Plans to shutter Education Department Add to Financial Aid Confusion
The chaos and confusion resulting from systemic changes and closures at multiple federal agencies have now reached the $242 billion budget of the Department of Education. With the agency’s workforce cut in half, and plans announced to shut it down, millions of students and families who rely on federal financial aid for higher education are facing a front-line assault.
State attorneys general in 20 states and the District of Columbia filed a lawsuit challenging the agency’s gutting. According to the AGs, the department is a congressionally authorized executive agency with laws creating its various programs and funding streams. As such, the Executive Branch lacks the legal authority to unilaterally incapacitate or dismantle it without an act of Congress.
“The administration’s lay-off is so massive that ED will be incapacitated and unable to perform essential functions,” said Maryland Attorney General Anthony Brown. “As the lawsuit asserts, the administration’s actions will deprive students with special needs of critical resources and support. They will gut ED’s Office of Civil Rights, which protects students from discrimination and sexual assault. They would additionally hamstring the processing of financial aid, raising costs for college and university students who will have a harder time accessing loans, Pell Grants, and work study programs.”
“This administration may claim to be stopping waste and fraud, but it is clear that their only mission is to take away the necessary services, resources, and funding that students and their families need,” said New York Attorney General Leticia James.
While it is encouraging for state attorneys general to file legal challenges against administration actions, and education advocates to raise their voices and influence to thwart these changes, every day that passes without direct relief makes borrowers’ financial challenges harder and more difficult to resolve.
For example, even before legislation was enacted to avert a government shutdown in March, the Congressional Budget Office (CBO) predicted the popular Pell Grant program that over six million students rely upon faced a $2.7 billion funding shortfall this year. Pell Grants, the single largest source of post-secondary education grants provided $31 billion in aid with approximately 6.5 million undergraduate students in FY2023.
Without additional funding, the grant shortfall is expected to balloon to $10 billion in 2026. Currently, the maximum annual award per eligible student in the formula-based program is $7,395. Most Pell recipients come from families whose total income is $60,540 or less.
It is relevant to note that the new round of cuts to the Pell Grant program are not the first time that significant changes have been made. Instead, the new changes come in addition to others never restored. For example, in the aftermath of the Great Recession in FYs 2011 and 2012, the option for “year-round” Pell, which helped students make continuous progress toward their credentials was eliminated. That same action also cut the number of lifetime semesters a student can receive Pell Grants from 18 to 12 semesters and remains unchanged.
In response to CBO’s disturbing report, a coalition of over 100 higher education organizations signed a February letter appealing to committee chairs and ranking members in both the Senate and the House to act with dispatch. Its signatories included an array of organizations such as: the American Association of University Women, Center for Law & Social Policy, Georgetown University Center on Education & the Workforce, NAACP, National Education Association, National Consumer Law Center, Student Borrower Protection Center, and the United Negro College Fund.
“If additional funding is not added to the Pell Grant program very soon, students could face eligibility or award cuts for the first time in more than a decade,” wrote the educators. “Students cannot afford such cuts during a time of rising living costs, and our economy cannot afford to have students lose access to the education and training they need to succeed in the labor market. The maximum Pell Grant already covers the lowest share of college costs in the program’s history, contributing to a persistent “affordability gap” that forces low- and middle-income students to either take out loans or forgo higher education and training entirely.”
And speaking of loans – borrowers understand that when it takes longer to repay principal owed, interest fees rise as well. Further, fixed interest rates on graduate student loans come at a higher price than those for undergraduate loans. New federal direct loans disbursed between July 1, 2024 and July 1, 2025 carry 6.53 percent fixed interest rates for undergraduate loans, but an 8.08 percent rate for graduate and professional loans.
In other words, higher education comes with higher costs. And the longer loan repayment takes, the higher and harder it becomes to fully repay them.
Today, many borrowers currently enrolled in affordable, income-based repayment options have been frustrated by a lack of online access to complete mandatory income recertification. Without that timely access, spikes in monthly payments ensue. As recently reported by Forbes, “This effectively keeps millions of student loan borrowers who had enrolled in SAVE stuck in a forbearance. The forbearance pauses payments and sets interest to zero, but the period does not count toward student loan forgiveness, including for Public Service Loan Forgiveness, or PSLF – a popular program for borrowers working in nonprofit or government settings.”
“For many of us, student loans were supposed to be a path forward, not something that holds us back,” said Mike Pierce, executive director of the Student Borrower Protection Center. “We need leaders that prioritize policies that put working people first.”
Charlene Crowell is a senior fellow with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org" data-linkindex="10">Charlene.crowell@responsiblelending.org.
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