What Trump’s move to dismantle the Education Department means for student loans

[UNITED STATES] Former President Donald Trump signed an executive order aimed at dismantling the U.S. Department of Education (DOE) and shifting its functions to other federal agencies. The changes could have significant implications for the management of federal student loans, which currently total over $1.7 trillion, affecting millions of borrowers nationwide. This decision has raised questions about what this means for current and future student loan borrowers, the potential impact on student loan servicing, and how these changes might affect ongoing loan forgiveness programs.

Trump’s Executive Order to Dismantle the Department of Education

On March 21, 2025, Trump announced that the DOE would be effectively dismantled, with its functions spread across other federal agencies such as the Small Business Administration (SBA) and the Department of Health and Human Services (HHS). The executive order aims to streamline government operations, but it has generated considerable concern among education experts, lawmakers, and borrowers.

The DOE was established in 1979 under President Jimmy Carter to centralize federal education policy and manage student loans. If Trump’s executive order proceeds, it would mark a historic shift in how the federal government handles education policy and student loan management. Federal student loans, which serve over 45 million borrowers, are critical to financing higher education in the U.S. With such a vast number of borrowers affected, the shift raises concerns about the potential for disruption, confusion, and changes in loan servicing.

What This Means for Student Loan Borrowers

For borrowers, the most immediate concern is the potential disruption of their student loan services. With the DOE's responsibilities being transferred to other agencies, many wonder what impact this shift will have on their repayment plans, eligibility for loan forgiveness, and overall communication with loan servicers.

“The move could result in significant changes to how borrowers interact with the federal government concerning their loans, as the agencies taking over the DOE’s functions have not previously dealt with this scale of student loan servicing.” Experts and advocates are already voicing concerns about how the Small Business Administration (SBA) will handle the influx of responsibility. The SBA currently oversees small business loans and does not have a track record in student loan servicing.

Potential Impact on Loan Servicing and Repayment Plans

One of the most immediate changes many borrowers may experience is a shift in the management of their student loans. Traditionally, loan servicers working under the DOE handle everything from repayment schedules to processing loan forgiveness applications. If the SBA takes over these duties, borrowers could face significant shifts in how their loans are managed.

Lindsay Graham, a former federal education official said, “This could lead to delays in processing payments, confusion over repayment options, and even lost records as responsibilities are transferred.” Borrowers may need to get used to new processes, new contacts, and potentially, new repayment plans. As the SBA assumes these duties, it is unclear how it will handle student loan repayment schedules, income-driven repayment (IDR) plans, and deferment or forbearance options.

Impact on Loan Forgiveness Programs

One of the biggest concerns for federal student loan borrowers is the future of forgiveness programs, such as Public Service Loan Forgiveness (PSLF). PSLF has been a crucial program for many borrowers who work in public service sectors, offering the promise of forgiveness after ten years of qualifying payments. With the DOE no longer overseeing this program, there is uncertainty regarding how it will continue.

"There is a fear that with the DOE no longer in control, programs like PSLF might be altered or delayed. The SBA and other agencies may not be equipped to process these complex forgiveness applications as efficiently as the DOE did.”

This shift could result in a backlog of forgiveness applications or even the suspension of certain programs, leaving borrowers uncertain about their future financial obligations. For those counting on these programs, the dismantling of the DOE introduces a considerable level of anxiety.

Legal and Legislative Challenges to the Executive Order

The dismantling of the Department of Education is not without controversy. Education experts and legal scholars have raised concerns about the executive order’s constitutionality. The DOE was created by Congress in 1979, meaning its dissolution would likely require legislative action, not just an executive order.

“We could see major legal challenges to this decision,” says Gregory Durbin, a professor of constitutional law at Georgetown University. “The separation of powers between the executive and legislative branches means that dismantling a congressionally established agency would require Congressional approval, not just a stroke of the president’s pen.”

These legal challenges could delay or even block the implementation of Trump’s executive order, leaving borrowers in limbo about the future of their student loans.

The Potential Role of the Small Business Administration

Under the executive order, the Small Business Administration (SBA) will assume responsibility for student loan servicing. While the SBA has experience in managing loans, it has not been involved in student loans on the scale of the DOE. Some experts question the SBA’s readiness to handle the complexities of federal student loans, especially given the vast number of borrowers and the nuances involved in repayment plans, deferments, and loan forgiveness.

SBA Director Kelly Loeffler commented on the shift: “Our goal is to streamline the system and make it more efficient. While we understand that this is a big transition, we are committed to ensuring that borrowers continue to have access to the assistance they need.” However, many remain skeptical of the SBA’s capacity to manage this transition smoothly.

For borrowers who have grown accustomed to DOE processes and systems, the shift to the SBA may create confusion and frustration. Furthermore, the SBA’s existing focus on small business loans raises questions about whether it will be able to prioritize student loan management without significant disruptions.

What Should Borrowers Do Now?

Given the uncertainty surrounding this significant change, borrowers should take several steps to protect their interests and stay informed:

Stay Informed: Borrowers should regularly check communications from their loan servicer and any official announcements from the SBA or other relevant agencies. It's essential to stay updated on any changes to repayment plans, eligibility for forgiveness, or new processes for managing loans.

Contact Your Loan Servicer: As responsibilities transition to new agencies, borrowers may need to contact their loan servicer to ensure they understand where their loan is being managed and what changes may occur in the coming months.

Be Cautious of Scams: With uncertainty surrounding the transition, borrowers should be cautious of fraudulent schemes targeting those in need of loan assistance. Only trust official government communications and avoid third-party services promising fast loan forgiveness.

Consider Repayment Options: While the future of student loan repayment is unclear, borrowers may want to explore income-driven repayment plans or other alternatives to ensure they can continue making payments if their servicer changes.The decision to dismantle the Department of Education and transfer its student loan management functions to the Small Business Administration is a significant and controversial move that could have lasting effects on student loan borrowers. With over $1.7 trillion in student loans at stake and millions of borrowers affected, the shift raises concerns about disruptions in loan servicing, the future of loan forgiveness programs, and the overall capacity of the SBA to manage such a large portfolio.

As the situation develops, borrowers should remain vigilant, stay informed about changes to the student loan system, and ensure they take proactive steps to navigate the new landscape. While the dismantling of the DOE may bring long-term changes to how the U.S. handles education policy, it is clear that the immediate concern for borrowers is the stability and continuity of their student loan management.

Ultimately, while Trump’s decision aims to streamline operations, the future of federal student loans remains uncertain. Borrowers should prepare for potential changes while remaining cautious about the challenges ahead.