3 things to expect for student loans in 2025: what the election results mean for student loans

Now that we’re one month removed from the elections and almost at the end of the year, we are starting to see signs of how the new administration may have an impact on student debt. As such, here are a few things to keep an eye out for over the next several months.

The end of the Department of Education?

For those unfamiliar, the Department of Education, as it exists today, is the federal agency responsible for administering “federal assistance to education”–which includes overseeing the federal student loan portfolio.

There has been a lot of talk of doing away with the current Department of Education with the stated goal of giving the authority over education standards and curriculum back to the states. 

This is actually not a new discussion and has been brought up over the last 40 years since its inception under President Carter in 1979.

(Fun fact, the very first Department of Education was actually established in 1867 under President Andrew Johnson and was essentially scrapped a year later, when it was demoted to an office within the Office of the Interior, because of the same concerns over what influence, if any, the federal government should have over the nation’s education system.)

So will the Department of Education be abolished next year under the new administration? And if it is, what will happen to student loans? 

The jury is still out on whether or not Trump will actually be able to abolish the Department of Education as he’s pledged to do. While not impossible–and certainly not unprecedented, if the original Department of Education is any example–shutting down the Department of Education will not be easy or quick to accomplish. Closing the department would require Congressional consensus and not all Republicans may be in favor of this initiative. Last year, an amendment to get rid of the DoEd by 2023, was defeated with more than 60 republicans voting against the initiative. 

If, somehow, the new administration succeeds in shuttering the Department of Education, don’t expect the $1.7T Federal student loan portfolio to just magically disappear. What would most likely happen is that the Federal loan programs would be transferred to another federal agency, probably within the Department of the Treasury.

One thing is for sure, the new Secretary of Education, Linda McMahon, will certainly have a lot on her hands as she takes the reins of the agency in January.

Student loan repayment benefits will become permanently tax-free

In 2020, employer student loan repayment benefits became temporarily tax-free under the Cares Act, giving employers across the nation a new prescriptive tool to not only attract and retain talent, but also play a critical role in the solution to the student debt crisis.

The tax-free status of this impactful benefit was set to expire in 2026, but now it is highly likely to become permanent! 

Earlier this year, Senator Thune (R-SD), along with Senator Warren (D-VA), and House Representatives Malliotakis (R-NY) and Peters (D-CA) introduced text that would not only extend the tax-free status of employer contributions, but make it permanent under Section 127 of the Internal Revenue Code. 

In the context of student debt solutions, this is a huge win for employers and employees alike. 

Expect this text to (1) find its way into the 2025 tax-bill and (2), like its originating provision in the 2020 Cares Act, receive significant bipartisan support.

Interest on federal student loans could be limited to 1%

Recently, Representative Lawler (R-NY) introduced the Affordable Loans for Students Act. The stated goal of this legislation would be to cap interest on federal student loans to 1%. As over 90% of all outstanding student debt is federal debt, with the majority of interest rates somewhere between 6-8%, this would be a huge help to millions of borrowers.

As, according to Polymarket, interest rates are predicted to continually drop over the next few months, this change would have big implications for debt holders currently weighing their refinancing options with private lenders. 

At the moment, it’s unclear whether this bill has the support it needs to get passed but with the future of Biden’s SAVE plan in limbo and wide-sweeping student debt cancellation dead in the water, this bill might be borrowers’ best hope next year for short term relief from the government. 

My closing thoughts

Overall, as we close the books on 2024, it is clear that student debt is still a huge priority for the country as a whole. While we wait and see what happens with the above proposals, we at Highway know that we’re one part of a much larger needed solution. Whether it be through direct tax-free employer contributions, the student debt related Secure Act 2.0 provisions or otherwise, employers can have a huge impact on their employees’ largest financial burden. 

If you’re a business owner or people manager, we at Highway would love to help you and your team provide tangible benefits that address today’s employees biggest financial challenges! When you're ready to learn more, get in touch with our team.

Happy Holidays!