The future of the U.S. Department of Education is in jeopardy as President Donald Trump moves forward with plans to dismantle the agency, leaving the fate of $1.64 trillion in student loans hanging in the balance. With staff cuts, canceled contracts, and a lack of communication, the financial arm of the department—which manages loans for millions of borrowers—faces unprecedented challenges.
A Financial Portfolio in Peril
The Department of Education’s financial portfolio, which includes direct loans to borrowers, is managed separately from its policy operations. However, Trump’s efforts to wind down the agency have raised questions about how this massive debt will be handled. During a recent Oval Office briefing, Trump suggested that the loan portfolio could be transferred to the Treasury Department, the Commerce Department, or the Small Business Administration (SBA).
“We’ve actually had that discussion today,” Trump told reporters, noting that SBA Administrator Kelly Loeffler “would really like to do it.”
But the transition won’t be simple. Roughly 40% of the loans are currently delinquent, and experts warn that an “avalanche of new defaults” could be on the horizon as borrowers face the end of pandemic-era payment pauses and changes to income-driven repayment plans.
See also: Unemployment Rate Ticks Up to 4.1% in First Month of Trump’s Term
Project 2025: A New Vision for Student Loans
The Heritage Foundation’s Project 2025, a policy blueprint authored by many Trump allies, proposes a radical shift in how student loans are managed. The plan suggests creating a new agency to oversee loans, with the government stepping back from direct lending and instead guaranteeing loans issued by private companies.
Under this vision, existing loans would be transferred to the Treasury Department, which would handle defaults and collections. However, critics argue that this approach could leave borrowers vulnerable to higher costs and fewer protections.
“It’s a tidal wave coming for an unprepared village,” said a former senior Education Department employee. “The fallout is not even hypothetical now.”
See also: Trump Wants to Get Rid of the Education Department—But What About Student Loans?
Shrinking Options for Borrowers
The Biden administration’s SAVE plan, which capped monthly student loan payments at 5% of a borrower’s income, has been scrapped following legal challenges from Republican state attorneys general. With income-driven repayment plans removed from the Department of Education’s website, borrowers are left with fewer options to manage their debt.
Nicolas Salem, a former analyst at the Consumer Financial Protection Bureau, is among those struggling to navigate the changes. After being laid off, Salem’s income dropped to zero, but he has been unable to adjust his payments or reach his loan servicer, Mohela, after hours on hold.
“I think I’m going to have to move,” Salem told CNN, calling the payments an “extreme drain” on his savings.
Strained Staff and Lack of Communication
The Department of Education is facing a staffing crisis, with roughly a quarter of its 1,500 employees in the Federal Student Aid (FSA) division departing due to buyouts and resignations. The remaining staff is grappling with a lack of communication and resources, leaving schools, servicers, and borrowers in the dark about upcoming changes.
“I’m afraid of what the coming days, weeks, months, years will bring not just for me and the Department, but for the borrowers we serve,” wrote Colleen Campbell, FSA’s Executive Director of Loan Portfolio Management, in a LinkedIn post.
The botched rollout of the revamped Free Application for Federal Student Aid (FAFSA) in 2024 serves as a cautionary tale. Delays and confusion plagued the process, and experts warn that further cuts could exacerbate these issues.
“We already saw the impact of not getting enough appropriated money to manage the FAFSA process,” said Michele Shepard Zambini of the Institute for College Access and Success. “Now having so many career staff gone … it’s cause for concern.”
See also: Trump Suspends Mexico Tariffs for One Month Amid Trade Uncertainty
As the Department of Education prepares for steep layoffs and restructuring, millions of borrowers are left wondering how they will manage their loans. With fewer repayment options, strained customer service, and the potential for increased defaults, the road ahead is uncertain.
For now, the fate of trillions in student debt remains in limbo, leaving borrowers like Nicolas Salem to navigate an increasingly complex and unforgiving system.
