What happens if you don't pay your student loans after the Department of Education shuts down?

The future of student loan repayments has been thrown into uncertainty following President Donald Trump's executive order to "begin eliminating the federal Department of Education once and for all."

Although closing the Department of Education requires congressional approval, the proposed changes have raised numerous questions among borrowers worried about their financial obligations.

Federal Student Loans and the Department of Education's Role

The Department of Education plays a critical role in managing and overseeing the nation's $1.6 trillion federal student loan portfolio, which impacts over 40 million borrowers. The agency acts as a bank of sorts, issuing loans and managing repayment plans.

Even though the White House is reportedly exploring the possibility of transferring these responsibilities to other federal agencies, no clear plan has been established.

According to White House Press Secretary Karoline Leavitt, critical functions like federal student loans and special education funding will likely remain under a restructured, downsized agency.

As of now, borrowers are still expected to keep making their monthly payments, as the and conditions of federal student loans are guaranteed under the original master promissory note.

What Happens If You Miss Payments?

Falling behind on student loan payments can lead to severe consequences. Once a payment is missed, the loan is considered delinquent and will remain so until the overdue amount is paid or alternative arrangements are made.

If a loan is delinquent for 90 days or more, it will be reported to national credit bureaus, which can damage your credit score and affect your ability to secure future loans, credit cards, or even rent an apartment.

When a loan remains unpaid for an extended period--generally 270 days for federal loans--it goes into default. Defaulting on a student loan brings about harsher repercussions, such as:

• The immediate requirement to pay off the full balance through a process known as acceleration.
• Wage garnishment, where a portion of your paycheck is seized to repay the loan.
• The withholding of federal benefit payments and tax refunds.
• Losing eligibility for deferment, forbearance, or additional federal financial aid.
• A severely damaged credit rating, making it difficult to purchase a home, secure credit, or even obtain insurance.
• Legal action that could result in court costs, attorney fees, and other financial penalties.

Changes to Loan Forgiveness and Management

For those pursuing loan forgiveness through programs like income-driven repayment plans or Public Service Loan Forgiveness (PSLF), the looming shutdown of the Department of Education raises concerns about istrative delays and potential policy shifts.

With key functions of the department likely to be handed over to other agencies, borrowers are encouraged to maintain meticulous records of their payments and any correspondence with their loan servicers.

Additionally, the istration has signaled a desire to clamp down on fraudulent activity in the student loan system.

Leavitt noted that the department will continue efforts to "stop vulnerabilities to fraud," but critics argue that the move to dismantle the Department of Education could cause far more disruption than improvement.

What Should Borrowers Do Now?

While there is no immediate disruption to the existing student loan system, the uncertainty surrounding its future has many borrowers on edge.

Experts advise continuing regular payments, documenting all transactions, and reaching out to loan servicers to confirm details of their loans and repayment plans.

Borrowers are also advised to stay informed about developments related to the Department of Education's potential dismantling and to be proactive in addressing any difficulties they may face in making payments.