What Happens to Student Loans if the Department of Education Is Abolished? Key Impacts and Steps to Take in 2025
Learn how the potential end of the Department of Education in 2025 could affect student loan repayment, forgiveness, and PSLF. Discover expert insights on disruptions and 8 practical steps to protect your finances during this transition.
DEBT MANAGEMENTFEATUREDPARENTS & EDUCATORS
3/21/202512 min read


Recent news reports indicate that the U.S. President is moving to abolish the Department of Education, a federal agency responsible for overseeing education policy, including the massive federal student loan system. This potential dismantling of a major federal department has raised significant concerns among the millions of Americans with outstanding student loan debt.
As of March 2025, approximately 43 million Americans hold federal student loans totaling over $1.6 trillion, according to data from the Federal Reserve and loan servicers. The Department of Education currently manages these loans through its Office of Federal Student Aid (FSA), handling everything from repayment plans to forgiveness programs.
If this agency were dismantled, the transition could send ripples through the entire student loan ecosystem, affecting borrowers' monthly payments, forgiveness opportunities, and long-term financial planning. This article examines the potential impacts of abolishing the Department of Education on student loan borrowers and provides actionable steps to prepare for possible changes.
The Current State of Federal Student Loans
Before exploring the potential impacts, it's important to understand the current landscape of federal student loans. The Department of Education oversees several loan programs through its Office of Federal Student Aid:
Direct Loans: The largest program, with loans made directly by the U.S. Department of Education
Federal Family Education Loans (FFEL): Older loans made by private lenders but guaranteed by the federal government
Perkins Loans: Campus-based loans for students with exceptional financial need
The management of these programs involves a complex ecosystem:
Loan Servicing: The Department contracts with private companies like Navient, Nelnet, MOHELA, and Aidvantage to handle day-to-day loan management
Repayment Plans: Options range from standard 10-year plans to various income-driven repayment schemes
Forgiveness Programs: Including Public Service Loan Forgiveness (PSLF) and income-driven forgiveness after 20-25 years
Default Management: Collections, rehabilitation programs, and hardship options
This system, while imperfect, provides structure and predictability for millions of borrowers. The Department of Education serves as the central authority, creating policies, overseeing servicers, and providing the studentaid.gov portal where borrowers can access their loan information.
Impact on Loan Repayment Systems
If the Department of Education is eliminated, the most immediate concern for borrowers would be disruptions to the current repayment infrastructure.
Short-Term Disruptions
The transfer of loan management responsibilities to another agency would likely cause several immediate issues:
Payment Processing Delays: Systems integration challenges could lead to payments not being correctly applied to accounts
Customer Service Bottlenecks: As staff transition to new departments or agencies, borrowers might face longer wait times for assistance
Website and Portal Access Issues: The studentaid.gov portal might experience downtime or changes that make account access difficult
Documentation Challenges: Records of past payments or forgiveness progress could be temporarily inaccessible
Historical precedent suggests these disruptions could be significant. When federal loans transitioned from the bank-based Federal Family Education Loan Program to Direct Loans in 2010, borrowers experienced numerous issues with lost paperwork, misapplied payments, and confusion about whom to contact.
Servicer Contract Uncertainty
The Department of Education maintains contracts with loan servicers that handle the day-to-day management of federal student loans. If the department is eliminated, these contracts would need to be reassigned to another agency or renegotiated entirely.
This transition period could create several problems:
Servicers might operate with reduced funding or unclear directives
Some servicers could exit the federal loan space if new terms are less favorable
Borrowers might be transferred to new servicers, creating confusion and potential errors
For example, when FedLoan Servicing (PHEAA) announced its exit from federal student loan servicing in 2021, millions of borrowers had to be transferred to new servicers, resulting in widespread confusion and account issues.
Potential Changes to Income-Driven Repayment Plans
Income-Driven Repayment (IDR) plans are a lifeline for many borrowers, allowing them to make payments based on their income rather than their loan balance. Currently, these plans include:
Income-Based Repayment (IBR)
Pay As You Earn (PAYE)
Revised Pay As You Earn (REPAYE)
Income-Contingent Repayment (ICR)
SAVE Plan (Saving on a Valuable Education)
These plans require annual income recertification and complex calculations to determine payment amounts. The Department of Education has developed systems to manage this process, including integration with IRS data to verify income.
Possible Scenarios for IDR Plans
If the Department of Education is abolished, these plans could face several changes:
Scenario 1: Program Continuation Under New Management A new agency (perhaps at Treasury) could maintain current IDR structures but with administrative hiccups during transition.
Scenario 2: Program Simplification The transition could be used as an opportunity to consolidate the multiple IDR plans into fewer options, potentially changing payment calculations.
