Importance Score: 85 / 100 🟢
Federal Financial Aid’s Future Uncertain Amid Proposed Agency Shift
While the Trump administration has reinstated income-driven repayment plans for those with student loans, significant ambiguity persists regarding the future of federal financial aid programs. On March 20, former US President Donald Trump signed an executive order initiating the process to potentially close the Department of Education and transfer the management of federal student loans to the Small Business Administration.
Trump announced this shift of the federal student loan portfolio to the SBA would occur “immediately,” a day after press secretary Karoline Leavitt indicated to reporters that student loans and Pell Grants would remain under the Department of Education. Education Secretary Linda McMahon reiterated Trump’s position in a CNN interview that Sunday.
“[Student loans] would transition to the Small Business Administration,” McMahon stated. “There will be no defunding.”
A core function of the Education Department is managing federal student financial aid, encompassing grants and student loans. The potential closure of the department raises critical questions about the future of the Free Application for Federal Student Aid, or FAFSA.
White House actions have already weakened the Department of Education. On March 11, the agency’s staffing was significantly reduced by almost half, and the studentaid.gov website experienced hours of downtime.
“These staff reductions generate substantial concerns regarding the future operability of federal aid initiatives,” commented student loan expert Elaine Rubin via email. “Communication has been limited regarding the department’s plans to maintain effective operations and avoid disruptions.”
If the SBA assumes responsibility for student loan administration, it would do so with diminished resources, having announced a 43% workforce reduction the preceding Friday.
For individuals concerned about completing the 2025-26 FAFSA—or those who have already submitted it—here’s essential information.
Will FAFSA Be Eliminated?
Despite the potential dismantling of the Department of Education, experts believe federal student aid and FAFSA will likely continue.
“The software infrastructure and call center operations are outsourced to contractors, yet significant work is still conducted internally,” explained student loan expert Mark Kantrowitz in an email. “Following last year’s FAFSA challenges, further staff reductions could be disastrous.”
Rubin emphasized that FAFSA serves as the “primary application” not only for federal financial aid programs but also for numerous state and institutional aid programs.
“Replacing FAFSA would be a monumental undertaking, but not impossible in the long term,” Rubin noted. Given the extensive network of programs dependent on the application, “we do not foresee FAFSA’s elimination at this juncture.”
Potential New Agencies for FAFSA Oversight
Prior to Trump’s Friday announcement, the Treasury Department or the Internal Revenue Service (IRS) were considered the most logical destinations for FAFSA, as the form already interfaces with the IRS system for tax data retrieval.
Kantrowitz initially suggested to FASTNET that the Treasury Department was the most probable agency to oversee student loan programs. Following Trump’s announcement, Kantrowitz pointed out that transferring student loans and FAFSA to the Small Business Administration would still necessitate congressional approval.
He further stated that regardless of the agency assuming responsibility, the federal government must maintain the administration and management of student aid.
“States are not equipped to manage student loans,” Kantrowitz asserted. “Private lenders lack both the capacity and desire to privatize the federal student loan portfolio.”
Kantrowitz suggested that if FAFSA were to move, borrowers might experience minimal changes, depending on the operational approach of the overseeing entity.
“Most operational aspects [of student loan programs] are handled by contractors,” he said. “The SBA lacks experience in managing and collecting student loans. If they retain the relevant FSA personnel and continue utilizing existing student loan servicers, disruptions should be limited. Otherwise, significant disorder and confusion among borrowers are possible.”
Continuing to Submit Your FAFSA Application: What You Need to Know
Experts advise that students requiring financial assistance for college should continue to utilize FAFSA. The form determines eligibility for various forms of financial aid, including Pell Grants, scholarships, work-study programs, and student loans.
Rubin highlighted a specific concern for students needing to report information from a parent or spouse who is an undocumented immigrant. Non-US citizen applicants with proper documentation may qualify for aid; the status of financial “contributors” such as parents and spouses does not affect eligibility.
The Privacy Act of 1974 restricts the agency from sharing certain identifying information without explicit consent or agreement. Current agreements permit the department to share FAFSA data for applicants—but not contributors—with the Department of Homeland Security for status verification. However, the current administration’s strict stance on undocumented immigration has raised concerns among families about submitting information that could be improperly shared with immigration authorities, Rubin explained.
She offered no universal guidance for these applicants, stating, “It really depends on… what is best for the family and their comfort level.”
FAFSA Application Processing and Potential Delays
For those who have already submitted their FAFSA form, the Department of Education states that online applications are processed within one to three days (paper submissions take longer).
After processing, applicants can access StudentAid.gov to review their submission summary and make corrections. However, due to staffing reductions, experts warn of potential delays in obtaining assistance for application questions or issues.
The summary includes the Student Aid Index, which the department sends directly to the listed schools. Institutions use the SAI to calculate financial aid offers. If there are concerns that a school has not received the necessary information for financial aid package determination, contacting the school’s financial aid office is advised.