What happens to student loans without a Department of Education

By Victoria Holliday | Published on March 30, 2026

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During his 2024 presidential campaign, Donald Trump proposed eliminating the Department of Education, a move that could have significant implications for federal student loan programs. Key questions remain unanswered, including which existing programs would continue, which would be discontinued, and how current departmental responsibilities would be redistributed among other federal agencies. While the proposal represents a potentially major shift in federal education policy, the practical details of such a transition have not been publicly outlined.

We understand the anxiety and uncertainty surrounding potential changes to the Department of Education. Borrowers want to understand how these proposed changes might affect their ability to finance higher education or manage existing loans.

Let's dive deep into what these changes could mean for student loans and student loan refinancing.

Can President elect Trump get rid of the Department of Education?

While Trump has voiced support for eliminating the Department of Education, the reality of dismantling this federal agency faces significant constitutional and legislative hurdles. Total elimination of the Department of Education would require congressional action, including a supermajority of 60 votes in the Senate - a threshold that has historically proven difficult to achieve. While Trump has voiced support for eliminating the Department of Education, the reality of dismantling this federal agency faces significant constitutional and legislative hurdles.

Total elimination of the Department of Education would require congressional action, including a supermajority of 60 votes in the Senate - a threshold that has historically proven difficult to achieve. Republicans currently hold a majority of 53 Senate seats, but they still fall short of the 60 votes needed. Meaning total elimination is unlikely but not impossible.

In March 2025, Education Secretary Linda McMahon announced Department of Education layoffs impacting half the workforce—1,315 staffers.

Department of Education layoffs impact to FAFSA

If you rely on financial aid should you complete your FAFSA immediately for the 2025-2026 academic year? Yes, if you or your child is planning to attend college for the 2025-2026 academic year, we recommend completing the Free Application for Federal Student Aid (FAFSA) as soon as possible. The recent staffing cuts at the Department of Education will likely cause delays in FAFSA processing, which could directly impact the timely disbursement of federal student loans. A reduction in staff also means if there’s a problem or issue with your FAFSA it may take much longer to reach a Department member to help. The National Association of Student Financial Aid Administrators (NASFAA) has publicly stated that these layoffs will impact services and systems like FAFSA and has been critical of the speed at which the department is being dismantled.

What you need to know about the current FAFSA situation:

• The Department of Education's workforce reduction means fewer staff are available to process FAFSA applications
• Several Department of Education websites are already experiencing technical issues and outages
• Without a processed FAFSA, Direct Loans cannot be issued for the upcoming academic year
• Students who submit their FAFSA early will be prioritized in the processing queue
• Completing your FAFSA now may help ensure you have access to federal Direct Loans for the 2025-2026 academic year

To complete your FAFSA, visit studentaid.gov and have your tax information and other required documents ready. If you encounter website issues, try during off-peak hours or check back frequently as the Department works to address technical problems.

Federal student loans moving to the Small Business Administration

On March 21, 2025, President Donald Trump announced that the federal student loan portfolio would be immediately transferred from the Department of Education to the Small Business Administration ( SBA). This announcement comes just one day after Trump signed an executive order to dismantle the Education Department. The SBA, headed by Kelly Loeffler, will now be responsible for managing approximately $1.6 trillion in federal student loans affecting roughly 43 million borrowers.

What this means for current borrowers

For the 43 million Americans who currently have federal student loans, this administrative change raises important questions about loan servicing and repayment. The most critical thing borrowers should understand is that the terms and conditions of your federal student loans cannot change even if the agency overseeing them does. You should continue making monthly payments as normal unless you hear otherwise from your servicer.

Impact for future borrowers

It remains uncertain what this transition to the Small Business Administration will mean for future student loan borrowers. Questions persist about whether the government will continue direct lending or potentially shift to private loans with government guarantees. Prospective students should monitor for updates to application processes, loan terms, and eligibility requirements as this transition unfolds.