Scenario 3: Program Reduction Budget priorities might lead to less generous IDR terms, such as higher payment percentages or longer forgiveness timelines.
Scenario 4: Program Elimination In the most extreme case, IDR plans could be phased out, forcing borrowers into standard repayment plans.
Financial Impact on Borrowers
The potential financial consequences are significant. Consider these examples:
A borrower earning $50,000 with $40,000 in loans might currently pay around $200 monthly under REPAYE. Under a standard 10-year plan, this would jump to approximately $400 monthly.
A family of four with $70,000 in household income and $80,000 in student debt might see payments rise from $300 to $800 monthly if forced into standard repayment.
A recent graduate with $30,000 in loans and starting salary of $35,000 could see payments increase from $125 to $300 monthly without IDR options.
The Future of Student Loan Forgiveness Programs
Beyond regular repayment, the Department of Education administers various loan forgiveness initiatives. The future of these programs under a new administrative structure is uncertain.
Broad Loan Forgiveness Initiatives
Recent years have seen attempts at widespread student loan forgiveness, such as the Biden administration's plan to forgive up to $20,000 per borrower. These initiatives rely on Education Department authority and implementation.
Without the Department of Education, several scenarios could unfold:
Ongoing forgiveness efforts could stall during transition
Legal authority for broad forgiveness might be questioned under new administration
New qualifying criteria could be established, potentially excluding borrowers who previously qualified
Income-Driven Repayment Forgiveness
Current IDR plans offer loan forgiveness after 20-25 years of qualifying payments. This forgiveness mechanism depends on careful tracking of payment histories and accurate application of complex rules.
If the Department of Education is abolished:
Payment tracking systems might lose continuity
Different interpretations of qualifying payment rules could emerge
Borrowers close to forgiveness might face delays or increased scrutiny
New administrative bodies might require borrowers to resubmit documentation or restart verification processes
Teacher Loan Forgiveness and Other Specialized Programs
Smaller forgiveness programs, such as Teacher Loan Forgiveness, Perkins Loan Cancellation, and forgiveness for borrowers with total and permanent disabilities, could also face disruption or reinterpretation under new management.
Public Service Loan Forgiveness at Risk
The Public Service Loan Forgiveness (PSLF) program is perhaps the most vulnerable to organizational changes. This program forgives remaining loan balances after 120 qualifying monthly payments (10 years) while working for eligible public service employers.
Current PSLF Landscape
As of early 2025, over 1.3 million borrowers are pursuing PSLF, according to FSA data. The program has become increasingly important for recruiting and retaining workers in critical public service sectors:
Government agencies (federal, state, local, tribal)
501(c)(3) non-profit organizations
Public health, education, and safety services
The Department of Education oversees the complex process of certifying eligible employment, tracking qualifying payments, and approving forgiveness applications.
Historical PSLF Challenges
PSLF has already experienced significant administrative challenges. Between 2017 and 2021, only around 1% of PSLF applications were approved, with most rejections due to bureaucratic issues rather than ineligibility. Improvements were made through the PSLF Waiver and PSLF Account Adjustment, but these required substantial Department of Education resources and expertise.
Potential PSLF Disruptions
If the Department of Education is abolished, PSLF could face severe disruptions:
Employment Certification Delays: The system for verifying eligible employment could break down during transition
Payment Counting Inconsistencies: Different interpretations of what constitutes a qualifying payment could emerge
Processing Backlogs: Applications might pile up as staff and systems transition
Rule Changes: A new administering agency might interpret PSLF requirements differently
Real-World Impact
These disruptions would have real consequences for public servants. For example:
A teacher with $60,000 in loans who has made 100 of the required 120 payments might face delays in reaching forgiveness
A public defender counting on PSLF to manage $120,000 in law school debt might find new restrictions on eligible employment
A nurse with $80,000 in loans might discover that some previously qualifying payments no longer count under new interpretations
Administrative Challenges During Transition
Beyond specific programs, the broader administrative transition would create numerous challenges for student loan borrowers.
Staffing and Expertise Gaps
The Department of Education employs over 4,000 staff, with specialized knowledge of student loan programs. A transition would likely result in:
Loss of institutional knowledge as employees retire or find other jobs
Training delays for staff at the new administering agency
Reduced customer service capacity during the transition period
Potential policy inconsistencies as new staff interpret regulations
Systems Integration Issues
The technical infrastructure supporting federal student loans is complex and includes:
The National Student Loan Data System (NSLDS)
The studentaid.gov portal
Multiple servicer platforms
Integration with IRS data for income verification
Application processing systems for various programs
Transferring these systems to a new agency would be technically challenging and potentially create data inconsistencies, access issues, and processing delays.
