The Trump administration has taken a series of executive actions during the last month that have upended the federal student loan system and plunged the future of repayment and student loan forgiveness programs into uncertainty. Millions of borrowers are already being impacted.
But legal experts and student loan borrower advocacy groups have questioned the Trump administration’s recent orders. And several new legal challenges have now been filed against the administration in response to these actions. These lawsuits could ultimately determine the fate of President Donald Trump’s efforts to eliminate the Department of Education and remake the federal student loan system. Here’s where things stand.
Trump Order To Restrict Public Service Loan Forgiveness For Millions Of Student Loan Borrowers
Last month, President Trump issued an executive order to limit eligibility for the Public Service Loan Forgiveness program. PSLF is a bipartisan program created under President George W. Bush in 2007 that offers federal student loan forgiveness for borrowers after they make the equivalent of 10 years of payments while working in traditionally lower-paying nonprofit and public sector jobs. Teachers, nurses, members of law enforcement and the military, municipal workers, and religious leaders can all qualify.
Trump’s executive order would limit student loan forgiveness eligibility under PSLF for organizations that engage in certain “illegal activities.” But “illegal” is fairly loosely defined in the order itself, potentially encompassing anything from immigration and LGBTQ organizations, to public and nonprofit organizations that have DEI initiatives.
“It is the policy of my Administration that individuals employed by organizations whose activities have a substantial illegal purpose shall not be eligible for public service loan forgiveness,” said President Trump in the order.
But experts have questioned its legality. PSLF was created by Congress, and the governing statute and regulations do not authorize the President or the Department of Education to restrict eligibility for student loan forgiveness for otherwise-qualifying organizations based on their specific activities. In addition, penalizing organizations based on their viewpoint or mission could raise constitutional issues, including First Amendment concerns.
Where Things Stand With Trump’s Order Restricting Student Loan Forgiveness Eligibility For PSLF
No legal challenge has been filed yet because the order isn’t really in effect. President Trump simply directed the Department of Education to draft new regulations implementing the order. And creating new department regulations for federal student loan programs is a long, public-facing process that can take up to two years. In the meantime, the department has tried to assure borrowers that PSLF is unchanged, and borrowers can still pursue student loan forgivingness under the program.
“We are reviewing the recent Executive Order regarding the Public Service Loan Forgiveness (PSLF) Program,” reads a banner notice on the Department of Education’s PSLF website. “There are no changes to PSLF currently, and borrowers do not need to take any action.”
Trump Administration’s Stop Work Order For Affordable Student Loan Repayment Plans
Unlike the PSLF executive order, another Trump administration action has gone into effect and has been causing severe chaos throughout the federal student loan system. In response to a new ruling by the 8th Circuit Court of Appeals in an ongoing legal challenge over the SAVE plan, the Trump administration quietly ordered student loan servicers to stop processing any application for income-driven repayment plans. The administration also took down both the online and fillable PDF versions of the IDR applications, preventing borrowers from applying.
The Trump administration’s actions have had profound impacts. Borrowers who want to apply for IDR plans, which federal law requires the Department of Education to offer and are also outlined in federal student loan promissory notes, cannot do so. This is also effectively preventing some borrowers from pursuing student loan forgiveness through PSLF, because repaying student loans under an IDR plan is typically a required component of that program. The order is also preventing borrowers from switching IDR plans, including those who continue to be directly impacted by the SAVE plan litigation. And has made it impossible for borrowers enrolled in an IDR plan to recertify their income (which federal law requires annually), resulting in dramatic spikes in monthly payments for some people.
Student loan borrower advocacy groups have argued that the Trump administration is effectively using the 8th Circuit’s recent order as an excuse to shut down the entire income-driven repayment system and hinder access to PSLF, as nothing in the court’s order requires the Department of Education to do what it has done. In fact, they argue, federal law requires that the administration continue to offer IDR plans to borrowers, despite the ongoing legal challenge over the SAVE plan.
