CNN
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As President Donald Trump prepares to order the Department of Education to be demolished, the institution’s financial sector is lending directly to borrowers and managing trillions of dollars in student debt — facing an uncertain future, with sudden staff cuts and lack of communication exacerbating uncertainty.
The $1.64 trillion financial portfolio is managed separately from the sector’s policy equipment, the latter of which Trump is about to rewind or reassign to other institutions. But Trump acknowledged Thursday that large-scale loan balances were a complicated factor in his efforts to close agents.
“We actually had that discussion today,” Trump told reporters at the elliptical office, suggesting that the debt could land in the Treasury, Commercial or Small Business Administration. He said SBA administrator Kelly Loeffler “I really want to do it.”
And then there’s the question of whether the government will remain in the business of lending money directly to students.
Project 2025 – The Heritage Foundation effort, written by many Trump Alliances, tried to distance himself from it during last year’s campaign, but proposed establishing a new institution to extend the loans run by Senate-announced leaders and councils. However, the government is now out of the business of creating loans directly and instead returns to its role as a guarantor for the loans that other companies have undertaken. The new institution will be funded by Congress with the goal of “treating taxpayers like investors.”
“When the federal government lends money to individuals for postsecondary education, taxpayers should expect those borrowers to pay back,” wrote Lindsey Burke, an economist at the Heritage Foundation in a paper.
In the vision of Project 2025, older loans that manage defaults and collections must be moved to the Treasury.
It is unclear how the Treasury will manage its portfolio. According to people familiar with the data, about 40% of loans are currently behind or late payments. After 90 days, missed payments will be reported on the borrower’s credit report, and after 270 days without payment, the loan will officially default.
Experts warn that new default avalanches may be approaching once borrowers end at the end of a multi-year suspension on loan payments and changes to their more affordable payments program.
“This is a wave of tide coming for villages that have not progressed,” said one former senior education department employee who recently departed. “Radioactive fallout is not even hypothetical at the moment.”
To keep borrowers up to date with loans and not slip off these financial cliffs, the education department hired contractors to enhance communication and offer other payment options. Current and former education employees were drafted and disseminated by the external company Accenture, whose contract was cancelled to current and former education employees.
“People who write these emails have been fired and have lost more affordable (repayment) plans,” the former employee said. “It’s like the government doesn’t want to get paid.”
The White House did not respond to requests for comment.
After months of legal challenges, cancellation of borrowers’ income-based payment programs added uncertainty to borrowers facing weeks of tension in staffing and customer service backlogs in the department.
In 2022, the Biden administration introduced a series of more affordable payment plans known as “saves,” which allow borrowers to cap their monthly student loan bills to 5% of their income, rather than the previous 10%. The Republican state attorney general sued, claiming the plan was too generous and was being stepped in by taxpayers who had no college education.
To comply with the judge’s order to terminate the save plan, the education department has removed all income-driven repayment plan applications from the website and removed borrowers effectively locking out plans adjustments if they are unable to pay the standard fee.
For nearly three years as an analyst with the Consumer Financial Protection Agency, Nicholas Salem paid $250 a month to pay off his $25,000 debt from Tufts University. When he and his entire division were fired from the CFPB, his income fell to $0 overnight.
However, he has no choice to adjust his payments and will not reach his loan servicer Mohera after putting on hold for more than 17 hours. He is working on ways to handle difficulties.
“I think I have to move,” Salem told CNN in an interview, calling it an “extreme drainage” of the money he saved.
On Thursday, federal student aid officials held a meeting to explore whether certain income-based repayment plans could be revived on their website if the injunction was not fully covered. The results said one of the conference participants now depends on the institution’s newly established lawyer.
Surviving income-based repayment plans are expected to be more expensive for borrowers.
“It’s said that ‘Save’ doesn’t come back in shape or form in any way,” an FSA staff member told CNN.
Colleges and universities are expected to share information with hospitalized students about the accreditation assistance package in a few weeks, shortly after the April 1 admission deadline.
However, education employees told CNN that the agency was unable to provide communication to schools, servicers or borrowers about how to navigate the upcoming change. And many staff members with institutionalized knowledge of the aid program were fired or left.
Educational employees, like other federal agencies employees, received an Elon Musk-inspired “Fork in the Road” email in January. He said that if he resigned as of September 30, he would be able to quit his job and receive payment.
Between the two efforts, about a quarter of the 1,500 employees in the student aid department will leave, according to employees who have been briefed on the numbers.
Currently, the department is preparing for a sudden layoff that will target a majority of the remaining employees.
“If (Trump) says, ‘The staff will be cut by 50%,’ there’s a reason to worry about how the system will work. Is that enough person? ” says Neil McCrusky, director of the Cato Institute’s Center for Educational Freedom. “We learn if they can do their less work.”
Cutting means that the FSA must play the same role as some of the personnel and external contractors who performed key functions.
Colleen Campbell, executive director of loan portfolio management at FSA, wrote in a public LinkedIn post. “We are scared of what we bring to the borrowers we serve, not just for the next few days, weeks, months, and years.” Campbell said she and her reduced staff work in “impossible environments.”
The department faced backlash when an improvement in the Student Aid Application (a free application for federal student aid known as FAFSA) was renovated in 2024. The failed rollout caused confusion for the applicant and sometimes delayed the payment of aid for months.
Several staff from US Digital Services came into detail in 2024 to the education department to help with the process. According to agency sources, these employees were among 21 USDS staff who resigned in protest against Musk’s Ministry of Government Efficiency employees in an attempt to gain access to mask sensitive data.
Experts say that the FAFSA deployment is a story of attention to what can be ahead.
“We have already seen the impact of not making enough money to manage the FAFSA process,” says Michele Shepard Zambini, senior director of the Institute for University Access and Success. “We’re missing so many career staff right now… that’s the source of concern.”