Budget Uncertainty
During any major reorganization, budget allocations can become uncertain. This could affect:
Funding for servicer contracts
Resources for borrower assistance programs
IT infrastructure maintenance and updates
Staffing levels for customer service
Data Security and Privacy Concerns
The Department of Education currently safeguards personal and financial information for 43 million borrowers. This includes:
Social Security numbers
Income information
Employment details
Loan histories
Contact information
A transition to a new agency creates potential vulnerabilities:
Data transfer processes could expose information to security risks
New systems might not initially have the same security protocols
Borrowers might face increased phishing attempts during confusion
Authentication systems could change, creating access challenges
Historically, even routine servicing transitions have resulted in data security concerns. A department-wide reorganization would amplify these risks.
Steps Borrowers Can Take to Prepare
While the future of the Department of Education remains uncertain, borrowers can take proactive steps to safeguard their finances and stay ahead of potential changes.
1. Document Your Loan Details Thoroughly
Create a comprehensive record of your student loan information:
Download your complete loan history from studentaid.gov
Save copies of all payment confirmations and correspondence
Document your current repayment plan and terms
Print or save your loan servicer account information
Maintain records of employment certification for PSLF
Keep copies of any forgiveness or discharge applications
Store these records in multiple secure locations—both digital and physical—to ensure access regardless of system changes.
2. Contact Your Loan Servicer for Clarity
Establish direct communication with your loan servicer:
Confirm your current repayment status and next payment date
Verify that your contact information is up-to-date
Ask about their plans in case of Department of Education changes
Request a point of contact for future questions
Document all conversations with reference numbers and representative names
3. Build a Financial Buffer
Prepare financially for potential disruptions:
Create an emergency fund specifically for loan payments
Aim to save 3-6 months of loan payments ($900-$1,800 for a $300 monthly payment)
Set up automatic alerts for minimum payment requirements
Consider making small overpayments to create a cushion against missed payments
Review your overall budget to identify areas where you could cut back if payments increase
4. Explore Alternative Repayment Options
Research fallback options if federal programs change:
Understand the terms of standard repayment plans
Calculate what your payments would be under different scenarios
For those with strong credit and income, research private refinancing options (current rates hover around 4-6% as of March 2025)
Note that refinancing to private loans would permanently eliminate federal benefits and protections
Consider state-based repayment assistance programs that might continue regardless of federal changes
5. Secure Your PSLF Progress
If you're pursuing Public Service Loan Forgiveness:
Submit employment certification forms immediately, even if not currently required
Keep a detailed record of all qualifying payments and employment
Save copies of all PSLF-related correspondence
Connect with PSLF advocacy groups for updates and information
Consider accelerating payments if you're close to the 120-payment threshold
6. Stay Informed Through Multiple Channels
Monitor developments through reliable sources:
Follow official government announcements from the White House, Treasury Department, and Department of Education
Subscribe to updates from student loan advocacy organizations like the Student Borrower Protection Center
Join borrower communities on social media for real-time information sharing
Sign up for alerts from your loan servicer
Check the Federal Register for regulatory changes
Consider setting up news alerts for key terms like "student loan transition" or "Department of Education reorganization"
7. Seek Professional Guidance
Consider getting personalized advice:
Consult a financial advisor familiar with student loans
Connect with nonprofit credit counseling services through the National Foundation for Credit Counseling (NFCC)
Speak with an education attorney if you have complex loan situations
Contact your school's financial aid office, which may offer alumni assistance
Reach out to professional associations in your field that may provide guidance
8. Advocate for Your Interests
Make your voice heard on policy matters:
Contact your congressional representatives about your concerns
Join borrower advocacy groups pushing for smooth transitions
Share your story with policymakers and media
Participate in public comment periods for any new regulations
Support organizations advocating for borrower protections
Long-term Outlook for Student Loan Programs
While immediate disruptions are likely if the Department of Education is abolished, the long-term picture for federal student loans could take several directions.
Historical Context
Federal involvement in student loans predates the Department of Education. The first federal student loan program began in 1958 under the National Defense Education Act, and the Department of Education itself wasn't created until 1979. Before that, various loan programs were administered by the Department of Health, Education, and Welfare.
This history suggests that while administrative structures may change, federal support for student lending is likely to continue in some form.
Possible Future Scenarios
Scenario 1: Transfer to Treasury The entire federal student loan portfolio could be moved to the Department of the Treasury, which already handles tax collection and other financial matters. This might eventually lead to more integration between tax and loan repayment systems.
Scenario 2: New Specialized Agency A new, smaller agency focused solely on student aid could be created, potentially streamlining operations but with initially limited capacity during setup.
Scenario 3: Privatization Push Administration could shift toward a model with greater private sector involvement, potentially reducing federal guarantees and protections over time.
Scenario 4: State-Based Administration Some functions could be delegated to state agencies, creating a patchwork of policies and programs across the country.
