What will happen to student loan plan?

Education secretary's letter raises uncertainty

By: Mary Ann Koruth
NorthJersey.com
USA Today Network - New Jersey

..... The Trump administration is doubling down on its efforts to close the federal Education Department, according to a public letter to employees form newly confirmed Secretary of Education Linda McHahon.
..... The letter, published Monday [03/03/2025] on the department's website reads that a "historic final mission to "transfer educational oversight to the states" is the next phase.
..... Those moves will "profoundly impact staff, budget and agency operations here at the Department in coming months," McHahon wrote, signaling layoffs and cuts.
..... When it comes to higher education and federal loans, McMahon's colleges more countable ahd having them become more affordable. "A post-secondary education should be path to a well-paying career aligned with workforce needs," her letter said, echoing a bipartisan priority to balance spiraling college cost with income results.
..... Should students borrowers with federal loans be afraid of losing aid they have already been granted?
..... No, and they should not be afraid of terms and conditions of those loans changing either, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a Massachusetts-based organization that provides free loan advice nationally to 12,000 students annually. for those who have qualified for federal aid calculated through the FAFSA from, or have received a Pell grant, loans are not on the chopping block, Mayotte said. Any changes would come only if Congress approves them and votes to approve a spending bill still being negotiated that won't be cerated until April or May. [2025]
..... May is when college admission for the class of 2025 will start rolling in, setting off budgeting decisions for families.
..... McMahon's letter came on the heels of Education Department workers' being placed on administrative leave, and an email offering others the option of $25,000 buyouts from Elon Musk's Department of Government Efficiency.
..... Trump is working on an executive order to do away with any parts of the Education Department that are not protected by law, news reports have said. The department was cerated by an act of Congress in 1979, and completely shutting ti down would require congressional approval. If this take place, student loans would likely be transfered to the Department of the Treasury, experts say.
..... "Even if the loans were to move to a different agency, the terms and conditions would not change. This would not get rid of Public Service Loan forgiveness programs (PSLF), for example. It would not change or privatize interest rates," Mayotte said. That's because those sorts of changes would not pass legal muster, she said.
..... "The terms of thee loans are written into statue. Congress has never retroactively changed or removed a benefit from an existing loan, and even in this Congress, I don't see them doing hat now ... I just don't think student loans are high on their priority list, I think it's K-12, civil rights and DEI," Mayotte said."Despite everything that's been going on last week, [02/26/2025] I actually don't think the current administration is going to make a lot of changes within the student loan programs," Mayotte said. "I do think we may see some significant changes for future borrowers due to some proposals out there that could restrict ability for parents or graduate students to borrow," she said, noting that it's still "way too early to say this is definitely going to happen."

Parent PLUS, Grad PLUS

..... House Republicans are floating proposals that might eliminate or restrict the Parent PLUS or Grad PLUS loan costs not covered by student aid programs and depend on regular credit checks; those loans were nationalized during the Obama administration.
..... The Senate would still have to get on board with these proposal in a budgetary approval process called reconciliation - a move typically used by the party with the majority in the Senate to bypass the 60-vote requirement to approve bills. That process could go on until May. [2025] when the two houses come to an agreement on spending bill.
..... "It's still very early in the reconciliation process," Mayotte said.
..... One group that could benefit from privatizing Parent and Grad PLUS loans is middle-class borrowers with good credit, said Jack Wallace, director of government affairs at the private student loan refinancing firm Yrefy. Private loans for people with good credit could be cheaper than existing federal loans, and would reduce the burden on the government, he said.
..... "If borrowers have very good credit, they're better off doing a private loans, because right now private loans are 3% to 5% cheaper than a federal loan," Wallace said.
..... Critics of Trump's imminent take-down of the Education Department say that moving it student loan arm to another agency would mean losing the institutional knowledge and expert insights of career civil servants who have administered loans for years.
..... "There are around $1.6 trillion in outstanding student loans with more than 40 million customers. If you measure that against the assets of U.S. banks, it would make the Education Department the country's fourth- or fifth-largest bank. Putting this in Treasury, it would seem to me, would be the right way to go," Wallace said.
..... That description of the Education Department is "a red herring," said Mayotte. "If the Education Department was eliminated tomorrow, the loans would not go away, they would only be sent to a different agency. The department doesn't now the loans, the federal government and the U.S. taxpayer do," she said.

Higher education cost

..... Republicans opposed Biden-era loan forgiveness as wasteful - reducing the McMahon's letter calling to rid the Education Department of "bureaucratic bloat< Biden programs, however were "targeted," Mayotte said. "Biden loan forgiveness was crafted especially around borrowers that struggle the most," she said. they were not looking to forgive loans of students that just graduated, "but for people that have been paying for decades and whose income did not appear to support the ability to repay the loan."
..... The real problem facing administration, including Trump's is lowering the astronomical costs of higher education, Mayotte said.
..... The federal government has general failed to checks those costs. In New Jersey, the Murphy administration passed new laws in 2023 to hold universities more accountable for the high cost of an undergraduate degree, making the state the first to require colleges to meet performance standards based on a ratio of tuition and fees to earning for some programs, according to The Institute for Collage Access and Success. the laws also require schools to be more fiscally transparent, after budget crisis at smaller colleges, including New Jersey City University and Bloomfield College, caused layoffs and rattled public confidence.
..... Student loan debt is a "symptom" of the larger problem of the high cost of college, Mayotte said. If the Trump administration succeeds in addressing the high cost of college, then losing access to loans for parents and graduate students might not be as painful, she said. there are many proposal in Congress to lower college costs. "At a 10,000-foot level, I can say that both side of the aisle agree that colleges need to have more skin in the game. That is coming, whether now or some years down the line," she said.
..... States have to start reinvesting in higher education, Mayotte said. Once states begin to reinvest, the median cost of public colleges will come down. That could in turn affect costs at private colleges, she said.

HOME