Student Loan Update: How New Supreme Court Ruling May Impact Borrowers

Newsweek

6 hours ago

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The U.S. Supreme Court's recent decision allowing the Trump administration to implement widespread layoffs at the Department of Education has stirred concern among student loan borrowers and education advocates.
The high court lifted a federal injunction that had blocked the termination of approximately 1,400 employees. While the move is touted as an effort to reduce bureaucratic overhead, it's also criticized for potentially undermining support services for millions of students and borrowers.
Why It Matters
More than 40 million Americans hold student loan debt, totaling over $1.74 trillion nationwide.
With the future of the Department of Education up in the air and mass layoffs now enforced, service for borrowers, including those on income-driven repayment plans, could be disrupted.
A sign marks the entrance to the U.S. Department of Education headquarters building on June 20, 2025, in Washington, DC.
A sign marks the entrance to the U.S. Department of Education headquarters building on June 20, 2025, in Washington, DC.
J.What To Know
The Supreme Court sided with the Trump administration Monday, overturning a lower court's ban on Department of Education layoffs.
The three liberal justices, Ketanji Brown Jackson, Elena Kagan, and Sonia Sotomayor, dissented strongly.
Justice Sotomayor wrote, "The President must take care that the laws are faithfully executed, not set out to dismantle them... the majority rewards clear defiance of that core principle with emergency relief."
Secretary of Education Linda McMahon, however, hailed the decision as "a significant win for students and families," asserting, "the President... has the ultimate authority to make decisions about staffing levels, administrative organization, and day-to-day operations of federal agencies."
The layoffs arrive as the Department of Education contends with a significant backlog in processing income-driven repayment plans, reportedly affecting more than 1.5 million borrowers, according to a court filing.
Reduced staffing has already led to delays and communication problems, with over 40 percent of surveyed higher education institutions reporting issues related to federal student aid, according to the National Association for Student Aid Administrators report.
"They're downsizing an agency that oversees trillions of dollars in debt. If the goal is to eventually absorb the Department into another structure, fine—there's an argument to be made for that. But just slashing staff without a clear plan creates chaos," Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek.
"I would expect long hold times, miscommunication, unqualified answers, and unresolved problems. It's the perfect storm for borrower confusion."
As the administration forges ahead with the layoffs, borrowers may continue to face delayed assistance with loan management.
The Department of Education asserts it will maintain essential functions, but with less federal involvement and a pared-down workforce, the quality and timeliness of student loan servicing may suffer. Further litigation could still impact the ultimate size and authority of the agency.
"Technically, it doesn't really affect the loans themselves, which will continue to be acquired and accrue interest as usual," Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek.
"However, it could change the support some borrowers receive. As borrowers have questions about federal financial aid, new loan repayment plans, and issues with existing loans, they could find support to be lacking if these layoffs have an effect on the administrative oversight of them."
What People Are Saying
Melanie Storey, NASFAA president and CEO said in a statement: "Our students and our members need clarity and reliable support for these critical [financial aid] programs. At the end of the day, the Trump administration — all administrations — must deliver on the promise and the programs that Congress passed to support students who wish to pursue postsecondary education."
Supreme Court Justice Sonia Sotomayor wrote: "The majority apparently deems it more important to free the Government from paying employees it had no right to fire than to avert these very real harms while the litigation continues. Equity does not support such an inequitable result."
Secretary of Education Linda McMahon said in a statement: "The U.S. Department of Education will now deliver on its mandate to restore excellence in American education. We will carry out the reduction in force to promote efficiency and accountability and to ensure resources are directed where they matter most – to students, parents, and teachers.
"As we return education to the states, this Administration will continue to perform all statutory duties while empowering families and teachers by reducing education bureaucracy."
Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek: "Borrowers will be saddled with debt and promises of forgiveness that may never come. Many are already in limbo, unsure of their repayment schedules or why their payments have suddenly increased. They just want clarity. But with staff taking buyouts and operations grinding to a halt, that clarity is nowhere in sight."
What Happens Next
Many financial experts have already sounded the alarm on how the layoffs could impact student loan borrowers relying on the Department of Education to service their loans.
"For student loan borrowers, specifically, this will mean more delays and poorer service in a program that already has service issues," Drew Powers, the founder of Illinois-based Powers Financial Group, told Newsweek. "The end result is nothing but harm to our current students."