What could happen to your student loans without the Education Department What does it mean for the 40 million Americans with student loans?
President Donald Trump may sign an exectuvie order aimed at dismantling the Education Dept
President Donald Trump is expected to sign an executive order on Thursday aimed at dismantling the U.S. Department of Education, throwing into question the fate of the agency's $1.6 trillion federal student loan portfolio.
Only Congress can eliminate the Education Department. But the Trump administration can starve the agency of resources. Earlier this month, the department laid off nearly half of its staffers. The actions leave the department with 2,183 employees, down from 4,133 when President Trump took office in January.
What does this all mean for the more than 40 million Americans who hold federal student loans?
"[T]his would create chaos," said Michele Shepard Zampini, senior director of college affordability at The Institute For College Access and Success, said in an interview with CNBC earlier this year.
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Trump told reporters earlier this month that the loan accounts should be overseen by another agency.
"I don't think the Education [Department] should be handling the loans," Trump said. "That's not their business."
Here's what could be next for borrowers.
SBA, Commerce or Treasury could take student loans
Trump said this month that his administration was looking to task the Treasury Department, Commerce Department or the Small Business Administration with federal student loan management.
Experts say the most logical agency would be Treasury Department, since it already plays a role in collecting past-due debts from Americans through the Treasury Offset Program.
Meanwhile, "Neither Commerce nor SBA has any relevant experience," higher education expert Mark Kantrowitz told CNBC this month.
Student loan forgiveness could be at risk
The change could not come at a worse time for federal student loan borrowers, consumer advocates say. Court rulings have nixed Biden administration attempts at widespread forgiveness and repayment plans with lower payments, leaving many borrowers confused and saddled with higher costs.
Without the Education Department operating at full capacity, borrowers may now find their applications for existing loan forgiveness programs stalled, Kantrowitz said. Federal student loan borrowers can be eligible for debt cancellation under income-driven repayment plans or if they become disabled, among other reasons.
Student loan servicers handle the paperwork for the relief, but it's the Education Dept. that "has final approval of all student loan forgiveness," Kantrowitz said.
"This may be disrupted by the transition of the student loans to a new federal agency," he added.
One important thing to keep in mind: The terms and conditions of your federal student loans cannot change even if the agency overseeing them does, experts say. Borrowers' rights were guaranteed when they signed the master promissory note when their loans were originated.
What worries do you have about your federal student loans with the Education Dept. at risk? If you're willing to share your experience for an upcoming story, please email [email protected].
This story originally appeared on: CNBC - Author:Annie Nova
