If the Department of Education Closes, What Will Happen to the FAFSA and Student Loans?

Federal student loans, including the Free Application for Federal Student Aid (FAFSA), may soon be managed by the Small Business Administration (SBA) following an executive order signed by President Donald Trump to begin shutting down the federal Department of Education. The SBA will be handling the entire federal student loan portfolio, despite previous statements indicating that student loans and Pell Grants would still be managed by the Department of Education. Education Secretary Linda McMahon confirmed this decision, stating that there would be no defunding and that student loans would be transferred to the SBA. However, concerns have been raised about the impact of these changes on the administration of federal student financial aid programs.

The Department of Education has already experienced significant staffing reductions, raising questions about the future functionality of federal aid programs. With the SBA planning to cut its workforce by 43%, concerns have been raised about the agency’s ability to effectively administer student loans. Despite these changes, experts believe that federal student aid and FAFSA will not disappear, as the application process is essential for accessing various financial aid programs. The potential transfer of FAFSA to a new agency, such as the Treasury Department or IRS, would require congressional approval and careful management to avoid disruptions for borrowers.

If FAFSA is relocated to the Small Business Administration, borrowers may not notice a significant difference in the application process, as most functions are implemented through contractors. However, concerns remain about the SBA’s experience with managing and collecting student loans, potentially leading to chaos and confusion among borrowers. It is recommended that individuals continue to submit FAFSA applications if they require financial aid for college, as the form is essential for determining eligibility for Pell Grants, scholarships, and student loans.

For applicants with concerns about sharing information from undocumented immigrant family members on the FAFSA form, experts advise assessing what is best for their situation and comfort level. The Privacy Act of 1974 prohibits the sharing of certain identifying information without consent, but fears about potential illegal sharing with immigration authorities have led to heightened concerns among some families. The Department of Education has stated it will process online FAFSA applications within one to three days, with paper submissions taking longer. However, due to staffing cuts, delays may occur in responding to questions or issues with applications.

Once a FAFSA form is processed, applicants can view a submission summary on StudentAid.gov and make corrections as needed. The Student Aid Index included in the summary is sent directly to the listed schools for calculating financial aid packages. If there are concerns about schools receiving the information, applicants are advised to contact their school’s financial aid office for assistance. Despite potential changes in the administration of federal student aid programs, experts emphasize the importance of continuing to submit FAFSA applications to secure financial assistance for higher education.