Long-term Program Evolution
Regardless of administrative structure, several trends might emerge:
Simplification of repayment options
Greater integration with tax systems
Stronger emphasis on loan repayment rather than forgiveness
Increased focus on alternative financing models like income share agreements
Enhanced data-sharing between agencies for verification purposes
How Other Countries Manage Student Loans
Looking at international models provides perspective on alternative approaches to student loan administration:
United Kingdom: Loans are administered by the Student Loans Company, a non-departmental public body. Repayment is collected through the tax system, with automatic income-based payments.
Australia: The Higher Education Loan Program (HELP) operates entirely through the tax system, with repayment rates scaling based on income thresholds.
New Zealand: Student loans are managed jointly by the Ministry of Education, Inland Revenue, and the Ministry of Social Development, demonstrating a multi-agency approach.
Canada: Loans are administered through the National Student Loans Service Centre but with significant provincial involvement, showing a federal-state partnership model.
These international examples suggest various viable administrative structures beyond a single department model.
Economic Implications of Restructuring
The restructuring of federal student loan administration would have broader economic implications beyond individual borrowers:
Labor Market Effects
Programs like PSLF influence career choices, particularly in public service fields. Disruptions could:
Reduce recruitment in critical sectors like education, healthcare, and public safety
Accelerate departures from public service roles
Widen pay gaps between public and private sectors
Consumer Spending Impact
Changes to repayment amounts could affect broader economic activity:
Higher monthly payments would reduce discretionary spending
Uncertainty might lead borrowers to delay major purchases
Housing market entry could be further delayed for younger borrowers
Higher Education Ecosystem
Disruptions in loan administration could influence higher education more broadly:
Institutions might face pressure to reduce costs if federal loan access becomes less reliable
Alternative financing models might gain prominence
College enrollment patterns could shift if loan terms become less favorable
Resources for Borrowers
As this situation develops, several resources can provide ongoing support and information:
Government Resources
Federal Student Aid Information Center: 1-800-4-FED-AID
Consumer Financial Protection Bureau: consumerfinance.gov/student-loans
USA.gov financial assistance section
Non-Profit Organizations
Student Borrower Protection Center (protectborrowers.org)
National Consumer Law Center's Student Loan Borrower Assistance (studentloanborrowerassistance.org)
National Foundation for Credit Counseling (nfcc.org)
Educational Resources
Federal Student Aid YouTube channel for instructional videos
Studentaid.gov knowledge base (download resources while available)
The Institute for College Access & Success (ticas.org)
Legal Assistance
Lawhelp.org for free legal aid referrals
State bar association lawyer referral services
University legal clinics
Preparation is Power
The potential abolition of the Department of Education represents significant uncertainty for the 43 million Americans with federal student loans. While the full impact remains to be seen, borrowers who take proactive steps now will be better positioned to navigate the transition.
Remember that federal student loans have survived numerous administrative changes since their inception in the 1950s. The system may change, but the fundamental infrastructure supporting these loans is likely to continue in some form.
By documenting your loan details, building financial buffers, staying informed through multiple channels, and understanding your options, you can maintain control of your financial future regardless of administrative changes. The key is to act now, before any transition begins, to secure your position and prepare for various scenarios.
As this situation evolves, we will continue to provide updates and guidance to help you navigate the changing landscape of federal student loans.
Disclaimer: This article provides general information, not personalized financial or legal advice. Consult with qualified professionals regarding your specific situation before making significant financial decisions.
Frequently Asked Questions
Q: Will my loans be forgiven if the Department of Education is abolished?
A: No. The debt obligation remains regardless of which government agency administers the loans. Existing forgiveness programs may continue under new management, but the loans themselves would still be valid.
Q: Should I rush to consolidate my loans before any changes occur?
A: Consolidation typically isn't necessary as a protective measure. In fact, consolidating can sometimes reset forgiveness progress or remove certain benefits. Consult a student loan expert before making this decision.
Q: Will my income-driven payment amount change immediately?
A: Immediate changes are unlikely, but recertification processes might be disrupted. Having documentation of your current payment amount and recertification timeline is advisable.
Q: What happens to my PSLF progress if the program changes?
A: Historically, major program changes have included grandfathering provisions for existing participants. However, documentation of your current progress is essential for protecting your status in case of disputes.
Q: Is private refinancing a good idea given this uncertainty?
A: Private refinancing permanently removes federal benefits and protections, including access to income-driven plans and forgiveness programs. While it may offer lower interest rates, it's generally advisable to wait for more clarity before taking this irreversible step.
Q: How quickly would changes happen if the Department of Education is abolished?
A: Even if legislation passes quickly, the administrative transition would likely take months or years to complete. Most changes affecting borrowers would be gradual rather than immediate.