What the Department of Education layoffs could mean for student loan borrowers: ‘This will only make things worse,' activist says

The U.S. Department of Education is cutting around 1,300 staffers from its workforce, the agency announced Tuesday.

The layoffs will effectively cut the agency in half in an effort to meet President Donald Trump and Secretary of Education Linda McMahon's goal of making the department more efficient and reducing the federal government's involvement in education matters like curriculum and school choice.

"Today's reduction in force reflects the Department of Education's commitment to efficiency, accountability, and ensuring that resources are directed where they matter most: to students, parents, and teachers," McMahon said in a statement. 

The department says it "will continue to deliver on all statutory programs that fall under the agency's purview," which includes student loans and Pell Grants.

But some student debt activists worry that these cuts will bring further delays and confusion for those who need federal student aid to attend school or are paying back federal loans.

'This will only make things worse'

Student loan experts and debt relief activists have raised concerns over ED's downsizing.

"A reduction in force at the Department of Education, which is the smallest Cabinet-level federal agency, is nonsensical," Sabrina Calazans, executive director at the Student Debt Crisis Center, said in a statement on Wednesday. 

Borrowers are already dealing with uncertainty over programs ED oversees, such as student loan repayment and the Public Service Loan Forgiveness program, and the cuts will make processes like applying for financial aid and repaying student loans more complicated, Calazans said.

Fewer staff members at call centers could mean longer wait times for borrowers who need assistance, for example. Plus, last year's Free Application for Federal Student Aid catastrophe showed how difficult it can be for the department to make major administrative changes without disruption.

In fact, hundreds of users reported issues accessing the federal student aid website, and specifically the FAFSA, on Wednesday, The Associated Press reported.

"Americans with student debt have already been impacted by the recent removal of income-driven repayment plans from the studentaid.gov website; this will only make things worse," Calazans said.

Indeed, the online application for all income-driven repayment plans has become unavailable in response to a federal judge continuing the block on President Joe Biden's Saving on a Valuable Education IDR plan in February.

Borrowers who enrolled in the SAVE plan are currently in an administrative forbearance and without another income-driven repayment option, they may not be able to afford monthly payments on the standard repayment plan. 

Further, the loan simulator page on the Federal Student Aid website, where borrowers could previously compare repayment options, says the following as of March 12: "Information related to income-driven repayment plans, including the SAVE Plan, may not be accurate at this time."

ED could use a reform, but the best path is unclear, experts say

Not all student loan experts are sounding warning bells yet, though. 

"With any significant policy change, employment or otherwise, there is a risk that things won't go as smoothly as hoped," Beth Akers, a senior fellow at the conservative-leaning policy think tank American Enterprise Institute, told CNBC Make It in an email.

Akers has criticized some policy moves, like an employee buyout option that lead to nearly 600 ED personnel leaving the agency, but also opposes the idea that closing the department entirely would be detrimental.

"It's not apparent how the staffing reduction at the department will cause any immediate disruption for borrowers who are currently in repayment and in good standing on their student loans," Akers said.

"All divisions" within ED will be affected by the mass layoffs, according to the federal agency's statement, but it hasn't provided further details as to how the cuts were distributed.

The National Association of Student Financial Aid Administrators, a nonprofit that advocates for equal access to postsecondary education, is similarly interested in seeing which specific departments or programs may be affected by the cuts, though the organization is more skeptical of the Trump administration's assurances.

"Claiming that eliminating half the Department won't affect its services — without any clear plan to redistribute the workload — is, at best, naïve and, at worst, deliberately misleading," Beth Maglione, NASFAA interim president and CEO said in a statement. "It also raises serious concerns about how billions of dollars in federal student aid will continue to be disbursed to students without interruption."

What student loan borrowers can do

Amid ongoing uncertainty, there isn't a lot current student loan borrowers can do aside from continuing to make required monthly payments to remain in good standing. But experts encourage borrowers to take at least one step to protect themselves while personnel and programs at ED get shuffled around or canceled: keep a record.

That's because administrative changes, such as loans being transferred to a different servicer, have historically caused problems for borrowers. For example, borrowers whose loan servicers change often experience issues like incorrect payment amounts or histories, Abby Shafroth, co-director of advocacy and director of the student borrower assistance program at the National Consumer Law Center, recently told CNBC Make It.

"If we're talking about not just changing the servicing, but entirely transferring all operations management of the [student loan] program from one federal agency to a new agency that never managed student loans before, I would be very concerned about those sorts of problems being potentially much worse," Shafroth said.

You can obtain your payment history and screenshot you current loan balances on your loan servicer's website. You can also download your loan data by logging into StudentAid.gov, going to the "my aid" section and clicking "download my aid data."

Additionally, Akers warns borrowers to be on the lookout for scams during confusing periods like these. 

"We know scammers take advantage of moments like this to exploit targets who might feel anxious or confused about their situation," she said. "Ensure you're only communicating with a legitimate loan servicer before providing personal information."

Editor's note: This story has been updated to clarify the characterization of the National Association of Student Financial Aid Administrators.

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