What Happens to Student Loans If Education Department Closes?

President Donald Trump’s administration has long been vocal about its desire to dismantle the U.S. Department of Education. This week, the administration took a significant step towards fulfilling this pledge by announcing agreements with four other federal departments to administer programs and services previously provided by the Education Department.

The Education Department plays a crucial role in providing roughly 10% of K-12 funding and enforcing federal civil rights for students. While it does not establish federal curriculum for schools, it plays a larger role in financing higher education, including managing a massive $1.6 trillion student loan portfolio and various funding programs for colleges and students.

Education Secretary Linda McMahon stated that the administration is aiming to break up the federal education bureaucracy and return education responsibilities to the states. The Department of Labor, along with the departments of State, Interior, and Health & Human Services, will now oversee new education-related programs under these agreements.

However, this move has sparked criticism from some nonprofit education groups. The National Association of Federal Student Aid Administrators raised concerns about the logistics, efficiency, and expertise of transferring these responsibilities to agencies without deep experience in higher education programs or policy.

The announcement does not currently impact the Education Department’s student loan portfolio or financial aid programs like Pell Grants. With over 40 million federal student loan borrowers, the Education Department remains one of the largest holders of consumer debt in the country.

While the complete elimination of the Education Department is deemed unlikely, experts warn of unforeseen effects on education and the economy if such a move were to happen. Former President Jimmy Carter created the current iteration of the Education Department in 1980, but it was not the first Education Department in the country’s history.

Opponents of the department argue that it is wasteful and ineffective, advocating for states to manage their own education programs. Project 2025, a conservative policy wish list, echoes this sentiment, calling for the limitation and eventual elimination of the federal Department of Education.

The fate of the $1.6 trillion federal student loan debt, currently overseen by the Education Department, remains uncertain. Proposals to transfer the loans to other government agencies, like the Small Business Administration or the Department of the Treasury, have been suggested but face legal challenges and lack momentum.

Under President Trump’s leadership, the Education Department has undergone significant changes, with a focus on restructuring student loan repayment programs and implementing new laws like the One Big Beautiful Bill Act. However, these changes have resulted in delays and backlogs for borrowers seeking relief under existing programs like the Public Service Loan Forgiveness plan.

Despite the administration’s efforts to dismantle the Education Department, critics argue that these actions may not save taxpayer money, increase efficiency, or improve services. Instead, they warn that these cuts could lead to disruptions and negative outcomes for students and borrowers.

In conclusion, while the future of the Education Department remains uncertain, the ongoing changes and restructuring under the Trump administration signal a significant shift in education policy and funding in the United States.