Student Loan Borrowers Have Seen A Hectic First Quarter

Every new administration ushers in policy changes that spark discussion, debate, and concern. The shift from Biden to Trump is proving especially significant for student loan borrowers, who are left wondering how these changes came about, what they should prioritize, and how to navigate what lies ahead. Concerns about the future of the Department of Education, federal forgiveness programs, and affordable repayment options loom largely in their minds.

 

The Future of the Department of Education

The Trump administration has made it clear that one of its goals is the eventual dismantling of the Department of Education. On March 20, President Trump signed an executive order instructing the Secretary of Education to “take all necessary steps to facilitate the closure of the Department of Education and return authority over education to the States.” However, it is important to clarify that this executive order did not close the Department of Education. Closing the Department would require an act of Congress, which demands at least 60 votes in the Senate. Notably, a 2023 congressional vote on a proposal to eliminate the Department of Education failed to pass, even in a Republican-controlled House of Representatives.

Given that abolishing the Department through congressional action is unlikely, the Trump administration has tried a different approach by gutting the agency’s staff. On March 12, over 1,300 Department of Education employees were fired, leaving the Department with just over 2,100 employees, down from over 4,100 at the beginning of 2025.

As part of these firings, there have been discussions regarding moving some of the Department’s functions to other federal agencies. One possibility is the relocation of the Office of Federal Student Aid, which manages federal student loans.

Preliminary reports indicate that oversight of student loans may transition to the Small Business Administration (SBA). However, doubts persist regarding their readiness to manage a trillion-dollar portfolio, particularly in light of their recent announcement to reduce staff by almost 43%. Similar to closing the Department of Education entirely, relocating the student loan portfolio would also require congressional action.

 

Whether the Department of Education is dismantled or the Office of Federal Student Aid responsibilities are transferred, borrowers’ student loans are not disappearing!

 

Forgiveness Programs: Will They Still Be Available?

Amid ongoing political discussions, programs such as Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment Forgiveness (IDRF) remain well-established and unlikely to be discontinued. PSLF, created in 2007, continues to receive bipartisan support for its role in assisting public service employees, while IDRF has existed since 1994. As with any proposal to dissolve the Department of Education, eliminating these programs would require congressional authorization.

However, this does not mean changes cannot be made to eligibility requirements. In a recent executive order signed by the President, the Department of Education was directed to revise PSLF rules to exclude non-profit organizations determined to be engaged in “illegal activities” by the administration. The Department initiated a negotiated rulemaking session on April 3, which is the first step to revising PSLF regulations. This rulemaking process generally takes one full year to implement.

Despite the potential for changes, existing commitments to borrowers are likely to be upheld, particularly for programs created by Congress like PSLF, Teacher Loan Forgiveness (TLF), or IDR forgiveness via the Income-Based Repayment (IBR) plan. Therefore, borrowers who are eligible for forgiveness programs as they currently stand are encouraged to find the necessary guidance in working towards them before any future changes could affect their eligibility.

 

The State of SAVE and Other Income-Driven Repayment Plans

The fate of the Saving on A Valuable Education (SAVE) income-driven repayment plan remains uncertain due to ongoing legal battles. On February 18, the 8th Circuit Court of Appeals upheld a preliminary injunction, ruling that the Department of Education lacked the authority to implement SAVE. This decision has left approximately 8 million borrowers in limbo, unsure of their repayment options. While SAVE may ultimately be eliminated, other income-driven repayment plans, such as the long-standing Income-Based Repayment (IBR) plan, remain protected by congressional legislation.

In response to the court ruling, the Department of Education initially removed all income-driven repayment (IDR) applications from its website and instructed servicers to halt application processing, even for plans unaffected by the lawsuit. This move sparked widespread criticism, leading the American Federation of Teachers to file a lawsuit, arguing that the suspension unlawfully blocked borrowers from accessing affordable repayment plans. The Department has since reinstated IDR applications as of March 26, and while processing remains paused for now, it is expected to resume in the near future.

 

Borrowers Seeing Massive Drops in Credit Scores

Federal student loan borrowers received significant relief during the COVID-19 pandemic, including protections under the CARES Act that suspended payments and prevented negative credit reporting. In addition, the Department of Education introduced a 12-month “on-ramp” period, lasting until September 30, 2024, to shield borrowers from credit penalties for late or missed payments.

But starting in January 2025, those protections ended. The Department of Education began reporting delinquent loans to credit bureaus again, meaning borrowers who miss payments for 90 days or more will see an impact on their credit scores. The Federal Reserve estimated that by late March, over nine million borrowers had already fallen behind. If payments are missed for 270 days—roughly nine months—the loan enters default, leading to serious financial consequences like wage garnishment and tax refund seizure. Many borrowers have already seen large drops in their credit scores, some as high as 200 points!

The greatest mistake student loan borrowers can make is doing nothing at all. Staying up-to-date on the latest student loan news and seeking expert guidance are the best first steps to  craft your plan to become debt free.