Student Loan Crisis Deepens as Judge Orders Reinstatement of Education Department Employees Amid Trump Cuts

May 21 2025

A federal judge has blocked the Trump administration from shuttering the Department of Education by executive order (AP)

The student loan system in the U.S. is teetering on the edge of dysfunction following a federal judge's ruling that nearly 1,400 Department of Education employees must be rehired. These staff members were laid off earlier this year as part of a sweeping reorganization effort by the Trump administration, which aimed to downsize and ultimately dismantle the Department of Education.

The judge's decision emphasized that the layoffs, initiated without congressional approval, crippled the agency’s ability to manage essential services such as processing student financial aid and overseeing more than $1.6 trillion in outstanding federal student loans. The ruling concluded that the department, after the cuts, was “incapable of fulfilling its statutory duties,” directly impacting millions of borrowers and students.

The March 2025 layoffs followed an executive order by President Trump directing the Secretary of Education to begin disbanding the department, transferring most responsibilities to state and local governments. While this order gained political support from some conservative lawmakers, critics warned it posed a dangerous risk to the nation’s educational infrastructure, especially to lower-income students who depend on federal assistance.

The Federal Student Aid (FSA) office, the backbone of financial aid services, was one of the hardest-hit divisions, with insiders reporting rising backlogs, communication breakdowns, and a severe lack of oversight over loan servicers. Experts and advocacy groups fear the department’s ongoing instability could result in delayed disbursements, increased borrower confusion, and heightened risk of default.

In response to the judge's order, the Department of Education must return staffing levels to their pre-January 2025 numbers. However, the department, now under Secretary Linda McMahon, plans to appeal the ruling, citing executive authority and cost-saving measures.

Meanwhile, student borrowers remain caught in the crossfire of legal battles and political maneuvering. As the 2025–26 academic year approaches, colleges and families nationwide are anxiously waiting for clarity and stability in a system that millions rely on for access to higher education.