IDR Paused, Staff Cuts, and Uncertainty: What’s Happening with Student Loans?

It’s been a chaotic month for millions of student loan borrowers. Since Donald Trump returned to the White House six weeks ago, the Department of Education has already undergone significant changes that profoundly impact millions of borrowers. And more disruptions may be in store. Here’s a breakdown of the latest developments. 

Department of Education pauses all IDR processing for student loan borrowers

Last week, the Department of Education stopped processing applications for Income-Driven Repayment (IDR) plans in response to a new order issued by the 8th Circuit Court of Appeals. The court extended and expanded an ongoing injunction blocking the SAVE plan and student loan forgiveness at the end of the 20- or 25-year term for the Income Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans. In response, the department removed the paper and online IDR applications from the StudentAid.gov website.

“A federal court issued an injunction preventing the U.S. Department of Education from implementing the Saving on a Valuable Education (SAVE) Plan and parts of other income-driven repayment (IDR) plans,” reads a new banner on the site. “As a result, the IDR and online loan consolidation applications are temporarily unavailable.”

However, the Washington Post revealed last week that the department also issued a “stop order” on the processing of all IDR applications. This includes all pending and newly submitted applications for any IDR plan, including for Income-Based Repayment (IBR), which is expressly not covered by the 8th Circuit’s injunction. An unclear number of borrowers (but it is likely many, numbering in the hundreds of thousands or more) are applying to switch to the IBR plan due to the ongoing restrictions covering the SAVE, PAYE, and ICR plans so that they can continue working toward eventual loan forgiveness for IDR and Public Service Loan Forgiveness (PSLF). Those pending applications are now on pause, and that could last for 90 days or more, according to the Post.

The IDR application pause may also impact annual income recertifications. While many student loan borrowers have had their IDR income recertification deadlines pushed out later in the year, others face imminent renewal deadlines. Some student loan borrowers in this situation are reporting that servicers are giving them no viable options — they must either switch to a non-IDR plan, like a Standard or Graduated repayment plan (which may be unaffordable), or go into a costly forbearance that won’t count toward student loan forgiveness.   

Staff reductions and other cuts imminent at Department of Education

Meanwhile, the Trump administration has taken a number of recent steps to push out Department of Education staff and cut programs. USA Today reported last week that 10% of staff at the Office of Federal Student Aid (FSA) accepted buyout offers in February. FSA oversees the entire Direct federal student loan system, including the FAFSA, loan servicing, and federal student loan repayment and forgiveness programs.  The staff cuts have particularly hit the Borrower Defense to Repayment unit and Ombudsman Group, which will impact Borrower Defense application processing and dispute resolution. Additional layoffs are likely on the way, and they may be much more substantial.

Administration officials are also considering other significant cuts to Department of Education services, according to MarketWatch. Officials may cut loan servicing contracts, and anecdotal reports indicate that some loan servicing customer service staff anticipate layoffs in the coming weeks or months. This may lead to even longer call hold times for borrowers trying to reach their loan servicer, and slower processing of paperwork and applications for key programs. 

The department may also reduce FSA call center hours, limit the ability of student loan borrowers to submit online complaints, and pause or terminate planned improvements to StudentAid.gov, the department’s central web portal for borrowers. A years-long goal under multiple administrations (including the first Trump administration) has been to streamline the online web interface systems so borrowers can eventually utilize StudentAid.gov as their main hub to manage their student loans, regardless of the specific assigned loan servicer. But those plans might be halted.

Linda McMahon confirmed as Education Secretary, warns of big changes ahead

This week, the Senate confirmed Linda McMahon as the new Secretary of Education. While McMahon has promised to uphold federal student loan forgiveness and relief programs authorized by law — and specifically the Public Service Loan Forgiveness (PSLF) program — advocacy organizations have expressed strong concerns that McMahon will seek to further undermine the Department of Education and federal student loan programs. 

“Education is the foundation of opportunity in the United States, and everyone should have access to high-quality, accessible, and equitable education,” said Natalia Abrams, President & Founder of the Student Debt Crisis Center, in a statement. “We will hold Secretary McMahon accountable to the promises made to student loan borrowers and their families and will continue to advocate for policies that put their interests first.”

“Linda McMahon’s confirmation raises pressing concerns about the future of the Department of Education and its critical role in ensuring equal access to quality education,” said Nadine Chabrier, senior policy counsel at the Center for Responsible Lending, in a statement. “Dismantling the department would roll back decades of progress… Any efforts to weaken or eliminate the department would jeopardize the progress in expanding educational opportunities for all students, particularly those from low-income and marginalized communities.”

As one of her first acts, Secretary McMahon sent a notice to staff telling them to prepare for the department’s “final mission.”

“We must start thinking about our final mission at the department as an overhaul — a last chance to restore the culture of liberty and excellence that made American education great,” she said, according to The New York Times. She warned department staff to prepare for significant changes to staff, budgets, and operations.

President Trump is expected to issue an executive order any day calling for the complete dismantling of the Department of Education, which McMahon is expected to support. Most legal experts say that the department cannot be eliminated without Congress passing legislation to authorize that, and that may not be likely to happen given very narrow Republican majorities in the House and Senate (support from at least some Democratic lawmakers may be required to overcome a Senate filibuster, which is unlikely). However, advocacy groups have warned that eroding department operations from within, even without entirely dismantling the agency, may have devastating impacts for millions of student loan borrowers.