The Trump administration released a sweeping memo on Monday that will suspend broad swaths of spending across nearly all sectors of the federal government. The breadth of the order is substantial, and could have major impacts for millions of Americans. And it’s at least possible that student loan forgiveness and federal aid programs could be swept up in the suspension.
The memo, released by Matthew J. Vaeth, the acting director of the White House Office of Management and Budget, instructs federal agencies to pause spending programs on a nearly across-the-board basis.
“The American people elected Donald J. Trump to be President of the United States and gave him a mandate to increase the impact of every federal taxpayer dollar,” says the memo. “Career and political appointees in the Executive Branch have a duty to align Federal spending and action with the will of the American people as expressed through Presidential priorities. Financial assistance should be dedicated to advancing Administration priorities, focusing taxpayer dollars to advance a stronger and safer America, eliminating the financial burden of inflation for citizens, unleashing American energy and manufacturing, ending ‘wokeness’ and the weaponization of government, promoting efficiency in government, and Making America Healthy Again. The use of Federal resources to advance Marxist equity, transgenderism, and green new deal social engineering policies is a waste of taxpayer dollars that does not improve the day-to-day lives of those we serve.”
Observers and stakeholders were struggling to interpret the order and determine which specific programs may be impacted. Millions of student loan borrowers on track for federal student loan forgiveness, and many other current and prospective students who rely on federal student aid (including grants and student loans) could potentially be impacted, as well. But many critical details still remain murky. Here’s what we know.
Student Loan Forgiveness And Federal Student Aid Could Be Impacted By Funding Pause
The memo identifies “financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal” as specific targets for a funding pause. And it also specifically exempts Medicare and Social Security benefits from the funding suspension. But beyond that, the memo’s reach is not completely clear.
“This memorandum requires Federal agencies to identify and review all Federal financial assistance programs and supporting activities consistent with the President’s policies and requirements,” says the memo.
The directive references a key federal regulation — 2 CFR 200.1 — which “defines Federal financial assistance to mean ‘[a]ssistance that recipients or subrecipients receive or administer’” in various forms. The memo goes on to say it would “exclude assistance provided directly to individuals.”
But does student loan forgiveness and federal student aid constitute “assistance provided directly to individuals”? The answer might seem to be “yes” at first, but it’s actually a bit more complicated than that. Federal student aid, such as a Pell Grant or a federal Direct student loan, is actually sent directly to educational institutions. The institution receives the aid and applies it against a student’s tuition, fees, and other charges. Students don’t just receive a check in the mail directly from the government. And federal student loan programs, including student loan forgiveness programs, are administered largely by third-party loan servicing companies.
The memo identifies two sections of 2 CFR 200.1 that are targeted for the funding freeze. This includes “Grants,” “Loans,” “Loan Guarantees,” and “Interest subsidies” that “recipients or subrecipients receive or administer.” This could be read to include federal student aid provided to students, via their educational institutions, in the form of grants and student loans. It could also be read to include federal student loan forgiveness and repayment programs administered by third-party student loan servicing companies.
But without more specific guidance, it is far from clear whether student loan forgiveness and federal student aid is indeed suspended under the memo. The Trump administration has not publicly confirmed whether these programs will be impacted.
What Student Loan Borrowers Should Know About Funding Suspension
According to the memo, the pause in funding is temporary so that federal agencies can conduct an audit of federal spending and potentially identify programs that can be reduced or cut.
“To implement these orders, each agency must complete a comprehensive analysis of all of their Federal financial assistance programs to identify programs, projects, and activities that may be implicated by any of the President’s executive orders,” says the memo. “In the interim, to the extent permissible under applicable law, Federal agencies must temporarily pause all activities related to obligation or disbursement of all Federal financial assistance, and other relevant agency activities that may be implicated by the executive orders.” By “February 10, 2025, agencies shall submit to OMB detailed information on any programs, projects or activities subject to this pause.”
If the order does indeed cover federal student aid and loan forgiveness (and again, that’s not entirely clear at this juncture), it could impact a broad swath of programs. This could include Pell Grants and federal student loan disbursements (including Stafford, Graduate PLUS, and Parent PLUS loans). And it could include various student loan forgiveness programs including Public Service Loan Forgiveness, Income-Driven Repayment loan forgiveness, and disability discharges.
Presidents generally have authority to pause or defer federal spending, but must provide sufficient grounds for doing so. Blanket, arbitrary, or punitive pauses in federal spending associated with mandatory programs established and funded by Congress could eventually lead to legal challenges. The memo appears to at least tacitly acknowledge this by noting that funding is suspended only “to the extent permissible under applicable law.”
Other Student Loan Forgiveness And Federal Student Aid Programs May Be Targeted
The sweeping federal spending freeze comes as lawmakers in Congress are considering including student loan forgiveness repeal in an upcoming reconciliation bill primarily intended to extend expiring tax cuts. Several student loan forgiveness programs including income-driven repayment programs, Borrower Defense to Repayment, the Closed School Discharge program, and Public Service Loan Forgiveness are all on the potential chopping block. And the legislation could sunset the Graduate PLUS and Parent PLUS programs for new borrowers.
Republican lawmakers are considering repealing the SAVE plan — one of President Joe Biden’s key student loan relief initiatives that remains bogged down in a legal battle — as well as all other current income-driven repayment plans including ICR, IBR, and PAYE for new borrowers. These plans would be replaced by a new IDR plan that uses a similar repayment formula but eliminates time-based student loan forgiveness after 20 or 25 years, instead only allowing loan forgiveness after a borrower has paid the amount equivalent to what they would have paid under a 10-year Standard plan. GOP leaders are also considering unspecified reforms to the PSLF program to limit eligibility.
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