The U.S. Department of Education plays a crucial role in managing federal student loans, overseeing financial aid programs, and ensuring access to education for millions of Americans. Recent discussions surrounding the potential elimination or significant reduction of this department have raised concerns among current and prospective student loan borrowers.
The concerns are very real. In a draft executive order reviewed by USA Today, President Donald Trump proposed measures aimed at dismantling the U.S. Department of Education. While complete abolition would require congressional approval, the administration is pushing for significant reductions in its scope and operations. Secretary of Education Linda McMahon has indicated that these changes could profoundly impact staff, budgets, and agency operations.
However, experts suggest that federal student loans are likely to remain intact despite these proposed changes. Betsy Mayotte, president of The Institute of Student Loan Advisors, reassures borrowers that key sources of education funding such as federal student loans and Pell Grants will not be affected by any restructuring efforts. The terms and conditions associated with these loans are protected by law and cannot be altered retroactively without congressional action.
Most Likely Case for Loans
If the Department of Education were to close or significantly reduce its operations, it is anticipated that federal student loans would be transferred to another agency, likely the Department of the Treasury. This transition would not alter existing loan terms or conditions, including repayment plans or eligibility for programs like Public Service Loan Forgiveness (PSLF).
Mayotte emphasizes that Congress has historically refrained from retroactively changing benefits associated with existing loans. Therefore, current borrowers should not fear losing their aid or having their loan terms modified under the proposed changes.
The Role of FAFSA in Federal Aid
The Free Application for Federal Student Aid (FAFSA) is a critical tool for students seeking financial assistance for college. It determines eligibility for federal grants, work-study opportunities, and low-interest loans. As reported by the National College Attainment Network’s FAFSA Tracker, as of December 2024, 58% of California high school seniors had completed their FAFSA applications for the 2024-25 academic year.
For students in Arizona and beyond who have already qualified for federal aid through FAFSA or received Pell Grants, their financial support remains secure unless Congress enacts new legislation affecting these programs. Any potential changes would likely emerge from ongoing budget negotiations expected to conclude around April or May.
While current borrowers may not face immediate threats to their existing loans, future borrowers could see significant changes depending on legislative developments. House Republicans have floated proposals that might restrict access to Parent PLUS or Grad PLUS loan programs — loans designed to cover educational costs not met by other forms of aid.
These proposals would need to navigate through a budgetary approval process known as reconciliation in Congress — a process typically utilized by the majority party in the Senate to expedite legislation without needing a supermajority vote.
The Big Picture
The overarching issue surrounding student loans is not merely about who administers them but rather about addressing the rising costs of higher education itself. Critics argue that eliminating or downsizing the Department of Education will not resolve systemic issues related to college affordability.
Mayotte points out that both political parties recognize the need for colleges to have “skin in the game” regarding tuition costs. Proposals are circulating in Congress aimed at reducing these costs through various means — whether through increased state funding or accountability measures for educational institutions.
