Student Loan Forgiveness May Wither in the Courts, Says This Expert. What You Can Do Now

Student loan borrowers have been left in limbo — again — after President Donald Trump signed an executive order last week to begin dismantling the federal Department of Education. And options may be dwindling for those not already on the path to forgiveness.

Millions of borrowers on the SAVE plans have had their payments on pause amid legal challenges but are expected to resume by the end of this year. Applications for income-driven repayment (IDR) plans, which have been touted as an alternative option for SAVE borrowers, are currently unavailable on the federal student aid website.

Betsy Mayotte, president of the nonprofit Institute of Student Loan Advisors, expects IDR plans to become available again in the next couple of months. However, she worries that rulings against the Saving for a Valuable Education plan also jeopardize the forgiveness component for income-contingent repayment (ICR) and Pay As You Earn (PAYE) plans.

«I’m really concerned if the courts end up saying that the 20- to 25-year forgiveness under those two plans is no longer a thing,» she said. «Will they grandfather in the people already on the plans, and if they don’t, what happens when someone hits the 25 years?»

While current forgiveness options could be retroactive — meaning borrowers already on a plan could still qualify for loan forgiveness — future borrowers and those not currently on track for forgiveness may have fewer options. Mayotte said proposals for streamlining repayment plans could leave just two options: a standard plan and an income-based one.

«There wouldn’t really be a straight forgiveness component to that,» she said. «I have concerns about people … having their student loan debt hanging over their head for the rest of their lives.»

Trump announced last week that the Small Business Administration would «immediately» begin handling the entire federal student loan portfolio, although that move faces legal challenges.

Regardless of who ends up administering the student loan program, changes are likely. If you have federal student loans or have plans to apply, here’s what experts say could be on the horizon.

Read more: What Happens to the FAFSA and Student Loans if the Department of Education Shuts Down?

Can the president shut down the Department of Education?

The president can’t unilaterally eliminate the Department of Education because it was created by an act of Congress, which has the power to abolish it. Congress is unlikely to eliminate the department since Republicans control only 53 votes in the Senate, and a 60-vote supermajority is required.

However, while closing the Department of Education entirely might be out of the president’s purview, the Trump administration has begun taking action to end many functions and programs. The Education Department laid off nearly half of its workforce in March.

Congress could also slash the department’s budget through budget reconciliation, which only requires a simple majority.

«Proposals to get rid of PLUS loans, Student Loan Interest Deduction, [American Opportunity Tax Credit], [Lifetime Learning Credit], borrower defense to repayment, closed school discharge and aspects of PSLF could be done through budget reconciliation,» student loan expert Mark Kantrowitz said in an email.

Read more: My Monthly Student Loan Payment Could Jump From $0 to $488. Here’s How I’m Preparing

What happens to student loans if the Department of Education is eliminated?

If the Department of Education is wholly eliminated, many of its programs, including federal student loans, would likely remain in some form and move to different departments.

While the administration says the entire program will move to the Small Business Administration, that agency is experiencing cuts to its own workforce. So any shifts would likely take time.

For most current borrowers, the impact of eliminating the department might not be immediately apparent. Mayotte said vendors handle most of the day-to-day functionality, like sending bills and processing payments.

«I expect it would remain that way with the same vendors if the loans moved over to another agency,» she said. «I don’t actually expect a lot of things would change in the every day for borrowers.»

Wherever student loans end up, current borrowers should expect the same interest rates and terms they agreed to when they accepted the loans. «Those terms are specified in the Master Promissory Note and in the law,» Kantrowitz said.

However, those needing help paying for college in the future may have a harder time covering costs.

«Some of the proposals that I think have some legs would restrict borrowing for graduate students and for parents of undergraduate students,» Mayotte said. «It could really harm some low- and middle-class families.»

Read more: Should I Still Fill Out the FAFSA if the Department of Education Is Shut Down?

What about student loan forgiveness?

President Trump has made it clear he’s not in favor of broad student loan forgiveness programs, calling the Biden administration’s student loan relief efforts «a total catastrophe» during a presidential debate last year.

However, during her confirmation hearing for education secretary, Linda McMahon told senators that the Department of Education would honor the Public Student Loan Forgiveness Program and other student loan forgiveness programs that Congress created.

Despite an executive order disqualifying some nonprofit employers for engaging in «illegal activities,» Mayotte said, «I’m not really worried about PSLF right now.»

According to Kantrowitz, eliminating the department would also not affect borrowers whose loans have already been forgiven. «The president cannot claw back forgiveness that has already been provided. It is legally binding,» he said. The courts also say that forgiveness has an ‘irreversible’ impact.»

The Biden administration’s Saving on a Valuable Education plan, which had lowered monthly payments and offered additional forgiveness options, was struck down by a US appeals court ruling in February. SAVE was already on the chopping block, and the Trump administration isn’t expected to defend the plan.

The Department of Education closed applications for all income-driven repayment plans temporarily, leaving student loan borrowers in limbo and with limited options for lower payment plans. And even if they’re reinstated, key elements like forgiveness could be removed from the plans.

Read more: You Can’t Be Forced to Repay Forgiven Student Loans — Unless This Happens

What to do if you have student loans

For now, borrowers who hold student loans should stay tuned for updates and prepare to restart payments if they’ve been on pause.

«[Borrowers can] take screenshots of their current loan status and payment history,» Mayotte said. «Keeping good records on any debt you hold is never a bad idea.»

Also, make sure you know who your loan servicer is and that they have your current contact information. If you’re enrolled in the SAVE repayment plan, expect to pay more this year. You can use the Department of Education’s loan simulator to calculate your new payment and consider other options and saving strategies.

If you’re enrolled in PSLF and are near the 120-payment mark, you may want to apply for the PSLF buyback program. It allows you to «buy back» no-payment months not counted toward forgiveness while your loans were in forbearance or deferment. Although the PSLF program may still be safe for many participants, the buyback program could go away, so now’s the time to take advantage.

Mayotte said her advice to borrowers is to be prepared and stay informed, but don’t panic about what may or may not lie ahead.

«Don’t make any sudden financial decisions around your loans based on a headline,» she said. «None of these things happen immediately.»