What Happens to Your Student Loans if Trump Closes the Department of Education?

The Department of Education still exists so far this week, but multiple signs point toward its demise.   

The Wall Street Journal reported that President Donald Trump drafted an executive order instructing Education Secretary Linda McMahon to "take all necessary steps to facilitate the closure of the Education Department" as permitted by law. This action seemed poised to go live on Thursday, until the White House disputed that the move would happen that day in a social media post. 

McMahon said the management of federal student loans and Pell Grants could be reassigned "if the Department of Education, you know, does not exist" during an interview last week with NewsNation Live.

At her confirmation hearing last month, McMahon said that shutting down the department would require an act of Congress. But she issued a statement last week telling the department that they've been tasked with "the elimination of bureaucratic bloat here at the Department of Education -- a momentous final mission -- quickly and responsibly."  

The Department of Education plays a pivotal role in the US education system but may be best known for managing federal financial aid for millions of student loan borrowers. If you have federal student loans, here's what experts say could be on the horizon if the Department of Education is shuttered.

Read more: Was SAVE Just Dealt Its Final Blow? What the Latest Court Decision Means for Student Loan Borrowers

Why does the Trump administration want to eliminate the Department of Education?

The Department of Education was created by Congress in 1979 to track, manage and coordinate education programs and procedures at the federal level. Trump advisers have said they want to call on Congress to abolish the department, a move that's been floated over the years by Republicans but has always failed to gain widespread support.

"It is not entirely clear why Republicans want to get rid of the US Department of Education," student loan expert Mark Kantrowitz said in an email. "Why would you get rid of a powerful tool for implementing your education agenda?"

The Trump administration campaigned on reducing the size of the federal workforce, so shutting down the Department of Education, which employs 4,400 people, could be considered part of this agenda. The department also manages federal student loans, which Republicans have targeted since former President Joe Biden heavily supported student debt relief.

There also may be confusion about the department's role in public education, including the mistaken belief that it controls the K-12 curriculum. The Department of Education doesn't develop a curriculum for any schools. Requirements are set at the state level, and local school boards create curricula to meet those requirements.

For instance, Common Core, which many think of as "national standards" for education, was created as a multistate effort by the National Governors Association and the Council of Chief State School Officers to standardize education requirements nationwide. However, the Department of Education wasn't involved in the development of those standards.

Can the president shut down the Department of Education?

The president can't unilaterally eliminate the Department of Education because it was created by an act of Congress, which has the power to abolish it. Congress is unlikely to eliminate the department since Republicans control only 53 votes in the Senate, and a 60-vote supermajority is required.

However, while closing the Department of Education entirely might be out of the president's purview, the Trump administration has begun taking action to end specific functions and programs. Billionaire Elon Musk's DOGE team has already started gutting the department, terminating contracts and firing staff.

Congress could also slash the department's budget through budget reconciliation, which only requires a simple majority. "Proposals to get rid of PLUS loans, Student Loan Interest Deduction, [American Opportunity Tax Credit], [Lifetime Learning Credit], borrower defense to repayment, closed school discharge and aspects of PSLF could be done through budget reconciliation," Kantrowitz said.

Read more: My Monthly Student Loan Payment Could Jump From $0 to $488. Here's How I'm Preparing

What happens to student loans if the Department of Education is eliminated?

If the Department of Education is wholly eliminated, many of its programs, including federal student loans, would likely remain in some form and move to different departments. 

"Some have argued that this responsibility should fall under the Treasury, given that federal student loans are funded by the Treasury," Elaine Rubin, a student loan policy expert and director of communications for Edvisors, said in an email. She added that if the same management system is used to administer the program, "the transition, while time-consuming, could be manageable."

But any shifts would take time and could disrupt millions of borrowers trying to apply for or repay student loans. "Treasury lacks experience with higher education rules, so there may be some chaos," Kantrowitz said.

Wherever student loans end up, current borrowers should expect the same terms they agreed to when they accepted the loan.

"If the student loans were transferred to another federal agency, the interest rates and terms of the loans would not change. Those terms are specified in the Master Promissory Note and in the law," Kantrowitz said.

What about student loan forgiveness?

President Trump has made it clear he's not in favor of broad student loan forgiveness programs, calling the Biden administration's student loan relief efforts "a total catastrophe" during a presidential debate last year.

However, during her confirmation hearing for education secretary, McMahon told senators that the Department of Education would honor the Public Student Loan Forgiveness Program and other student loan forgiveness programs that Congress created.

According to Kantrowitz, eliminating the department would also not affect borrowers whose loans have already been forgiven. "The president cannot claw back forgiveness that has already been provided. It is legally binding," he said. The courts also say that forgiveness has an 'irreversible' impact."

The Biden administration's Saving on a Valuable Education plan, which had lowered monthly payments and offered additional forgiveness options, was struck down by a US appeals court ruling last month. SAVE was already on the chopping block, and the Trump administration isn't expected to defend the plan. 

The Department of Education recently closed applications for all income-driven repayment plans temporarily, leaving student loan borrowers in limbo and with limited options for lower payment plans. 

Read more: You Can't Be Forced to Repay Forgiven Student Loans -- Unless This Happens

What to do if you have student loans

For most current borrowers, the impact of eliminating the department might not be immediately apparent. "Most functions are implemented through contractors, so student loan borrowers are unlikely to notice anything different," Kantrowitz said.

For now, borrowers who hold student loans should stay tuned for updates and prepare to restart payments if they've been on pause. Make sure you know who your loan servicer is and that they have your current contact information. If you're enrolled in the SAVE repayment plan, expect to pay more this year. You can use the Department of Education's loan simulator to calculate your new payment and consider other options and saving strategies.

If you're enrolled in PSLF and are near the 120-payment mark, you may want to consider applying for the PSLF buyback program. It allows you to "buy back" no-payment months not counted toward forgiveness while your loans were in forbearance or deferment. Although the PSLF program may still be safe for many participants, the buyback program could go away, so now's the time to take advantage.