Student loan overhaul arrives after cuts to federal aid office
New borrowing and repayment rules take effect July 1 as Federal Student Aid works with a sharply reduced staff, according to a watchdog report.
By Daniel Okafor · Business Editor
3 min read
Federal student loan rules are set to change July 1, adding lifetime borrowing caps and narrowing repayment choices for borrowers. The rollout will test Federal Student Aid, the Education Department office responsible for the loan system, after a watchdog found major staff losses across the unit.
President Donald Trump signed the One Big Beautiful Bill Act last July, and its higher education lending provisions are now due to take effect, according to Fortune. The changes include limits on loans that previously had no lifetime cap and fewer repayment options for borrowers.
The transition comes after March 11, 2025, cuts tied to DOGE reduced Federal Student Aid’s workforce, according to the Education Department’s Office of Inspector General. The inspector general said the office manages a $1.7 trillion student-loan portfolio and lost 40% of the staff assigned to that work through firings or other departures.
Nearly one-quarter of Federal Student Aid’s 136 suboffices had no employees left after the reductions, the inspector general reported. The watchdog said some units that handled lending institutions and risk assessment were left without staff, as were offices that worked with schools participating in federal loan programs, tracked default rates and monitored colleges’ median earnings.
Other functions were also thinned, according to the inspector general. Fewer than half the employees remained in areas that checked data accuracy and risk, ran the customer website and mobile app, and provided information technology support.
Borrowers report repayment problems
Borrowers have faced account and billing issues since the reductions, CNBC reported. Some received monthly bills as low as $50 even though their actual payments were in the thousands of dollars, according to CNBC.
CNBC also reported that some borrowers could not access the Pay As You Earn repayment plan, even though it should remain available to them. That plan lets eligible borrowers pay 10% of discretionary income, while other plans can produce higher monthly bills, according to CNBC.
The stakes are broad for households carrying education debt. Nearly one in six American adults had federal student loan debt in 2026, according to the Education Data Initiative. The group puts average federal student loan debt at $39,075, with averages of $81,870 for master’s graduates and $180,757 for doctoral graduates.
Department disputes watchdog’s picture
Ellen Keast, the Education Department’s press secretary for higher education, defended the administration’s handling of the agency in a statement to Fortune. “If anything, this ‘report’ demonstrates how effective the Trump Administration is,” Keast said, adding that the department had carried out major higher education changes with nearly half the staff while “returning education to the states.”
Keast also questioned whether the inspector general report reflected the current staffing picture, Fortune reported. The watchdog said its analysis covered the period through March 31, 2025, and noted that the department later made agreements with other agencies to reduce work done inside the department and announced plans to bring back more than 200 employees laid off in March 2025.
The inspector general said the Education Department did not provide all requested information or unrestricted access to staff, which limited the review. The watchdog said the department cited court proceedings and orders but did not explain how giving investigators the records and staff access they sought would risk violating those orders.
By March 31, 2025, Federal Student Aid had 861 employees remaining out of 1,446, according to the inspector general, which did not separate full-time and part-time workers. NPR reported that the agency had 731 full-time employees by April 2026.
Federal Student Aid has since been hiring, according to Politico. Politico reported that the office planned to add 334 full-time employees by 2027 and that more than 50 employees had joined since September, though the target staffing level would remain about one-third below the 1,568 employees it had during the Biden administration.
This story draws on original reporting from Fortune.