Government Shutdown and Student Loans: How It Affects You

There have been 20 "funding gaps" and 4 full government shutdowns in the last 50 years. The last shutdown happened in December 2018 and January 2019. But the threat of a shutdown seems to loom every budget cycle.

And so here we are again - in late 2024, talking about a government shutdown. It's clear our government is mismanaged, but what does that mean for you and your student loans?

Well, it really depends on what happens. For short government shutdowns (which might last the weekend or a few days into the week), nothing. For longer shutdowns (like we saw in 2013 or 2018), all the good stuff our government offers - like national parks, military death benefits, etc - stop, but all the "bad stuff" our government does, like collect taxes, and deal with student loans, keeps on keepin' on.

As of right now, the last day that the government is funded through is September 30, 2024. 

If you're curious about how the government shutdown will affect your investments, check out this article. However, one area that has not been discussed at great length is the impact that this shutdown will have on your student loans.

Editor's Note: The Department of Education removed their 2023 contingency plan from access on September 18, 2024. We expect the Department to update their plan for 2024. However, some of these items below are based on prior year planning.

Student Loan Repayment

Whether or not the government shuts down does not change the fact that your student loan payments are due.

Furthermore, the Student Loan On-Ramp Period will end on September 30, which means that the grace period for the loan repayment restart has officially ended.

Here's a full timeline of student loan repayment restart and important dates to know. 

What's Not Impacted

The good news is that the shutdown will likely not affect your eligibility to qualify for any new federal financial aid. This would include any Federal Pell Grant, FSEOG, or Direct student loans. That specific pot of money is still flowing since it relies on existing approved funding. Your FAFSA will still be processed, and almost all of the Department of Education financial aid websites are still up and running.

More good news (well . . . "good" is a relative term here) is that Federal student loan servicers are still up and running. So you can still make all of your student loan payments and receive customer service if you have questions.

Since 2009, the Department of Education contracted with private companies to manage the repayment of most Federal student loans, and since these private companies don't specifically fall under the wings of the Federal government, they are still functioning as normal. So yes, your student loan payments are still due. 

Because the contracted student loan servicers are still operational, this means that you can still apply for a deferment or forbearance. These contractors have the authority to approve these options, so they can still assist you with that. They can also help you change your student loan repayment plan, discuss loan forgiveness options, and work with you on PSLF.

If you are applying for a loan discharge due to medical disability or for student loan forgiveness due to teaching in a critical needs area, you are out of luck. You will hit a brick wall until the government is back up and running. Please see below for the bad news.

Bad News: What Will Be Impacted

While financial aid is still flowing, but there are some things that will stop until the government is back up and running. Specifically, anything that requires an employee directly at the Department of Education (versus a loan servicer) will likely be held up.

Consolidation loan applications will go on hold. If you have a pending loan consolidation application through MOHELA or another servicer, it won't be completed. They are also not currently accepting new applications.

The reason? The Department of Education handles some of the logistics on loan consolidations.

If you have specific questions about your federal financial aid, you won't be able to get any customer service through the Department of Education. The ombudsman office is also shut down, so if you have a complaint or grievance, you will have to wait until they open back up to file that. Ironic huh?

More bad news is that delinquent loans are still being reported to credit bureaus and loans can still be turned over to student loan collection agencies. Credit bureaus are independent agencies, and are also not affected by the government shutdown.

Potential Future Issues With FAFSA

If the government shutdown lasts more than a few days, it could also impact the start of the FAFSA cycle. The FAFSA was expected to start small batch testing on October 1, in plans for a full launch by December 1. However, if testing is delayed and issues aren't resolved, it could delay the launch of the FAFSA application.

Last year the FAFSA was significantly delayed until December 28, and the result was the fewer families filled out the FAFSA compared to prior years.

Why You Should Care

Unfortunately, the longer that this government shutdown lasts, the larger the backlog of work will get. When federal workers return, they will be faced with an almost insurmountable hurdle to cross. The piles of paperwork and the backlog of work will likely be crippling. If this shutdown lasts for a long time, it could impact the availability of financial aid next year.

I know that we may not have much power to force our government to come to a resolution, but it might be worth a letter or phone call to your local congressman to express your concerns! This impact will have far-reaching implications, and I think we have only reached the tip of the iceberg when it comes to impacts we will feel on our student loans.

How do you think the government shutdown will impact student loan borrowers?