Student Loans Spared for Now in Dismantling of Education Department, But Threats Loom

Federal student loans will remain at the Department of Education for now, even as other programs and operations will be shifted to other federal agencies in a major announcement by the Trump administration this week. 

“The Trump Administration is taking bold action to break up” the Department of Education, said Secretary of Education Linda McMahon in a statement on Tuesday. “Cutting through layers of red tape in Washington is one essential piece of our final mission… Together, we will refocus education on students, families, and schools – ensuring federal taxpayer spending is supporting a world-class education system.” 

The announcement indicates that the department is creating “partnerships” with multiple federal agencies to offload Education Department operations and diminish the department’s role.

“These new partnerships with the Departments of Labor (DOL), Interior (DOI), Health and Human Services (HHS), and State mark a major step toward improving the management of select ED programs by leveraging partner agencies’ administrative expertise and experience working with relevant stakeholders,” said the department in its announcement. “These agreements follow a successful workforce development partnership signed with DOL earlier this year, which has created an integrated federal education and workforce system and reduced the need for states to consult multiple federal agencies to effectively manage their programs.”

The Office of Federal Student Aid, which oversees the federal student loan system, will remain with the Department of Education, at least for now. But serious threats loom for borrowers. 

Education Department programs will be transitioned to other agencies

According to Tuesday’s announcement, several Department of Education programs will be transitioned to other federal agencies through new “partnerships.” These include:

• An elementary and secondary education partnership with the Department of Labor;
• A postsecondary education partnership with the Department of Labor;
• An “Indian Education Partnership” with the Department of Interior;
• A foreign medical accreditation partnership with the Department of Health and Human Services;
• A childcare access partnership with the Department of Health and Human Services;
• And an international education and foreign language studies partnership with the Department of State.

“The Trump administration is making good on its promise to fix the nation’s broken system by right-sizing the Department of Education to improve student outcomes,” said House Education and Workforce Committee Chairman Tim Walberg (R-MI) in a statement on Tuesday supporting the department’s announcement. “It’s time to get our nation’s students back on track. It’s time to return education to those who are most committed to students’ success: their communities. Bottom line, this is about putting students before bureaucracy.”

Student loans to remain at Department of Education for now

The Office of Federal Student Aid (FSA), which oversees the $1.6 trillion federal student loan system, was not included in the Department of Education’s announcement, meaning the office should remain there for the time being. FSA plays a critical role in the FAFSA system, federal student aid disbursements, overseeing student loan servicers, and handling key operations, including several federal student loan forgiveness and discharge programs such as PSLF, IDR loan forgiveness, Borrower Defense to Repayment, and the Total and Permanent Disability (TPD) discharge.  

“Today’s announcement listed six ED offices that will move to other agencies,” said the National College Attainment Network (NCAN) in a statement on LinkedIn on Tuesday. “At present, no changes to the Office of Student Aid (FSA) have been announced. FSA is responsible for managing federal financial aid programs, including the Pell Grant programs, Federal Work-Study, and the Federal Student Loan Program. At present, NCAN expects no changes to the operation of the FAFSA or disruptions to federal aid dollars, that students and families rely on to pay for college, because of today’s announcement.”

However, FSA has already been impacted by significant staffing cuts earlier this year, which was the first phase of the Trump administration’s efforts to abolish the Education Department. While the administration has denied any connection between the reduction in force and diminished student loan operations, borrowers this year have been contending with significant application backlogs for income-driven repayment (IDR) plans and PSLF Buyback; delays in administering Borrower Defense to Repayment settlement relief under Sweet v. Cardona; and significant administrative issues related to the Total and Permanent Disability (TPD) discharge program.

NCAN noted that congressional action would be required to fully dismantle the Department of Education, which is likely why the administration is using “partnership” agreements with other federal agencies to offload department operations.

“Legally, only Congress can eliminate a federal agency, but instead the administration is setting up what are known as Inter Agency Agreements to hand off different programs currently managed by ED to be run by other federal agencies,” said NCAN. 

Advocacy groups warn of trouble for student loan borrowers

Critics have slammed the announcement, arguing that only Congress can break up the Department of Education and that the Trump administration’s efforts to offload its operations to other federal agencies will not result in better outcomes for Americans.

“The law is clear: only Congress can dismantle the Department of Education,” said EdTrust in a statement on Tuesday. “In its 45-year history, the U.S. Department of Education has played an essential role in ensuring all students — particularly those traditionally underserved by America’s schools — are guaranteed their rights to a quality public education, free from discrimination… The administration has let down teachers, families, and students — those currently in classrooms and the generations to come. Further diminishing these offices that protect student rights and stop discrimination and sending them off to be run by agencies that work on public health and short-term training, which lack the skills, expertise, or capacity in education, isn’t about improving student outcomes. It’s about implementing a business model that transforms students into widgets instead of human beings who need support.”

“Dismantling the Department of Education is illegal; that’s been clear since Trump’s March attempt to do so via executive order,” said Kristin McGuire, President and CEO of Young Invincibles, in a statement. “But shuffling ED programs into other agencies as a workaround is just as deceitful. This jeopardizes the stability of programs that millions of students rely on… This action is a blatant attack on students' rights, their access to critical resources, and the future of public education as we know it. Students deserve a government that fights for them, not one that undermines them.”

“Secretary McMahon's announcement that she is shuffling certain functions of the U.S. Department of Education across four different agencies is a political stunt that will only lead to more chaos and confusion for working families who just want their kids to get a quality education, to be able to pay for college, and to pay off their student loans,” said Aissa Canchola Bañez, Policy Director for Protect Borrowers, in a statement. “The Trump Administration claims that they are ‘breaking up bureaucracy,’ but, in reality, they are creating more red tape and more dead ends for American families. Instead, ED and its contractors should be focused on responding to the thousands of unanswered borrower complaints that have been submitted to the FSA Ombudsman's office. Servicers should work through the 1 million application backlog from borrowers who have been left waiting months as they desperately attempt to access more affordable payments.”

While FSA will remain at the Department of Education for now, President Trump and administration officials have floated the possibility of similarly transitioning federal student loan operations to other agencies, such as the Department of Treasury or the Small Business Administration. According to recent reporting by Politico, the administration is also considering selling portions of the federal student loan portfolio to private companies. Both actions may cause further disruptions for student loan borrowers and could invite legal challenges.