How dismantling the Education Department could affect California student loans
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Illustration: Maura Losch/Axios
President Trump's executive order last week to shut down the Department of Education raises big questions for student loan borrowers.
Why it matters: The department plays a key role in managing some $1.5 trillion in student debt for more than 40 million borrowers, including about 10% of Californians.
- A vast majority of its budget is allocated to the office that oversees the federal student loan system.
State of play: The Small Business Administration, which plans to cut its workforce by 43%, will take over handling student loans, Trump said Friday.
- During the transition, 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.
By the numbers: About 3.9 million Californians collectively owe nearly $150 billion, according to the Federal Student Aid Data Center.
- The average debt is about $38,000, which is higher than the national average of $36,207.
- The majority of California borrowers owe $20,000 or less, and the largest segment are ages 25 to 34.
Threat level: Closing down the federal department will likely face legal opposition because it requires an act of Congress, but the administration can cut key funding in the meantime.
- Even before moving to abolish the agency, the Trump administration blocked student loan forgiveness and repayment plans, slashed staffing, and wiped the federal watchdog agency tasked with overseeing student loan servicing and collections.
Between the lines: If federal student borrowing is put in jeopardy, some may turn to private loans, which can be harder to access and more complicated.
- 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.
Pro tip: The best proactive step for concerned federal borrowers is to save your information, Wood said.
- Go to studentaid.gov and screenshot or download your repayment history, she added.