The Trump administration on Tuesday announced that the Department of Education will undergo a partial “breakup”, as multiple operations are to be shifted to partnerships with other federal agencies. For decades, the department has played a major role in enforcing civil rights laws in education contexts, providing support for special education services, and overseeing the government’s vast $1.6 trillion portfolio of federal student loans, including administering loan disbursements and operating several student loan forgiveness programs.
“The Trump Administration is taking bold action to break up the federal education bureaucracy and return education to the states,” said U.S. 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. As we partner with these agencies to improve federal programs, we will continue to gather best practices in each state through our 50-state tour, empower local leaders in K-12 education, restore excellence to higher education, and work with Congress to codify these reforms. Together, we will refocus education on students, families, and schools – ensuring federal taxpayer spending is supporting a world-class education system.”
The announcement builds on President Donald Trump’s prior executive order issued in March to wind down the department’s operations. And it follows mass layoffs earlier this year that have reduced the department’s staff by 50%. Here’s what is happening at the Department of Education, whether it’s really closing, and how its ongoing dismantling may impact student loans.
Dismantling Of Department of Education Already Impacting Student Loans
The dismantling of the Education Department arguably began earlier this year, starting with President Trump’s executive order issued in March calling on the department to be abolished.
“Closure of the Department of Education would drastically improve program implementation in higher education,” said Trump in the order. “The Department of Education currently manages a student loan debt portfolio of more than $1.6 trillion. This means the Federal student aid program is roughly the size of one of the Nation’s largest banks, Wells Fargo. But although Wells Fargo has more than 200,000 employees, the Department of Education has fewer than 1,500 in its Office of Federal Student Aid. The Department of Education is not a bank, and it must return bank functions to an entity equipped to serve America’s students.”
Following President Trump’s order, Secretary McMahon initiated a reduction in force that ultimately resulted in the layoffs or voluntary buyouts of nearly 2,000 Education Department employees, roughly half of its workforce. The reduction in force included a significant portion of the Office of Federal Student Aid, which oversees federal student loans.
Since then, the federal student loan system has been plagued by problems:
- The department temporarily shut down the application system for income-driven repayment (or IDR), as well as IDR student loan forgiveness, resulting in a backlog that eclipsed two million applications at its height. The department has since reduced the IDR application backlog, but more than a million applications remain unprocessed, according to the most recent data the department released earlier this fall.
- Despite steady processing, a backlog of applications for PSLF Buyback (a student loan forgiveness program for public service borrowers that allows for a lump-sum payment to cover certain past deferment or forbearance periods) increased by more than 50% during 2025, resulting in some borrowers waiting a year or longer for a determination. More than 70,000 PSLF Buyback applications remain in the backlog, according to the most recent Education Department data.
- The department’s complaint system, including the FSA Feedback system and the Ombudsman group, have largely ground to a halt, with more than 27,000 open cases with the Ombudsman group alone.
- The Total and Permanent Disability discharge program, which provides student loan forgiveness for borrowers with severe medical impairments that prevent them engaging in gainful employment, has been experiencing massive breakdowns following the program’s transition earlier this year to a new servicing and processing system.
- Implementation of student loan forgiveness relief under the Sweet v. Cardona (now Sweet v. McMahon) settlement for defrauded borrowers has slowed, leading the department to ask the court overseeing the settlement for an extension of deadlines. A court hearing is scheduled in December.
Student Loans To Remain At Department Of Education For Now
According to the announcement on Tuesday, the Department of Education won’t be completely shut down, as that would require an act of Congress. Instead, the department will transfer several of its offices and operations to other federal agencies. These will include certain K-12 and postsecondary education programs, certain tribal education programs, accreditation for foreign medical schools, childcare support, and international and foreign language programs.
“The U.S. Department of Education (ED) today announced six new interagency agreements (IAAs) with four agencies to break up the federal education bureaucracy, ensure efficient delivery of funded programs, activities, and move closer to fulfilling the President’s promise to return education to the states,” said the department on Tuesday. “By partnering with agencies that are best positioned to deliver results for students and taxpayers, these IAAs will streamline federal education activities on the legally required programs, reduce administrative burdens, and refocus programs and activities to better serve students and grantees.”
Meanwhile, the Office of Federal Student Aid and the management of the federal student loan portfolio will remain at the department. But it’s unclear for how long that will last, as Trump administration officials have pushed for the department’s federal student loan office to be shifted to another federal agency, such as the Department of Treasury. President Trump previously had suggested that federal student loan operations will be moved to the Small Business Administration, or SBA.
Critics have argued that federal law is clear that FSA and federal student loan operations are to be housed within the Education Department, and it would take an act of Congress to change that.
Student Loans Could Be Sold To Private Entities
If the Department of Education is unable to transfer federal student loan operations to another federal agency, the Trump administration could try a different path: selling federal student loans to private companies. Either way, borrowers are likely to continue to feel the impacts.
As first reported by Politico in October, administration officials are reportedly considering selling portions of the federal student loan portfolio to private entities. Unlike transferring student loan operations to another federal agency, federal statute already permits the government to potentially sell federal student loans to a private entity. But the process isn’t necessarily clear-cut.
“In 1998, Congress authorized the Secretary of Education, ‘in consultation with the Secretary of the Treasury,’ to sell existing Direct Loans,” said the Project on Predatory Student Lending (PPSL) in an analysis published earlier this year. “The only requirement is that a sale must break even: it cannot ‘result in any cost to the Federal Government.’ The provision has never been invoked.”
On Sunday, a group of Democratic lawmakers led by Senator Elizabeth Warren (D-Mass.) sent a letter to Secretary McMahon and Treasury Secretary Scott Bessent, urging them not to sell the Education Department’s federal student loan portfolio to private companies.
“This sale would be a giveaway to wealthy insiders at the expense of working-class borrowers and taxpayers,” wrote the senators. “It threatens the loss of borrowers’ legally guaranteed protections, and the sale would likely be illegal if the debt is sold at a loss for taxpayers. We urge you to immediately cease any efforts to privatize the federal student loan portfolio.”
The transfer of student loans to another federal agency outside of the Department of Education, or the sale of those loans to a private company, would not eliminate a borrower’s repayment obligations. It also would not officially strip borrowers’ legal rights to affordable repayment plans or student loan forgiveness programs such as IDR, PSLF, and the Total and Permanent Disability discharge program. But, as many Americans are already experiencing, the steady and ongoing dismantling of the department’s operations may make it harder for borrowers to access a broad array of student loan programs. And things may only get worse.