Will Your Student Loans Be Impacted By A Government Shutdown?

The federal government appears to be heading for a shutdown this week. And if the government does wind up shutting down, millions of student loan borrowers could be impacted. But not all student loans will necessarily be affected equally.
The shutdown may happen because Democratic and Republican lawmakers have been unable to reach an agreement on extending government funding beyond September 30. While Republicans control the White House and both chambers of Congress, Senate Republicans need Democratic votes to overcome the 60-vote threshold for a filibuster. Democrats want long-term or permanent extensions of healthcare subsidies and a reversal of cuts to healthcare programs (including Medicaid) that GOP lawmakers implemented under the One, Big, Beautiful Bill Act, which critics argue could cause millions of Americans to lose their health insurance. Republicans want Democrats to agree to only a short-term extension of funding.
With the two sides fairly far apart, it seems increasingly unlikely at this juncture that a shutdown is avoidable, although U.S. House Minority Leader Hakeem Jeffries (D-NY) and Senate Minority Leader Chuck Schumer (D-NY), along with top Republican leaders, are set to meet with President Trump later on Monday. But a government shutdown, if it happens, could have big ramifications for student loan borrowers. Here’s who would be impacted, and who may be able to avoid any disruptions.
Private Student Loans Not Impacted By Government Shutdown
Borrowers with private student loans should not be impacted by a federal government shutdown. Private student loan lenders and servicers operate independently from the Department of Education and are not part of the federal student loan system, so their operations should continue uninterrupted.
The same would also be true of new private student loan originations, as well as private student loan refinancing programs. Borrowers should be careful about refinancing federal student loans via a private loan program, as doing so would result in the loss of consumer protections associated with the federal student loan system as well as program benefits like income-driven repayment and student loan forgiveness. But refinancing operations by private lenders should not be directly impacted by a government shutdown.
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Payements On Student Loans Not Impacted By Government Shutdown
The Department of Education contracts out federal student loan servicing to several private companies and organizations. Currently, these include Nelnet, MOHELA, Aidvantage, and EdFinancial. The operations of these student loan servicers should continue unimpeded by a federal government shutdown, as the funding for these servicers has already been appropriated, and their operations are not dependent on immediate new funding by Congress.
That means that borrowers will still have to make payments on their federal student loans, even if the government shuts down. Loan servicers should also still be able to operate call centers, process forms and applications (such as requests for income-driven repayment), and implement deferments and forbearances. Borrowers should still be able to access their online student loan servicer accounts, as well.
FAFSA Process For New Federal Student Loans And Federal Aid Could Be Impacted By Shutdown
For prospective students and college-bound families, a government shutdown may be more of a mixed bag. The Free Application For Federal Student Aid, or FAFSA, which is a required form for students and families applying for federal aid, should still be available. Much of the FAFSA process is automated and should continue during a government shutdown, even though the Department of Education will have to furlough nearly 90% of its staff.
But problems may arise for students, families, and educational institutions if there are any problems with the FAFSA process or with the issuance of federal student aid. The customer service center for FAFSA may be reduced or closed. And individuals or financial aid professionals who need to work with Department of Education staff to resolve errors or problems with the federal student aid process may not be able to do so, as most or all of that staff is likely to be furloughed. So, in short, FAFSA and federal student aid should continue to flow and be available, but students and families could be in serious trouble if they encounter any issues with the process that require intervention.
Student Loans Forgiveness Could Be Delayed Due To Government Shutdown
Borrowers on track for federal student loan forgiveness may experience delays as a result of a government shutdown. Department of Education staff typically are involved on some level in implementing or approving federal student loan forgiveness such as for the Public Service Loan Forgiveness (or PSLF) program, the Total and Permanent Disability discharge program (or TPD discharges), and the Borrower Defense to Repayment program. Borrowers who have pending applications for any of these loan forgiveness programs may experience processing delays.
For many borrowers, this could not come at a worse time. The TPD discharge program, which allows borrowers with medical impairments to apply for debt relief, has been mired in administrative problems and processing delays all year following the department’s transition of the program to a new processing system under the umbrella of the Office of Federal Student Aid. And the department is already facing a new class action lawsuit over ongoing delays related to IDR student loan forgiveness and the PSLF Buyback program, which allows borrowers to qualify for student loan forgiveness by making a lump sum payment to cover certain past periods of non-qualifying deferments or forbearances. A government shutdown of any length of time is only going to exacerbate these issues, and the delays may get even more severe the longer the shutdown lasts.
Disputes Related To Student Loans Will Be Impacted By Government Shutdown