Student loan oversight cuts may leave taxpayers footing legal bills

For the nearly 43 million Americans with federal student loan debt, the U.S. government is no longer watching the companies that run that program the way it used to. That move could have the rest of American taxpayers dipping into their pockets to cover student loan debt due to potential errors.

The nonpartisan Government Accountability Office, or GAO, released a new report that found staff cuts resulted in the U.S. Department of Education no longer doing as extensive oversight of the federal student loan servicers as it used to.

New report

According to the report, the scaling back of oversight began last March when the Trump administration laid off 1,300 Department of Education workers, including many from the Federal Student Aid, or FSA, office. That office started 2025 with nearly 1,500 workers but ended the year with just under 800.

“They got rid of all the helpers,” Betsy Mayotte, president of the Institute of Student Loan Advisers, told Straight Arrow News.

The FSA had usually been conducting quarterly reviews to compare loan providers’ records with its own.

What’s no longer being monitored by FSA reviews following those cuts?

Several things.

Including checking loan servicers’ borrower records for accuracy. That means billing and account data may no longer be verified.

They’ve also stopped monitoring borrower phone calls with those providers.

“We absolutely need servicers to be responsive to students’ demands, accurately recording their payments,” Beth Akers, senior fellow at the American Enterprise Institute, told SAN.

Before this typical monitoring ended, four of the five major loan service providers were already failing federal performance standards.

The Department of Education disagreed with the report’s findings and said oversight continues.

“FSA utilizes a variety of methods to rigorously assess loan servicer call quality and accuracy,” Ellen Keast, press secretary for Higher Education, told SAN in a statement. “As detailed in ED’s response to GAO, the agency uses data quality assessments, cross-system assessment data validation, daily and weekly performance reporting from servicers, weekly executive level check-in meetings, and borrower satisfaction surveys to monitor and improve the customer service delivered by our vendors.”

Trump has also promised to completely dismantle the Department of Education.

“So, it’s not surprising that the oversight is not occurring through the channels that it traditionally has occurred through,” Akers said.

The president has also attempted to move the nearly $2 trillion in student loan debt to the Small Business Administration portfolio but has faced pushback in the courts.

“The fact that it is not happening as we would like it to happen today is not necessarily an indictment, since they are envisioning a system that is administered entirely differently in the future,” Akers said. “I would hope that in the short run, we would have maintenance of the existing oversight mechanisms.”

What does it mean for borrowers?

“Where that most seriously affects students is those who are trying to qualify for loan forgiveness or reduced monthly payments on their student loans,” Akers said.

All of this comes as borrowers will soon be dealing with new repayment systems. A district court sided with the Trump administration in killing former President Joe Biden’s repayment program.

Trump’s so-called “One Big Beautiful Bill” will create a new income-based plan while phasing out Biden’s plan and other plans currently in place.

“The worst case that I imagine is that you’re a borrower, you’re lower income, you’re trying to communicate with your servicer because you’d like to get enrolled in an income-based repayment program,” Akers said. “Either they’re not responding to you, they’re not appropriately considering your application, or they’re not adequately tracking your repayments towards the ultimate forgiveness that can occur at the end of a given period.”

Mayotte agreed that the financial impact is the biggest concern for borrowers.

“Their accounts might not be getting serviced correctly, and it’s taking way too long to get those errors fixed,” she said. “Or receiving incorrect information that might end up harming them, as far as their long-term student loan repayment or forgiveness program strategy goes.”

She said the changes are already noticeable.

“I definitely have been seeing some issues since the service or oversight teams have gone away,” she said.

Is there anything that can be done about it?

“We have to call on those other entities, such as state attorneys general, to do what they can do to protect consumers and make sure that the programs are running the way they’re supposed to be running,” Mayotte said.

What’s next?  

If borrowers find egregious errors, they could end up bringing the issues to the courts where taxpayer money would become involved.

“The Department of Education could end up getting sued,” Mayotte said. “This could end up being some transaction losses for some of these more pervasive errors, and that’s going to cost the taxpayers money. And there goes the savings from laying off the people that could have prevented these errors from happening.”

Without oversight, experts SAN spoke with agreed that the chances for those types of errors have gone up.

“Will less oversight mean that they’re going to do a worse job?” Akers said. “Always, right? I’m an economist. I believe in incentives. And so, to the extent that you’re not being penalized for poor behavior, you’re likely to see that poor behavior increase.”

Part of the issue is the complexity of how student loan debt works.

“They’re arguably one of the most complicated types of consumer debt out there, and borrowers need to have somebody they can trust to go to, to ask questions about the best payment plan or other options for them,” Mayotte said.

Akers agreed and said the issues aren’t always on the providers.

“The reality that’s important to consider along with this is that federal policy for repayment of student loans, which is really the crux of what servicers do, has been absolutely horrendously complicated in the past,” she said.

When McMahon and her department announced their cuts, it was part of the administration’s ongoing crusade against waste and fraud. Mayotte calls the move “ironic.”

“They drastically reduced the teams that do college and university oversight, and they drastically reduced the team that addresses the ombudsman group that addresses borrower complaints,” she said.

Ella Rae Greene, Editor In Chief