United States: As former President Donald Trump edges closer to initiating the systematic dismantling of the Department of Education, the financial sector of the institution—tasked with the disbursement of loans and the stewardship of a staggering USD 1.64 trillion student debt portfolio—finds itself ensnared in an opaque and precarious future. Severe reductions in staffing and a communication void have only intensified the ambiguity surrounding the agency’s trajectory, according to insights gathered from over a dozen current and former department officials. 

Distinct from the department’s policy wing, which Trump has sought to phase out or delegate to alternative agencies, the financial arm operates in a separate sphere. However, Trump conceded that the mammoth loan burden complicates efforts to eradicate the department entirely. 

“We’ve actually had that discussion today,” Trump remarked from the Oval Office, hinting at the possibility that the student loan portfolio could be transferred to the Treasury, Commerce, or the Small Business Administration. He indicated that SBA Administrator Kelly Loeffler “would really like to do it,” according to CNN.  

A central question looms: Should the federal government persist in issuing loans directly to students? 

Project 2025, a blueprint orchestrated by the Heritage Foundation and crafted by numerous Trump affiliates—despite Trump’s attempts to distance himself from it during the campaign—proposes the creation of a new entity to oversee future lending. Under this model, a Senate-confirmed leader and a board of trustees would helm the operation, shifting the government’s role away from direct lending to a guarantor function, underwriting loans facilitated by private financial institutions. Congressional funding would underpin this transition, with a vision of treating “taxpayers like investors” and introducing loan conditions favoring specific academic disciplines or professions. 

“Unfettered access to federal student loans and grants doesn’t necessarily incentivize students to pursue fields with a solid return on investment,” asserted Lindsey Burke, director of the Heritage Foundation’s Center for Education Policy and the principal author of Project 2025’s education chapter, in an interview with CNN. 

Under this framework, the Treasury Department would assume control over existing loans, managing delinquencies and default resolutions. However, the specifics of how Treasury would navigate these responsibilities remain nebulous. Reports suggest that approximately 40% of outstanding loans are already delinquent, with payments overdue. After 90 days, unpaid loans are reported on borrowers’ credit histories, and after 270 days, they officially enter default. 

Economic analysts caution that a surge in defaults is imminent, exacerbated by the expiration of a multi-year loan repayment pause and the restructuring of affordable payment plans. 

“It’s a tsunami hurtling toward an unprepared shoreline,” cautioned a former senior Education Department official. “The fallout isn’t speculative anymore.” 

To mitigate borrower defaults, the Education Department had engaged external contractors to enhance borrower outreach and provide alternative repayment solutions. However, according to insiders, Accenture—the private firm responsible for drafting pre-default notification emails—has been at risk of contract termination. 

“The individuals responsible for crafting those crucial communications have been dismissed, and the more accessible repayment plans are vanishing,” a former employee noted. “It’s as if the government has abandoned any intent to recoup the loans,” as per CNN.  

The White House has not provided commentary on the matter. 

Shrinking Borrower Protections 

The ongoing legal battles surrounding income-based repayment plans have further muddied the landscape for borrowers already grappling with bureaucratic gridlock. 

In 2023, the Biden administration introduced the “SAVE” plan, a restructured repayment model capping monthly loan payments at 5% of borrowers’ income—an improvement from the previous 10%. However, Republican attorneys general challenged the program in court, arguing that it disproportionately burdened taxpayers who had not attended college. 

As the administration works to comply with a judicial injunction dissolving the SAVE plan, the Education Department has expunged applications for all income-driven repayment options from its online portal, leaving borrowers unable to adjust their plans amid financial hardship. 

For individuals like Nicolas Salem, a former analyst at the Consumer Financial Protection Bureau, the abrupt policy shift has been devastating. Salem, who had been diligently paying $250 monthly toward his $25,000 student debt accrued at Tufts University, found himself unemployed when his division was eliminated. His income evaporated overnight, yet without access to income-based relief, he faces insurmountable financial strain. 

“I think I’m going to have to move,” Salem told CNN, describing the payments as an “overwhelming drain” on his limited savings. 

In an emergency meeting, officials at the Office of Federal Student Aid explored potential reinstatements for select income-driven repayment programs that might not fall under the injunction’s purview. The final decision, however, rests with the agency’s recently appointed legal counsel. 

Remaining income-based repayment options are projected to impose steeper costs on borrowers. 

“We’ve been told unequivocally that ‘SAVE’ is gone for good,” disclosed a Federal Student Aid (FSA) staff member. 

Systemic Unraveling and Workforce Attrition 

With university admissions deadlines looming in early April, higher education institutions are expected to inform students of their financial aid eligibility within weeks. Yet, Education Department employees report that they have been unable to provide meaningful guidance to schools, loan servicers, or borrowers on how to navigate the forthcoming changes. The hemorrhaging of seasoned personnel with institutional knowledge has only worsened the department’s functional paralysis. 

In January, federal employees across multiple agencies, including the Education Department, received Musk-inspired “fork in the road” emails offering the option to resign while still receiving compensation until September 30. Subsequently, a voluntary buyout program offered select employees severance packages of up to $25,000. 

Collectively, these initiatives have resulted in an exodus of nearly 25% of the Student Aid division’s 1,500 employees, according to internal briefings. The department is now bracing for another wave of layoffs, which could slash the remaining workforce by half. 

“If [Trump] declares a 50% staff reduction, serious concerns will arise about the system’s viability. Is that sufficient manpower to manage such an immense operation?” posited Neal McCluskey, director of the Cato Institute’s Center for Educational Freedom. “We’re about to find out whether they can function with so few,” as per CNN. 

The impending cuts will force FSA to maintain its operations with a skeletal workforce, eliminating many of the external contractors that have historically handled critical functions. 

“I dread what the coming days, weeks, and months hold, not just for myself and my colleagues, but for the millions of borrowers who rely on us,” wrote Colleen Campbell, Executive Director of Loan Portfolio Management at FSA, in a candid LinkedIn post. She described the department’s current state as an “untenable working environment.” 

The agency previously faced public outrage over the disastrous 2024 revamp of the Free Application for Federal Student Aid (FAFSA), which caused widespread confusion and delayed financial aid disbursements by months. Several specialists from the U.S. Digital Service were deployed to assist, yet many resigned in protest over Musk’s Department of Government Efficiency operatives seeking unauthorized access to confidential data. 

Higher education policy experts warn that the FAFSA debacle foreshadows even greater disruptions ahead. 

According to the reports by CNN, “We’ve already seen the consequences of insufficient federal funding in the FAFSA rollout,” noted Michele Shepard Zampini, senior director at the Institute for College Access and Success. “Now, with so many career professionals gone, the situation is becoming increasingly dire.”