Education Department Dismantling: What It Means for Your Student Loans

The Education Department has announced that several non–student loan programs will be transferred to other federal agencies as part of its broader plan to wind down operations.

This shift doesn’t change repayment, forgiveness, or account status for student loan borrowers, but it confirms that the administration is advancing its dismantling plan, including the possibility of moving the federal student loan portfolio to the Small Business Administration (SBA).

The Education Department is being dismantled through staff cuts and interagency transfers rather than a formal shutdown, a process the department describes as an effort to “break up the federal education bureaucracy.”

That approach has led to the redistribution of major functions across the government, including moving Title I/K-12 grants to the Department of Labor, Indian Education programs to the Department of the Interior, International Education/Fulbright-Hays to the Department of State, and child-care and special-education programs to the Department of Health and Human Services.

Federal Student Aid remains within the department for now, but the dismantling effort is unfolding alongside department-wide layoffs, prior Reduction in Force actions, and a 42-day government shutdown that have reduced staffing across key offices.

Those cuts have left the department with nearly half the workforce it had at the start of the year, shaping the environment in which the remaining functions are being reorganized.

Federal Student Aid still administers repayment, forgiveness, and servicing, but the system is strained. Staffing losses from the shutdown and the dismantling of support units have weakened the processing environment borrowers rely on each month.

That strain shows up in the backlog of nearly 2 million IDR applications, unprocessed PSLF Buyback requests, and prolonged “processing discharge” status for many borrowers with Borrower Defense and Sweet settlements.

Reduced internal oversight has also produced inconsistent guidance for servicers, while borrowers worry about “administrative default,” where payment histories or loan records are lost or misapplied during future agency moves.

These problems stem from capacity loss rather than the transfers announced this week. But together they define the uncertainty surrounding the next stage of the dismantling effort.

If you’re in SAVE and waiting on the forbearance adjustment, your eligibility and credit rules remain unchanged. Parent PLUS borrowers planning to consolidate for IDR still have access to Direct Consolidation, and the pathway into income-based repayment remains the same.

PSLF rules also remain intact for borrowers working toward forgiveness or waiting on PSLF Buyback, though Buyback requests are moving slowly because of staffing cuts. Borrowers nearing 20–25 years of IDR forgiveness remain eligible, but long-term account reviews are still moving through the existing backlog.

For borrowers waiting on Borrower Defense or Sweet relief, the settlement terms remain in force, and court supervision continues to require the Education Department — or whichever agency ultimately takes responsibility — to process discharges.

Most borrowers don’t need to take special steps right now because the transfers announced today don’t involve student loans and no portfolio movement has begun. Still, some borrowers may want to preserve their own documentation as a stable backup.

That backup can include a letter from your servicer or the Education Department showing your qualifying and non-qualifying payment counts, screenshots of your payment history, a Privacy Act Request for the government’s detailed payment file, and downloaded servicer statements or payment logs.

These steps don’t change your repayment path, but they give you a record you control.

The Education Department’s dismantling is ongoing, and the unresolved question is what ultimately happens to the federal student loan portfolio. The administration has announced its intent to move the portfolio to the SBA, but no accounts have moved and nothing changes for borrowers today.

The next meaningful update is expected from the AFT lawsuit, with a joint status report due in mid-December. That filing may clarify how IDR forgiveness reviews will be handled and what the timeline looks like for PSLF Buyback processing as the department continues its transition.