What The Government Shutdown Means for Student Loan Borrowers

As of Wednesday, the federal government officially shut down after Democrat and Republican lawmakers were unable to reach an agreement to extend funding beyond September 30. As a result, many operations of the federal government have been halted. Some student loan borrowers may be directly affected by this, while others will not experience any impacts.

The shutdown centers largely on a dispute over healthcare. While Republicans control the White House, the Senate, and the House of Representatives, spending bills require 60 votes in the Senate to overcome a filibuster. Republicans have fewer than 60 votes. Democratic lawmakers have demanded an extension of expiring Obamacare subsidies and a reversal of cuts to certain Medicaid programs that Republican lawmakers included in the One, Big Beautiful Bill Act in July. Democrats and advocacy organizations have warned that millions of Americans are set to either lose their healthcare entirely or experience skyrocketing health insurance premiums within a few months if there are no meaningful changes. 

Democratic lawmakers are also insisting on language that would bind the Trump administration to complying with the spending legislation, given Trump officials’ recent practices of suggesting that they could ignore some congressional directives on spending. Republicans have, so far, rejected these demands, arguing that they are protecting American taxpayers from wasteful spending and fraud.

So far, the sides show no signs of getting close to a compromise that would reopen the government anytime soon. The longer the shutdown lasts, the bigger the impacts will be for Americans, including student loan borrowers. Here’s what borrowers should know, and how the shutdown may impact your student loans.

Department of Education furloughs staff, but most student loan operations are outsourced

The Department of Education has furloughed much of its staff as a result of the shutdown. As a result, many department operations are suspended. 

“As set forth in this plan, the Department would furlough approximately 95 percent of its non-Federal Student Aid staff for the first week of such a lapse in funding,” according to an Office of Management and Budget (OMB) shutdown plan for the Department of Education. “During this first week, we would maintain only those staff needed to perform exempt or excepted functions.” Exempted functions include certain personnel management operations and securing property. 

While this will impact certain department functions, much of the federal student loan system is outsourced to private contractors. Federal student loan servicing is handled by a collection of outside companies such as Nelnet, EdFinancial, MOHELA and Aidvantage, which are all unaffected by the shutdown. And even call centers branded as the Office of Federal Student Aid are actually primarily staffed by contractors, not by employees of the federal government. As such, much of these operations should continue. 

Student loan borrowers who won’t be affected by the government shutdown

The majority of student loan borrowers and individuals enrolled in educational institutions will probably not be impacted by the government shutdown, at least for now. Borrowers will still have to make payments on their student loans (and loan servicers will process those payments), and people enrolled in school should still be able to receive federal financial aid.

“The Department will continue to disburse student aid such as Pell Grants and Federal Direct Student loans, and student loan borrowers will still be required to make payments on their outstanding student debt,” said the OMB in its shutdown plan. “The Department will also make Title I and IDEA grant funding available as usual. States, schools and other grantees will continue to be able to access funds from the billions of dollars in recent awards the Department made over the summer. Further, the Office of Federal Student Aid will except agency employees as needed to conduct certain rulemakings and other actions necessary to meet statutory requirements” under the One, Big Beautiful Act. 

So, these types of actions should not be impacted by the government shutdown:

• Making payments on your student loans.
• Applying for or changing your repayment plan for your student loans.
• Requesting a deferment or forbearance to pause payments on your loans.
• Applying for new federal student aid by completing the FAFSA. 
• Accepting or receiving federal student aid, including grants and loans.
• Calling your student loan servicer to ask a question or obtain information.
• Calling one of the Federal Student Aid (FSA) call centers to ask a question or obtain information.
• Logging into your student aid account at StudentAid.gov, or your student loan account with your current loan servicer.

Student loan borrowers that may be affected by the government shutdown

While many student loan and financial aid operations will continue, others may be halted or limited as a result of shutdown.

“The Department would cease any new grantmaking activities,” says the OMB memo. “However, the majority of the Department’s grant programs typically make awards over the summer and therefore there would be limited impact on the Department’s grantmaking. Grantees will continue to be able to drawdown funds from these awards, and therefore, the impacts on schools and students should be minimal. The Office for Civil Rights would pause its review and investigations of civil rights complaints. The Department’s development and implementation of guidance, technical assistance, and regulatory actions would also pause during a lapse, unless required for otherwise funded activities.”

In addition, anything that may require work done by Department of Education staff, or something that requires department approval, could be affected by the shutdown. This could, for example, delay implementation of approved student loan forgiveness (which typically requires department action), or prevent the department from resolving a problem, issue or error related to student loan repayment or financial aid disbursement.

So, these types of issues could be impacted by the government shutdown:

• Receiving a final discharge upon approval for student loan forgiveness under various programs including Public Service Loan Forgiveness (PSLF), Borrower Defense to Repayment, Closed School Discharges, and the Total and Permanent Disability (TPD) discharge program. Typically, loan forgiveness under these programs must either be approved by FSA staff, or the department must facilitate a discharge by sending a directive to a loan servicer.
• Resolving a dispute submitted to FSA, such as via the FSA Feedback system or the FSA Ombudsman group. Following mass Department of Education layoffs implemented earlier this year, these units are already under strain, with thousands of applications in a backlog. That backlog will only worsen as the shutdown drags on.
• Getting approved for the PSLF Buyback program, which also has a large and growing backlog. PSLF Buyback review is likely to be halted as a result of the shutdown, which may exacerbate the already-long processing times (some borrowers have been waiting a year or longer for a determination).
• Direct loan consolidation could be impacted to the extent that FSA is involved in the consolidation process. This could cause some delays in processing consolidation requests.

Ultimately, the longer the shutdown drags on, the more significant the problems will become, and the more difficult it will be for department officials to get back on track when the government eventually reopens. Until then, student loan borrowers who are simply in repayment on their loans should continue to make payments as required. Other borrowers who may be more directly impacted by the shutdown should buckle up for what could be a lengthy period of uncertainty and delay.