What Will Happen to Student Loans If the Department of Education Is Closed Down?

President Donald Trump has not been timid about his attempts to dismantle the Department of Education. It’s part of his central battle in shrinking the size of the federal government, a charge spearheaded by his Department of Government Efficiency [DOGE], under the watchful eye of Elon Musk.

Linda McMahon, the newly-instated Secretary of the Department of Education, professed a more nuanced view of the department’s future during her confirmation hearings. But during a March 7 TV appearance on Fox & Friends, when McMahon was asked if she believed that the country needed an Education Department, she replied with a stark “no, we don’t.”

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In a separate appearance on NewsNation Live, McMahon said she believed that student loans and grants “might be best served in another department,” echoing comments made by Trump.

Many experts have said that the dismantling of the agency would be complicated and difficult, and questions remain as to what will happen to student loans if the department’s doors are shuttered.

Amid reports of a pending Executive Order from Trump, here’s what we know so far.

What has Trump said will happen to student loans if the Department of Education is dismantled?

In the Oval Office on March 6, Trump was asked what department or agency would handle student loans if the Department of Education was dismantled. 

Trump told reporters that he doesn’t believe student loans should be run under the Department of Education, and instead will likely end up being run under the Treasury Department, the Small Business Administration (SBA), or the Commerce Department. 

“We’ve actually had that discussion today,” Trump said. “The loans would be brought into a group where they really do that… that is, by the way, the most complicated thing in moving, but it’s really simple if you do that.”

Trump said he hopes specifically for the SBA to take hold of the student loan process, which he says Kelly Loeffler—a Republican, a former senator from Georgia, and the new administrator of the SBA— has already expressed interest in. “Kelly really liked it and would like to do it,” he told reporters.

Read More: What Trump’s Win Means for Education

What are experts saying about Trump’s plan?

According to Andrew Gillen, research fellow at the Cato Institute for Economic Freedom, the SBA would be a “strange choice” because the office is set up to process small business loans. Gillen “doubts” they’d be set up to handle over 40 million student loan borrowers with federal loan debt.

Gillen and Jonathan E. Collins, an assistant professor of political science and education at Teachers College, Columbia University, both argue that it will more likely be a job for the Treasury Department.

 “A lot of the student loan repayment programs already require income verification, which the Treasury Department already has,” Gillen says. “So, from an efficiency perspective, that makes sense. And they’re already scaled up to handle millions of new borrowers.”

The outstanding federal student loan balance is $1.693 trillion, per the Education Data Initiative, and is managed separately from the department’s policy apparatus, primarily through the Office of Federal Student Aid (FSA). Gillen says, though, that the topic of student loans is completely separate from Trump’s issues with the Department of Education, considering that many big financial aid programs—including the Pell Grant and work-study—existed before there was a Department of Education. Whether they would run better, or more equitably, outside the Education Department depends heavily on where Trump plans to move student loan administration.

Collins points to the thirty-year precedent of these programs being under the department, and their impact to allow people to access higher education. Further, he notes that Trump’s desired full dismantling would require an act of Congress, and with the Senate’s filibuster rules, he doubts that it will actually occur.

McMahon acknowledged Congress’ importance during her confirmation hearing process.

“[The Education Department] is set up by the United States Congress and we work with Congress. It clearly cannot be shut down without it,” she told Sen. Bernie Sanders, who asked if she agrees that if there’s a move to dismantle the department, it has to first go through the legislature.

Instead, Collins believes it’s more likely that Trump will continue to decrease spending under the Department, much like he has done in other areas under the purview of DOGE.

“We’re more likely to continue to see what we’ve been seeing from the Trump Administration,” Collins says. “Gutting all the activity underneath it and basically make it [the Department of Education] a shell of itself, with the federal student aid program being kind of next on the chopping block.”

Much of the uncertainty around student loan forgiveness, Gillen, says, is not related to the Trump Administration, but rather the student loans cases that are moving through the court system—particularly the Biden-Harris Administration’s Saving on a Valuable Education (SAVE) plan, which was blocked by the 8th Circuit Court of Appeals in mid-February.

Read More: What Student Loan Borrowers Need to Know About Income-Driven Repayment Plans

What has happened regarding student loans since Trump returned to the White House?

In late February, the Department of Education shut down parts of the applications for SAVE and other income-driven repayment (IDR) plans. Though Trump has distanced himself from Project 2025, a far-right Heritage Foundation policy plan unveiled in April 2023, the initiative has since been mirrored in many of his early actions. The Project 2025 document suggested phasing out IDR plans for student loan borrowers and replacing them with a one-size-fits-all IDR plan. In June 2024, the Center for American Progress stated that this plan could “mean spiked monthly student loan payments, ballooning interest, and heavy blows to credit scores.”

The Project 2025 document also suggested transferring the FSA—the largest provider of student financial aid in the nation—to “a new government corporation with professional governance and management” and that the Administration should consider returning to a system in “which private lenders, backed by government guarantees, would compete to offer student loans, including subsidized and unsubsidized, loans.”

Gillen says with so much uncertainty, the fallout of what Trump’s plans are for the Education Department cannot be fully predicted—and this uncertainty has caused alarm among student loan borrowers and forgiveness advocates.

“Borrowers already struggle with massive call wait times to contact their servicers. The likely disruptions caused by a resource-starved Department of Education without the ability or desire to ensure proper oversight of loan servicers, will result in mass chaos, more delinquencies and defaults, and worse,” the Student Borrower Protection Center wrote on its website on March 3.

For Collins, his concern is how this impacts affordability—one of Trump’s assurances that he campaigned on—especially as student loans allow for more affordable access to higher education.

“The story of the higher education system in America is that it has been a ladder for opportunity,” Collins says. “And now you’re kicking the ladder when folks are in the middle of the climb. So what’s the pathway to the top now?”

It’s this concern that stays at the forefront for many, as the future and direction of student loans remains uncertain.