What This Means for Your Student Loans

Last week, the U.S.Department of Education announced unprecedented mass layoffs, cutting nearly half its staff.The workforce reductions have hit every unit within the department, including the Office of Federal Student Aid, which oversees the vast federal student loan system.  “Today’s reduction in force reflects the Department of Education’s commitment to efficiency, accountability, and ensuring that resources are directed where they matter most: to students, parents, and teachers,” said Secretary of Education Linda McMahon in a statement announcing the layoffs. “I appreciate the work of the dedicated public servants and their contributions to the Department.This is a significant step toward restoring the greatness of the United States education system.”  However, student loan borrowers may soon pay the price of the massive staff cuts.

Here’s what borrowers, students, and their families should know.Related: IDR Paused, Staff Cuts, and Uncertainty: What’s Happening with Student Loans? Why did the Department of Education initiate mass layoffs? The Department of Education layoffs are part of a broader effort by the Trump administration to dramatically shrink the federal government by slashing its workforce.The announcement of the reduction in staff follows similar mass firings at other federal agencies, such as USAID and the National Park Service.  The bigger goal: Dismantling the Department of Education The Trump administration and Republican lawmakers have indicated that they ultimately want to close the Department of Education entirely.But this isn’t necessarily an easy thing to do.

The department was established under President Jimmy Carter in 1979 via legislation passed by Congress, and most legal experts agree that it would take an act of Congress to abolish the department.Republican lawmakers have introduced legislation that would, in fact, dismantle the department.  “Unelected bureaucrats in Washington, D.C.should not be in charge of our children’s intellectual and moral development,” said Rep.Thomas Massie (R-Ky.), one of the lead sponsors of a bill to abolish the Department of Education, in a statement in January.

“States and local communities are best positioned to shape curricula that meet the needs of their students.Schools should be accountable.Parents have the right to choose the most appropriate educational opportunity for their children, including home school, public school, or private school.” Why eliminating the Department of Education is unlikely Legislation eliminating the Department of Education is not particularly likely to pass.Even though Republicans control both the House and the Senate, their margins are narrow, and it is unclear if all Republican lawmakers would vote in favor of such legislation.

Even with unified Republican support, at least some Democrats in the Senate would have to join with Republicans to overcome a filibuster, which is unlikely to happen.As a result, the Trump administration is taking steps to dismantle the Department of Education from within.The mass layoffs announced this week, which followed earlier buyout offers that some department staff had already taken advantage of, are in furtherance of that goal.Will your student loans be forgiven or go private? No.

The gutting of the Department of Education workforce does not fundamentally change the federal student loan system, including student loan repayment and forgiveness programs or a borrower’s obligation to repay their loans.  Borrowers still must pay their student loan bills as they come due, and they should continue to be able to access programs available under federal law, such as Public Service Loan Forgiveness (PSLF) and income-driven repayment (IDR) plans (although as a practical matter, these programs are facing separate issues right now due to ongoing legal challenges and a recent court order that has resulted in the department suspending enrollments in IDR plans).  The mass layoffs also don’t mean that department-held federal student loans will suddenly become private loans.Even if the Department of Education were to formally shut down following the passage of legislation by Congress, the various divisions and units within the department would simply be transferred to other federal agencies.For example, the Office of Federal Student Aid would likely be moved to the U.S.Department of Treasury.  Will the Department of Education’s mass layoffs cause problems for student loan borrowers? But even without the Department of Education officially shutting down, the sudden reduction in force will almost certainly impact the administering of various federal student loan programs and oversight of federal contractors, including loan servicers.  Which student loan services are affected? The department confirmed that the layoffs impacted all units within the department.

This includes divisions that handle borrower complaints (such as the department’s Feedback Center and Ombudsman Group), units that monitor and oversee student loan servicers and for-profit institutions, and divisions that review applications related to the federal student loan system, such as Borrower Defense to Repayment.  “All divisions within the Department are impacted by the reduction, with some divisions requiring significant reorganization to better serve students, parents, educators, and taxpayers,” said the statement.The department sought to reassure student loan borrowers and the broader American public that the layoffs wouldn’t impact federal student aid programs and that it “will continue to deliver on all statutory programs that fall under the agency’s purview, including formula funding, student loans, Pell Grants, funding for special needs students, and competitive grantmaking.” Advocacy groups warn of severe consequences But student loan borrower advocacy groups warn that mass layoffs could have catastrophic impacts.  “Gutting [the Department of Education’s] workforce weakens the agency from within,” said Nadine Chabrier, senior policy counsel at the Center for Responsible Lending (CRL), in a statement.“It also severely disrupts the processing of federal student aid and oversight of student loans in repayment, particularly for vulnerable borrowers who depend on income-driven repayment plans and Public Service Loan Forgiveness.With fewer staff to handle applications and oversee these programs, borrowers will face longer wait times and increased processing errors, creating unnecessary financial distress.” “This administration is slashing the workforce that helps students, families, and borrowers access financial aid and manage their loan repayment issues – right at the same time millions are submitting their FAFSA applications,” said Kristin McGuire, Executive Director of Young Invincibles, in a statement.

“These layoffs are a reckless decision that will come with grim repercussions.This colossal personnel cut, the largest in the department's history, will ultimately harm students and borrowers, depriving them of the necessary support they need, and inevitably making education less affordable and accessible.Only Congress can legally abolish the Department of Education.Yet, this administration is using exploitative hacks to systematically destroy the department from within, dangerously politicizing our education system.” A blow to borrowers amid loan repayment challenges “A reduction in force at the Department of Education, which is the smallest Cabinet-level federal agency, is nonsensical.

These job cuts will not create efficiency; they will only harm thousands of federal workers and their families, as well as millions of Americans who benefit from the existence of the Department of Education,” said Sabrina Calazans, Student Debt Crisis Center Executive Director.“Americans with student debt have already been impacted by the recent removal of income-driven repayment plans from the studentaid.gov website; this will only make things worse.” Are the Department of Education layoffs final? Shortly after the announcement of the layoffs, a coalition of 20 Democratic-led states filed a lawsuit against the Trump administration to stop and reverse them.They argued that the layoffs were an illegal attempt to bypass Congress and shut down the Department of Education and that the fired employees should be reinstated.“This massive reduction in force (RIF) is equivalent to incapacitating key, statutorily-mandated functions of the Department, causing immense damage to Plaintiff States and their educational systems,” reads the Complaint filed in federal district court in Massachusetts.

“The RIF is so severe and extreme that it incapacitates components of the Department responsible for performing functions mandated by statute, effectively nullifying those mandates… The Trump Administration cannot dismantle the Department of Education.It cannot override—whether through large-scale RIFs or otherwise—the statutory framework prescribing the Department’s responsibilities.” State officials condemn the layoffs “This 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,” said New York Attorney General Letitia James in a statement.“Firing half of the Department of Education’s workforce will hurt students throughout New York and the nation, especially low-income students and those with disabilities who rely on federal funding.This outrageous effort to leave students behind and deprive them of a quality education is reckless and illegal.” Borrowers wondering what happens next The legal challenge is in its early stages, so student loan borrowers must now wait and see how the litigation plays out.

In the meantime, just a day after the layoffs were announced, the StudentAid.gov website experienced a major outage.A department spokesperson downplayed the outage, telling the Associated Press that the layoffs were “strategic, internal-facing cuts that will not directly impact students and families.”