Potential impact on future loan borrowers: Federal loan availability

The most immediate concern for future students is what happens to federal loan programs. While the Department of Education's role might shift, the fundamental structure of federal student lending remains rooted in the Higher Education Act. This means federal loans would be unlikely to simply disappear overnight. Currently, the Department of Education manages about $1.5 trillion in federal student loan debt, impacting over 40 million borrowers nationwide, making them the primary loan holder for most federal student loans.

However, changes could reshape how these loans are administered and accessed.

Current federal student loans offer several unique protections and benefits that make them attractive to students. Without the Department of Education's oversight, these programs would likely continue under different management, potentially through the Treasury Department or a new independent agency. This transition could lead to evolving terms and conditions for new borrowers.

This means:

• Federal loans would likely continue, potentially under different management
• Loan limits and terms might see adjustments
• The application process could change
• Interest rates might be affected

Other things to note:

• Income-driven repayment plans could see revisions. While these plans wouldn't disappear entirely, their terms and qualification requirements might change under the new Presidential administration.
• The FAFSA application process is already undergoing transformation due to staffing cuts, with potential for additional changes as departmental responsibilities shift.

*As a result of ongoing court actions, the terms of some Income-Driven Repayment (IDR) plans, including the SAVE plan, may be subject to change. Please refer to studentaid.gov for the current status of these plans.

If you’re planning to attend college or higher education in the future, you should have comprehensive funding strategies that don't rely solely on federal loans. This means maximizing all available institutional aid and scholarships, and keeping track of application deadlines and requirements from any funding source. Also explore private student loans from reputable lenders, like Earnest. Also explore potential employer tuition assistance programs which may help cover a portion of your tuition costs. And most importantly, complete your FAFSA as early as possible to secure your funding for the upcoming academic year.

What current federal borrowers need to know

If you're already repaying federal student loans, here's what to consider and prepare for in the event of changes to the Department of Education. If you're currently repaying federal student loans, your existing loan terms are protected by your master promissory note.

If you're repaying federal student loans:

• Your existing loan terms would remain legally binding
• Your loan servicer might change
• Payment processing systems could see updates
• Forgiveness programs might face modifications

Currently, most federal student loans are managed through a complex system involving: The Department of Education as the primary administrator, contracted loan servicers who handle day-to-day operations, and the Treasury Department, which is involved in disbursement and collection. If there were no Department of Education, student loans would likely continue through other federal mechanisms because the laws for federal student loans are part of the Higher Education Act.

However, if the Department of Education were to dissolve or face reduced powers, some aspects of loan servicing could see significant changes:

• Loan servicers might change: The system for managing federal loans could transition to new servicers or be consolidated under different management. While this wouldn't change your underlying loan terms, it could affect how you interact with your loan servicer and access information about your loans.
• Forgiveness programs could change: Existing commitments under programs like Public Service Loan Forgiveness (PSLF) would likely be honored, but how these programs are run, including eligibility might change.

What to do if you currently have federal loans

If you currently have federal student loans you should make sure you understand your current loan terms including who your servicer is.

• Document your loan terms
• Stay in touch with your loan servicer
• Watch for communications about servicing changes

What to do if you’re currently working toward forgiveness

There are currently several plans and options for federal student loan borrowers looking for student loan forgiveness. If you are working towards student loan forgiveness:

• Maintain detailed records of your qualifying payments
• Document your employment certification history
• Stay informed about any changes to program requirements or administration

For those considering student loan refinancing

If you are thinking about refinancing you should compare your options. You can check your rate with Earnest in under 2 minutes with no impact to your credit score. Consider locking in low interest rates if they're favorable. If you qualify for a lower interest rate you could save and pay off your debt faster.

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Victoria Holliday

Victoria is the Head of Content at Earnest. She brings extensive ed-tech expertise from six years at Chegg, where she developed educational resources reaching over 20 million students nationwide.

With a Master’s in Political Science and experience in public policy from several California campaigns, she’s passionate about creating accessible content that enhances student outcomes in the dynamic world of higher education.

Disclaimer

This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.