Supreme Court allows Trump to proceed with Department of Education layoffs—what it means for student loan borrowers

The Supreme Court handed a victory to President Donald Trump on Monday, allowing the administration's massive layoffs at the Department of Education to remain in effect.

In March, the department laid off around 1,400 staffers as part of Trump's broader efforts to ultimately dismantle the agency, which he cannot do without congressional action. 

In May, a federal judge in Massachusetts placed an injunction on the layoffs, arguing that the reduction in force would inhibit the agency from carrying out its congressionally mandated duties, including administering financial aid, supporting students with special needs and maintaining civil rights. 

The Supreme Court's decision to lift the injunction came without an explanation, although Justices Ketanji Brown Jackson, Elena Kagan and Sonia Sotomayor issued a 19-page dissent.

Secretary of Education Linda McMahon praised the Supreme Court's decision, calling it a "win for students and families" in a press release. She insisted the department will still be able to carry out its necessary functions.

"As we return education to the states, this Administration will continue to perform all statutory duties while empowering families and teachers by reducing education bureaucracy," McMahon said in the statement. 

Some education stakeholders may already be feeling the impact of the agency's downsizing.

In May, a survey of 900 educational institutions conducted by the National Association for Student Aid Administrators found widespread issues with financial aid administration following the layoffs. Over 40% of institutions surveyed reported delays, unresolved inquiries and miscommunications in regards to federal student aid.

In response to the Supreme Court ruling, NASFAA expressed concerns over the department's ability to continue supporting institutions, students and families. 

"Our students and our members need clarity and reliable support for these critical [financial aid] programs," Melanie Storey, NASFAA president and CEO said in a statement. "At the end of the day,  the Trump administration — all administrations — must deliver on the promise and the programs that Congress passed to support students who wish to pursue postsecondary education."

The decision to keep the layoffs in place also comes at a time when millions of current student loan borrowers may be trying to change their payment plans. 

The Department of Education recently announced that interest will resume accruing for borrowers enrolled in the Saving on a Valuable Education income-driven repayment plan.

Borrowers who want to avoid ballooning interest need to either make interest payments — which will be around $300 a month for a typical borrower, according to Student Borrower Protection Center estimates — or switch into another payment plan.

The layoffs could make it difficult for borrowers to get the support they need when exploring their repayment options, Abby Shafroth, managing director of advocacy at the National Consumer Law Center, told CNBC Make It in February.

"I think there's a real question about whether [Department of Education] call centers will be either shut down entirely or dramatically scaled back, which could mean no access to getting a human on the phone to help talk through your financial aid or your payment options, or to troubleshoot when something goes wrong," she said.

The department is dealing with a backlog of income-driven repayment plan applications preventing current federal student loan borrowers from enrolling in affordable payment plans. At the end of June, over 1.5 million borrowers were awaiting IDR application processing, according to a court filing. That figure is just 4.5% lower than the number of pending applications the department reported at the end of May.

The agency maintains that the backlog is due to President Joe Biden's administration pausing processing on these applications. But Federal Student Aid, the arm of the Education Department that manages the federal student loan program, lost around half of its staff from a combination of buyouts offered ahead of the mass layoffs and the March reduction in force, NPR reported that month.

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