New Year, New Twists: Student Loan Changes in the First Quarter of 2025

With any change of administration comes discussion, debate, and concern over what policy changes they will introduce and how they will affect our lives. The shift from the Biden to Trump administration is no different, and perhaps no group has felt the difference more so than student loan borrowers. This has left many borrowers wondering how we got here, what they should be focused on, and how they should prepare.

In just the first three months of 2025, we have already seen massive topics affecting borrowers:

The Department of Education’s Future

On March 20, President Trump signed an executive order instructing the Secretary of Education to “take all necessary steps to facilitate the closure of the Department of Education and return authority over education to the States.” However, closing the Department would require an act of Congress and at least 60 votes in the Senate. Notably, a 2023 congressional vote on a proposal to eliminate the Department of Education failed to pass, even in a Republican-controlled House of Representatives.

Given that abolishing the Department through congressional action is unlikely, the Trump administration has tried a different approach by gutting the agency’s staff. On March 12, over 1,300 Department of Education employees were fired, leaving the Department with just over 2,100 employees, down from over 4,100 at the beginning of 2025. Additionally, there are discussions about reallocating some of the Department’s functions to other federal agencies. One possibility is relocating the Office of Federal Student Aid, which manages federal student loans.

Early reports suggest that the student aid responsibilities may move to the Small Business Administration (SBA). However, there is no certainty of how well-equipped they are to handle the trillion-dollar student loan portfolio, as they have announced that they are cutting their own staff by nearly 43%.

Whether the Department of Education is dismantled or the Office of Federal Student Aid responsibilities are transferred, borrowers’ student loans are not disappearing!

The Future of Forgiveness Programs

Despite the ongoing political debates, programs like Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment Forgiveness (IDRF) have been in place for decades and are unlikely to disappear. PSLF, created in 2007, has bipartisan support and continues to provide essential relief for public service workers. IDRF has existed since 1994. As with eliminating the Department of Education itself, any attempt to dismantle these programs would require congressional approval.

While potential restructuring at the Department of Education may bring changes, borrowers pursuing forgiveness programs can stay on track with the proper guidance. Any significant adjustments would take time to implement, and existing commitments to borrowers are likely to be upheld, particularly for programs created by Congress like PSLF, Teacher Loan Forgiveness (TLF), or IDR forgiveness via the Income-Based Repayment (IBR) plan.

The State of SAVE and Other Income-Driven Repayment Plans

As of this writing, the Saving on A Valuable Education (SAVE) income-driven repayment plan remains blocked due to ongoing legal challenges. On February 18, the 8th Circuit Court of Appeals upheld a preliminary injunction, ruling that the Department of Education exceeded its authority in implementing the SAVE plan. This decision has left approximately 8 million borrowers enrolled in the plan facing uncertainty regarding their repayment options. It’s very likely that the SAVE plan will ultimately be removed, but other income-driven plans will remain available. For example, the IBR plan was created under the College Cost Reduction and Access Act of 2007 and could not be eliminated without another act of Congress.

In response to the court’s ruling, the Department of Education removed applications for all income-driven repayment (IDR) plans from its website, including those not directly implicated in the litigation. The Department also directed servicers to temporarily suspend processing of IDR plan applications. This suspension drew criticism from various stakeholders, and the American Federation of Teachers filed a lawsuit against the Department, alleging that halting these programs violates federal law and leaves millions of borrowers without access to affordable repayment options. In response to that suit, the Department of Education restored access to the IDR applications on March 26. While the processing of IDR applications remains paused for now, it is expected to resume shortly.

Borrowers Seeing Massive Drops in Credit Scores

Since the onset of the COVID-19 pandemic, federal student loan borrowers have benefited from relief measures like the CARES Act, which suspended payments and shielded borrowers from negative credit reporting. Additionally, the Department of Education implemented a 12-month “on-ramp” period ending on September 30, 2024, during which missed, late, or partial payments were not reported.

However, starting in January 2025, the Department began reporting delinquent federal student loans to national credit bureaus. If a borrower misses payments for 90 days or more, the delinquency will be reported, adversely affecting their credit score. Some borrowers have already seen their scores affected by nearly 200 points! The Federal Reserve estimated that over nine million borrowers were at least 90 days behind as of late March. Missing 270 days, or approximately nine months, of payments will lead to default, which carries serious financial consequences, including potential wage garnishment and tax refund offsets.

The greatest mistake student loan borrowers can make is doing nothing. Taking advantage of forgiveness programs and repayment as they currently stand can ensure you are “grandfathered” into the program as it currently stands, while waiting too long can put your eligibility in jeopardy. Be sure to seek expert guidance and create a clear path to managing your student loan debt.