Key takeaways
- A memo ordering a freeze on federal funding programs and services has been rescinded.
- The freeze did not include federal student loans or grants, and it’s unlikely Trump will pause this funding in the future.
- While announcements of major changes like this can be jarring, most require further action from Congress before they can become reality.
The recent memo from the Trump administration ordering a temporary freeze on federal grants and loans left student loan experts and borrowers scratching their heads. The order, rescinded two days after it was issued, paused the distribution of federal financial assistance, with little clarity on which programs and services were affected.
The memo spurred immediate legal action and widespread worry among those who rely on such assistance, including federal student loan borrowers and Pell Grant recipients. While the Department of Education later clarified the order didn’t include Title IV programs, there are still questions and concerns over what will happen to student loans under President Donald Trump.
“The memo shows that there will be a lot of uncertainty about the future of student loans and other federal student aid,” says leading student loan expert Mark Kantrowitz, adding that the Trump administration may try to implement changes through executive orders without giving much notice.
Experts have tips for handling future student loan news and finding calm and clarity amid chaos.
About the funding freeze memo
On January 27, the Office of Management and Budget (OMB) issued a memo requiring “Federal agencies to identify and review all Federal financial assistance programs and supporting activities consistent with the President’s policies and requirements.”
The memo also ordered a broad pause on federal grants, loans and assistance programs and agency activities. The funding freeze was scheduled to go into effect at 5 p.m. on January 28.
By the afternoon of January 28, the Department of Education confirmed Pell Grants and federal student loans were excluded in an electronic announcement that Kantrowitz says was “as clear as mud” and didn’t mention other federal student aid programs.
Kantrowitz notes that there is still uncertainty about whether the freeze included non-Title IV aid and campus-based aid, like Federal Work-Study and Federal Supplemental Educational Opportunity grants.
If federal aid disbursements stopped, a significant number of borrowers wouldn’t be able to continue their schooling. That is not an outcome [the administration] would want on its resume.
— Betsy Mayotte, president and founder of The Institute of Student Loan Advisors
The memo’s footnotes clarified that Medicare, Social Security benefits and other assistance received directly by individuals would not be impacted. Title IV student financial aid benefits individuals but is disbursed through schools, so its inclusion was less clear.
Two federal judges have since ordered temporary pauses to the freeze and the OMB has rescinded the memo. However, the administration continues pushing for the pause, saying it is in line with the president’s executive orders.
Will Trump freeze federal student loans and grants?
Kantrowitz says that Pell Grants and student loans are on a list of programs that will undergo a financial review. However, he doesn’t believe Trump will pause federal loans because the disbursements are relatively small compared to the trillions he’s aiming to save to fund his tax reform.
It’s also important to consider the impact a freeze on federal student aid would have — not only on students, but the administration as well.
“If federal aid disbursements stopped, a significant number of borrowers wouldn’t be able to continue their schooling,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, a nonprofit that provides assistance to student loan borrowers. “That is not an outcome [the administration] would want on its resume.”
Even if Trump did try to freeze federal student aid, it would traditionally require an act of Congress. “An executive order can’t be contrary to federal law,” says Mayotte. “We saw that with the Biden administration. We saw that with the prior Trump administration, with the borrower defense debacle. Only Congress can change federal law.”
Mayotte is quick to point out that even legislative changes to student loans would only affect loans created on or after the date that legislation was written into law. Existing borrowers would keep their preexisting benefits.
Even with all of this in mind, it can be hard not to have a gut reaction to startling announcements and headlines. But there are ways to distinguish between news and noise.
Current student loans news
Use the student loans news hub to stay updated with the latest news that could impact your balance and your wallet.
Learn more
What to do when student loan news breaks
First, remember that the new administration is still getting its bearings.
“I think we will continue to see some chaos and maybe some delays in things — and that’s not abnormal,” says Mayotte. “We usually see a little bit of communication [issues] during an administrative transition.”
Borrowers can stay on top of federal student loan happenings by watching for posts from the Federal Student Aid office and new executive order announcements from the White House. They should get information from reputable journalists and experienced industry observers and beware of any sensationalized headlines.
Mayotte and Kantrowitz advise borrowers to wait until other governmental bodies take actual action and you receive notice from your servicer before taking any action yourself. According to Mayotte, most of it is noise unless it comes up for a vote.
“We have three branches of government for a reason,” she says. “The things most people are worried about, like getting rid of the Department of Education, public service loan forgiveness and income-driven repayment plans, are all federal law. Congress is the one that would have to make most of the changes.”
Even if the administration tries to unilaterally pause funding, Mayotte points out that federal courts would likely step in, as they did with the freeze memo.
Still, concerned borrowers can contact their college’s financial aid office or their loan service for more information.
Bottom line: More student loan announcements predicted but execution is uncertain
The experts Bankrate spoke to predict there will be more announcements like this in the future and refrain from promising a smooth ride. “It’s like riding a roller coaster,” says Kantrowitz. “Hang on and don’t scream too much at all the twists and turns.”
Borrowers may have moments of fear but should know that, as with a roller coaster, systems exist to make sure things don’t go off the track on an administration’s whim. Those systems include checks and balances, legal oversight and the assistance of nonprofits and other organizations that protect borrower rights. And with those systems in place, it is unlikely everything you read in the headlines will happen.
Read the full article here
