What dismantling Education Department means for Pennsylvania student loans
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Illustration: Maura Losch/Axios
President Trump's executive order last week to close the Department of Education is raising big questions for student loan borrowers.
Why it matters: The department plays a key role in managing $1.5 trillion in student debt for more than 40 million borrowers, including 1.8 million Pennsylvanians.
- A vast majority of its budget is allocated to the office that oversees student loans.
Reality check: The directive will likely face legal opposition because eliminating a federal department requires an act of Congress.
- However, the administration can cut key funding in the meantime.
State of play: Trump is delegating student loan operations to the Small Business Administration.
- The Department of Health and Human Services will oversee special needs and nutrition programs.
Zoom in: During the transition to SBA, there could be slower processing times for loans, applications and payments, and the potential for more administrative errors.
- While it's possible there could be a pause in borrowers' payments for a period, they'd still eventually be due.
What they're saying: Betsy Mayotte, president of The Institute of Student Loan Advisors, told Axios before Trump's order that the transition period might not affect borrowers too much.
- "I wouldn't be surprised even if they kept the same servicers that they have contracts with already to manage the loan," Mayotte said.
By the numbers: Borrowers in the Commonwealth collectively owed $66.5 billion in federal student loan debt as of last year, according to federal data.
- The average debt was nearly $35,700, per an analysis from the Education Data Initiative.
- Pennsylvanians aged 25 to 34 owed the most ($23.1 billion in total).
Between the lines: Pell grants, subsidized loans and work-study grants are mostly congressionally appropriated. It would take an act of Congress to get rid of them.
- So if the Education Department shutters, these too would need to be managed by a different agency but wouldn't necessarily go away.
Zoom out: If federal student borrowing is put in jeopardy, some may turn to private loans.
- With federal loans, the interest rate is determined by the year the loan originated, not by the characteristics of the borrower. Everyone gets the same terms.
- There are no student debt forgiveness programs with private loans, and income-based repayment options are not guaranteed.
"It's possible some borrowers would simply decide they can't afford college or don't want to deal with borrowing," NerdWallet's lending expert Kate Wood told Axios before the executive order was issued.
The bottom line: There's a lot of uncertainty right now.
- "If you're a current federal borrower and you're concerned, the best proactive step is to save your information," Wood advised.
- Go to studentaid.gov and screenshot or download your repayment history, she added.