If the U.S. Department of Education were to shut down, private student loans could play a bigger role in helping students pay for college.
Former President Donald Trump, who has promised to abolish the Education Department if re-elected, has raised concerns about what will happen to federal student loans.
However, even if the department is dissolved, existing federal student loan debt is unlikely to disappear.
Even if federal loans remain an option for students, potential changes to the student loan system—such as limits on borrowing and repayment plan modifications—could push more borrowers toward private loans.
Key Takeaways
- If Trump succeeds in shutting down the Education Department, student loan payments will likely be handled by other government agencies.
- A new administration is unlikely to introduce broad student loan forgiveness programs.
- Changes to federal loan programs, such as eliminating certain repayment plans and reducing borrowing options, could lead more students and families to rely on private student loans.
Trump’s Plan for the Education Department
During his campaign, Trump repeatedly called for the elimination of the Department of Education. If he gains enough support from Congress, the department could be dissolved, but federal student loan debt—currently in the trillions—would still need to be managed.
Trump has previously suggested that student loan oversight could be transferred to the Department of Labor.
Additionally, Trump is expected to support the College Cost Reduction Act, a bill introduced by Representative Virginia Foxx (R-NC). This proposed legislation would bring major changes to federal student loans. Some of its key provisions include:
- Eliminating PLUS loans, which are federal loans available to graduate students and parents of undergraduates.
- Replacing the current income-driven repayment (IDR) plans with a single “repayment assistance plan.”
- Under this new plan, borrowers would become eligible for loan forgiveness only after paying an amount equal to what they would have paid under a standard 10-year repayment plan.
Meanwhile, the Biden administration’s SAVE plan, which aimed to make student loan payments more affordable, is currently on hold due to legal challenges. Borrowers enrolled in the SAVE plan have been placed in interest-free forbearance while the courts decide its fate.
Private vs. Federal Student Loans
As of March 2024, private student loans made up about 7.61% of all outstanding student debt, totaling approximately $133.43 billion. In contrast, federal student loan debt stood at around $1.64 trillion as of the last quarter of 2024.
Both private and federal student loans have pros and cons, and the best choice depends on a borrower’s financial situation.
Federal Student Loans
- No credit check required for undergraduate borrowers.
- Lower borrowing limits, which may not be enough to cover the full cost of attendance.
- Fixed interest rates determined by Congress, the same for all borrowers.
- Multiple repayment options, including income-driven repayment and loan forgiveness.
- No option to secure lower interest rates or avoid origination fees.
Private Student Loans
- Credit check required for all borrowers, including undergraduates.
- Higher borrowing limits, which can cover the entire cost of attendance.
- Fixed and variable interest rates, based on credit history, lender policies, and market conditions.
- Repayment flexibility depends on the lender, with some offering hardship options.
- Some lenders do not charge origination fees, and borrowers with good credit may secure lower interest rates.
(Source: Federal Student Aid)
For most students, federal loans are the best option because they have fixed interest rates, no credit score requirements, and multiple repayment options.
However, private loans can help fill funding gaps when federal aid is not enough.
If the Education Department shuts down, federal loans may become less attractive, making private lenders a more significant player in student financing.
The Future of Student Loans
Even if the Education Department remains, federal student loan policies could shift dramatically if the College Cost Reduction Act becomes law.
Removing PLUS loans and restructuring repayment plans would limit borrowers’ options, leading more students and families to explore private loans as an alternative.
If the Department of Education were abolished, federal loans might become less accessible or even phased out altogether. In that case, students would have no choice but to rely on private lenders for higher education funding. However, nothing is certain yet.
Current and future borrowers must wait to see how Trump’s administration will handle student debt and whether federal loans will continue to play a key role in financing college education.
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