Where Things Stand With Trump’s Stop Work Order For Student Loan IDR Plans
Last week, the American Federation of Teachers filed a legal challenge against the Trump administration over the blocking of income-driven repayment plans and, effectively in some cases, PSLF. This week, the AFT followed up its initial complaint with a motion for a preliminary injunction or temporary restraining order — asking the court to immediately halt the Department of Education’s actions while the litigation continues, and to force the Trump administration to reopen these programs.
“The Eighth Circuit decision did not speak to the rest of the pre-2023 REPAYE Plan, the income-based repayment statute and IBR Plan, or Public Service Loan Forgiveness, nor did it preclude the defendants from utilizing them in the future,” reads the motion. “In fact, it used the existence of forgiveness through Public Service Loan Forgiveness and the IBR statute to reach its decision.”
The AFT argues that, at a minimum, the Trump administration must reopen access to the IBR plan. “Nothing in the Eighth Circuit’s decision that casts any doubt on the legality of the IBR Plan, and there is no valid justification for shutting off access to the IBR Plan in light of that decision,” reads the motion. “Indeed, the Eighth Circuit invoked the existence and terms of the IBR statute and plan to conclude that the forgiveness provision of income-contingent repayment plans was unlawful. Said plainly: even if the defendants had some justification for temporarily closing plans based on the ICR statute, they have no justification for shutting off access to the IBR Plan.”
The AFT argues that student loan borrowers will suffer irreparable harm if the motion for a preliminary injunction or temporary restraining order is not granted. A hearing is set for Tuesday afternoon.
Trump Order To Close The Department Of Education, Transfer Student Loan Portfolio To SBA
Last week, President Trump issued an executive order to close the Department of Education. The order was widely expected, and followed a “reduction in force” directive earlier this month that effectively cut the department’s workforce in half, which advocates have warned could have profound impacts on the federal student loan system and the disbursement of new federal student aid. Less than a day after Trump signed the order, and after the White House provided explicit public assurances that the federal student loan system would remain at the Department of Education, Trump announced that he would order the federal student loan system to be relocated and transferred to the Small Business Administration.
Legal experts have questioned the Trump administration’s actions. The Department of Education was created by Congress, and only Congress can close the department — something which Trump’s executive order appears to acknowledge. Furthermore, transferring federal student loans to the SBA without congressional authorization may be illegal, as federal law and federal student loan promissory notes specifically house federal student loan programs at the Department of Education and direct the department to implement these programs; only Congress can change that, say student loan legal experts.
Where Things Stand On Trump’s Order Closing The Department of Education And Transferring Student Loan System To SBA
On Monday, a coalition of labor unions and the NAACP filed a lawsuit against the Trump administration over its efforts to close the Department of Education and shift the federal student loan system to another agency. The groups argue that these actions violate federal law and the constitution, as only Congress can make these changes. The suit also argues that the staff cuts the administration has already made to the department amount to an illegal attempt to prevent it from carrying out its statutory obligations as established by Congress.
“Debilitating cuts were made to the Office for Civil Rights (“OCR”), the Office of Federal Student Aid (“FSA”), and the Institute for Education Sciences (“IES”),” reads the complaint. “The RIF’s effects are so devastating that the Department can no longer discharge its mandatory statutory functions. Taken together, Defendants’ steps since January 20, 2025, constitute a de facto dismantling of the Department by executive fiat.”
Without Congress, the lawsuit argues, “an agency surely lacks any constitutional or statutory authority to cease its statutorily mandated functions, or hollow out its workforce so dramatically that it lacks the capacity to execute them, without any direction from Congress at all.”
The latest legal challenge, which was filed in federal court in Maryland, follows an earlier lawsuit filed in Massachusetts by a coalition of Democratic attorneys general seeking to halt and reverse the staff firings at the Department of Education. They, too, argue that this is effectively an action by the Trump administration to dismantle the department without congressional approval, imperiling the agency’s obligations to disburse federal student aid, oversee the federal student loan system (including repayment and student loan forgiveness programs), and support civil rights and efforts to educate students with disabilities.
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