What happens to students loan, schools & colleges money as Trump admin takes steps to dismantle Education Department

US President Donald Trump's administration is taking further steps to dismantle the Department of Education, shifting its functions to other federal departments.

This decision has sparked opposition from Democrats who argue it harms students, terming it as an assault on public school education.

Before signing an executive order in March 2025, Trump said that they have to get their children educated. “We’re not doing well with the world of education in this country, and we haven’t for a long time.”

New partnerships

US Secretary of Education Linda McMahon stated that the administration is taking bold action to break up the federal education bureaucracy and return education to the states.

The functions that the department currently performs would go to the Labor, State, Interior, Health and Human Services departments.

The six new interagency agreements (IAAs) with the four departments will streamline federal education activities on the legally required programs, reduce administrative burdens, and refocus programs and activities to better serve students and grantees, said the education department said in a statement.

“Together, we will refocus education on students, families, and schools – ensuring federal taxpayer spending is supporting a world-class education system,” said Linda McMahon.

Two days ago, in a Presidential message on American Education Week, Trump said that every American student deserves a high-quality education and through the dismantling action, his administration is restoring common sense to classrooms; and building a generation of thinkers, builders, and leaders who are ready to carry our Nation forward.

“By dismantling the Department of Education, his Administration has returned control of education to where it belongs—with States, local communities, and parents who are best equipped to meet the needs of their students,” said Trump in his message.

The move has sparked sharp reactions from Democrats and some Republicans.

Stating that only Congress has the authority to close the Education Department, US Senator Elizabeth Warren called Linda McMahon ‘a liar’ and said that the Trump administration is waging an illegal assault on public school kids.

“Instead of working to lower costs for Americans, the Trump administration is hellbent on punishing underserved students,” Warren said in a statement.

US representative Brian Fitzpatrick said that the department's functions are foundational' and changing them without congressional oversight would pose real risks to students, reported Reuters.

As the Trump administration takes steps to return education to the states, what happens to current education department employees, federal student loans and money that schools and colleges receive?

Will there be layoffs?

The moves won't affect the money Congress gives states, schools and colleges, reported AP quoting education officials.

However, it is unclear whether current department staff would keep their jobs.

What happens to schools and colleges funding?

The money that the schools and colleges receive will continue to be awarded as allocated by Congress. The schools in the US are primarily funded by state and local money. However, the Education Department serves as a conduit of federal aid going to education agencies.

Education officials say that money will continue to be awarded as allocated by Congress, but much of it will flow from another federal agency. That money is now likely to flow from another federal agency.

What happens to Federal student loans?

The management of the $1.6 trillion federal student loan portfolio is one of the department's major roles. According to AP, Pell Grants and federal loans will continue to be disbursed, and student loan borrowers must continue making payments on their debts.

What happens to students with disabilities?

To provide educational support for students with disabilities, the Education department will continue to distribute money to schools.