for student loans will no longer fall under the Department of Education. Many experts have suggested that it will fall under the Department of the Treasury.

“Even if the loans were to move to a different agency, the terms and conditions would not change. This would not get rid of Public Service Loan Forgiveness programs (PSLF), for example. It would not change or privatize interest rates,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a national loan consultation service. “That’s because those sorts of changes would not pass legal muster.”

What Does Student Credit Look Like?

According to VantageScore, roughly 9 million student loan borrowers will become delinquent on their loans through June 2025. As of February 25th, 2025, the US Department of Education reported that 22 million student loan borrowers are out of forbearance. Plus, it’s estimated that an additional 8 million followers will go into forbearance if the Saving on a Valuable Education (SAVE) Plan is scrapped, increasing the percentage even higher.

“For the first time in five years, federal student loan delinquencies will start to reappear on credit files,” remarked Dr. Rikard Bandebo, EVP, Chief Strategy Officer, and Chief Economist at VantageScore. “The majority of borrowers who continue to make student loan payments are already seeing positive impacts to their VantageScore credit scores.”

Impact of the SAVE Plan Legal Challenges

One of the most significant plans to affect student loan financing over the past decade is the SAVE plan, a mandate to allow diversified repayment options among student loan borrowers with the potential for loan forgiveness. However, in July 2024, a decision by the 8th Circuit Court of Appeals declared that the Department of Education could no longer administer it, with millions of followers at risk of no longer having any interest-free forbearance.

After Trump was elected, four popular federal student loan repayment plans were cut, which has serious potential to decrease average credit scores among recent college-age populations in short order. Remember, a little more than nine million consumers are behind on their student loan payments as of February 2025, with many millions expected to go out of forbearance by the end of the year.

What Other Issues Have Impacted the Department of Education?

Along with the threat of Department of Education closure and SAVE plan extinction, there have always been policy shifts between administrations regarding student loan forgiveness programs. Their current state of Public Service Loan Forgiveness (PSLF) has created an uncertain future with ever-increasing confusion over who manages what as administrative delays and policy adjustments take over.

What About Income-Driven Repayment Plans?

Another key concern amongst those afraid of a Department of Education shutdown is what will happen to income-driven repayment (IDR) plans. These plans allow borrowers to cap payments at up to 15% (a percentage of their) discretionary income on student loans, with the possibility of having their entire loan forgiven by the end of the repayment or up to 25 years later.

Other income-driven repayment plans include the Pay As You Earn (PAYE) Repayment Plan, Income-Based Repayment (IBR) Plan, and Income-Contingent Repayment (ICR) Plan. Each differs with regards to eligibility requirements, repayment term, how payments are calculated, and similar considerations.

Naturally, borrowers and those in low-income territory will be left scrambling for a replacement, and there’s no guarantee that there’ll be a viable alternative.

ElitePersonalFinance’s Verdict

Always remember that student loans should not be affected no matter what happens to the Department of Education. However, surrounding programs like forbearance programs and diversified repayment options could be at risk.

When exploring the state of your student loans, we highly recommend you check your credit score to strengthen your other lines of credit. Remember to make on-time payments every month, understand how FICO credit scoring works, and lower your credit utilization ratio to manage your monthly budget.

Explore the ElitePersonalFinance website for more news and insights on student loans, credit score management, preferred lending platforms, and more.

0 Shares

MEET THE AUTHOR

Elite Personal Finance

Profile

Recent posts

Are Student Loans in Danger if The Education Department Shuts Down?

Medical Debts Out of Credit Reports

DOGE Blocked from Accessing US Education Department Data

USDA Suspends, Then Reopens 1890 Scholars Program for HBCUs

How to Increase Your Credit Score Fast in March 2025 (Updated)

Recommended Articles

Debt

Are Student Loans in Danger if The Education Department Shuts Down?

EPF March 8, 2025

Debt

Medical Debts Out of Credit Reports

EPF March 4, 2025

Debt

DOGE Blocked from Accessing US Education Department Data

EPF March 4, 2025

AS SEEN ON