4 Things Student Loan Borrowers Should Know About the Trump Administration’s Attempt to Freeze Federal Spending

The Trump administration unleashed chaos and confusion for millions of Americans this week when the White House Office of Management and Budget issued a memo on Monday ordering a freeze on federal spending across a wide swath of federal agencies. Many speculated that federal student loan programs, including disbursements of new federal aid and the processing of federal student loan forgiveness for existing borrowers, could be impacted, imperiling access to college and loan programs that millions depend on.

By Wednesday, roughly 48 hours after its issuance, the White House rescinded the memo. But the administration left a trail of confusion and uncertainty in its wake, and the freeze on federal funding still appeared to be in effect.

Here’s what student loan borrowers should know about the federal funding freeze.

Trump administration ordered pause on certain federal spending

The memo was issued on Monday by the White House Office of Management and Budget in furtherance of a previous executive order signed by President Trump. It was sent to agencies across the federal government, and instructed agency heads to pause spending on a wide variety of federal programs.

“The American people elected Donald J. Trump to be President of the United States and gave him a mandate to increase the impact of every federal taxpayer dollar,” the memo said. “Career and political appointees in the Executive Branch have a duty to align Federal spending and action with the will of the American people as expressed through Presidential priorities. Financial assistance should be dedicated to advancing Administration priorities, focusing taxpayer dollars to advance a stronger and safer America, eliminating the financial burden of inflation for citizens, unleashing American energy and manufacturing, ending ‘wokeness’ and the weaponization of government, promoting efficiency in government, and Making America Healthy Again. The use of Federal resources to advance Marxist equity, transgenderism, and green new deal social engineering policies is a waste of taxpayer dollars that does not improve the day-to-day lives of those we serve.”

The memo immediately sparked confusion and chaos as millions of Americans wondered whether programs they depend on would be impacted. The memo specifically exempted Social Security, Medicare, and “assistance provided directly to individuals” from the freeze. But it was not immediately apparent that federal student loans would be exempted since federal student aid is typically not provided directly to individuals but sent to institutions that then administer that aid and ultimately to loan servicers that handle billing and other student loan operations.

“Let us be clear, the Trump Administration’s unprecedented and illegal action to halt federal grant and loan aid will destabilize working families across our nation from suburban, rural, and urban communities alike,” said Student Borrower Protection Center (SBPC) Policy Director Aissa Canchola Banez in a statement on Tuesday. “From cutting off aid meant to help students and working families pay for college to halting assistance intended to help families keep food on the table and a roof over their heads—it is critical that we call this out for what it is—a blatant, callous, and unconstitutional power grab.” 

Education Department clarifies that student loan disbursements would be exempted from freeze

By Tuesday, as questions mounted about whether student loan programs and other federal student aid would impacted, the Education Department issued a clarification. 

“Direct Loans, Pell Grants, and other federal student aid funds that are provided to individual students are not impacted by the Jan. 27, 2025, guidance temporarily pausing federal financial assistance programs,” said the Education Department in a statement posted to StudentAid.gov. “We continue to award and disburse federal student aid.”

The department’s statement was silent, though, as to whether student loan forgiveness and repayment programs for existing borrowers would be impacted. However, The Washington Post reported that loan servicers would be “spared from the freeze and any disruption.” This did not specifically address whether loan forgiveness and repayment programs would be impacted, but since these programs are largely administered by the department’s third-party loan servicers, it suggested that these programs would continue. 

Trump Administration rescinds memo ordering federal funding freeze

On Wednesday, the Trump administration formally withdrew the memo.

“OMB Memorandum M-25-13 is rescinded,” said the withdrawal notice. “If you have questions about implementing the President’s Executive Orders, please contact your agency General Counsel.”

The rescission came after a federal judge on Tuesday had temporarily halted elements of the suspension in response to a legal challenge brought by the National Council of Nonprofits and the American Public Health Association. The judge is set to consider legal arguments next week over whether to impose a more lasting temporary restraining order.

But on Wednesday, it was unclear if the freeze on federal funding had actually been rescinded — or just the memo that provided broad guidance to federal agencies. 

“This is NOT a rescission of the federal funding freeze,” said White House Press Secretary Karoline Leavitt in a statement on X on Wednesday. “It is simply a rescission of the OMB memo. Why? To end any confusion created by the court's injunction. The President's EO's on federal funding remain in full force and effect, and will be rigorously implemented.”

“’To end any confusion, we are going to say one thing and do another;’ This is why you should not trust a word this White House says,” said Rep. Alexandria Ocasio-Cortez in a statement on X in response.

Several student loan programs could be cut

With the memo rescinded on Wednesday but the executive order implementing the funding freeze seemingly still in effect, the White House Office of Management and Budget identified a number of student loan programs that could be on the chopping block, pending further review. According to The New York Times, this includes Direct federal student loans, federal Pell Grants, federal work-study programs, and the student loan interest tax deduction.

Meanwhile, Republican lawmakers are considering including significant reforms to student loan programs in an upcoming reconciliation bill that would extend expiring tax cuts. This may include sunsetting the federal Graduate PLUS and Parent PLUS programs, repealing the SAVE plan, eliminating time-based student loan forgiveness after 20 or 25 years for new borrowers, making unspecified changes to the Public Service Loan Forgiveness program, and rolling back new regulations governing the Borrower Defense to Repayment and Closed School Discharge programs.