• A federal judge blocked the Trump administration's plan to dismantle the Department of Education.
• The judge ruled that the department has to reinstate workers it fired and stop further cuts.
• It also halted plans to transfer student loans out of the Department of Education.

President Donald Trump's plan to shut down the Department of Education is officially on pause.

A federal judge on Thursday issued a ruling blocking the Trump administration from carrying out its executive order to dismantle the Department of Education. The ruling also blocked the department's plan to fire additional employees and its intent to transfer student loans out of the department to another agency.

The judge also directed the department to "restore the Department to the status quo such that it is able to carry out its statutory functions" by reinstating all federal employees who were terminated from the department in March.

Shutting down a federal agency requires congressional approval. While Linda McMahon, Trump's education secretary, has repeatedly said that she intends to work with Congress to shut down the department and improve efficiency at the agency, the judge wrote that there is "nothing in the record" to back up those points.

"Not only is there no evidence that Defendants are pursuing a 'legislative goal' or otherwise working with Congress to reach a resolution, but there is also no evidence that the RIF has actually made the Department more efficient," the ruling said, referring to the reduction-in-force orders. "Rather, the record is replete with evidence of the opposite."

Madi Biedermann, the deputy assistant secretary for communications at the Department of Education, told Business Insider in a statement that "a far-left Judge has dramatically overstepped his authority, based on a complaint from biased plaintiffs, and issued an injunction against the obviously lawful efforts to make the Department of Education more efficient and functional for the American people."

"This ruling is not in the best interest of American students or families," Biedermann said. "We will immediately challenge this on an emergency basis."

Thursday's ruling is in response to a lawsuit filed by a group of professors and teachers unions. The group argued that attempts to dismantle the Department of Education would harm students and families who rely on federal aid and grants.

On March 11, the department announced it was terminating more than 1,300 workers. McMahon said this was part of the department's "commitment to efficiency, accountability, and ensuring that resources are directed where they matter most: to students, parents, and teachers."

The judge said that the cuts "paint a stark picture of the irreparable harm that will result from financial uncertainty and delay, impeded access to vital knowledge on which students and educators rely, and loss of essential services for America's most vulnerable student populations."

"Indeed, prior to the RIF, the Department was already struggling to meet its goals, so it is only reasonable to expect that an RIF of this magnitude will likely cripple the Department," the judge said.

Student loan borrowers are navigating a changing landscape. On May 5, the Trump administration restarted collections on defaulted student loans after a five-year pause. It is also looking into redefining eligibility for the Public Service Loan Forgiveness program. Meanwhile, 2 million student-loan borrowers are still waiting for their income-driven repayment plan applications to be processed while the SAVE plan remains blocked.

• The House on Thursday morning passed what Trump has been calling his "big beautiful bill."
• It includes a repeal of student loan forgiveness and an increase in the child tax credit.
• The tax bill is headed to the Senate, where it's subject to change.

From taxes to student loan forgiveness, provisions in President Donald Trump's "big beautiful bill" are one step closer to affecting Americans' wallets.

On Thursday morning, the House passed the tax bill — an expansive piece of legislation that would extend the president's 2017 tax cuts and make key changes to the tax system, along with implementing significant changes to Medicaid and the Supplemental Nutrition Assistance Program.

The bill is now headed to the Senate, where it's subject to change.

"Now, it's time for our friends in the United States Senate to get to work, and send this Bill to my desk AS SOON AS POSSIBLE!" Trump wrote in a post on Truth Social on Thursday morning. "There is no time to waste."

The nonpartisan Congressional Budget Office has said that the tax bill in its current form would increase the US deficit. Moody's Analytics downgraded the US's credit rating last week, saying Trump's tax bill could add $4 trillion to the federal deficit over the next decade. This could lead to higher interest rates on mortgages, auto loans, and more down the road.

Here are four other key ways the tax bill could affect Americans' finances.

A slew of tax policies

Many of Trump's campaign promises are included in the tax bill.

The legislation would allow workers who typically receive tips and overtime wages to claim a tax deduction on those amounts. The bill also has a measure for a $4,000 tax deduction for older people making less than $75,000 a year. Those two provisions would extend until 2029.

The bill would also raise the child tax credit from $2,000 to $2,500 through 2028. Additionally, it would eliminate electric vehicle tax credits and establish a $250 annual registration fee for electric vehicle owners.

The bill would also make Trump's 2017 tax cuts permanent and increase the state and local tax deduction, known as SALT, from $10,000 to $40,000.

Student loan forgiveness repealed

Under Trump's tax bill, millions of student loan borrowers would see their repayment options change. The legislation proposes eliminating income-driven repayment plans and replacing them with two options: the Repayment Assistance Plan and a standard repayment plan.

The Repayment Assistance Plan would allow for loan forgiveness after 360 qualifying payments based on the borrowers' income, while the standard repayment plan would require a fixed monthly payment over a period set by the servicer.

The bill also would repeal former President Joe Biden's SAVE plan, an income-driven repayment plan that promised cheaper monthly payments and a shorter timeline for debt relief. The plan is blocked in court pending a final legal decision.

'Trump accounts'

If the bill passes, parents could get extra money for their kids down the line. The tax bill includes a "Trump account," previously called a "money account for growth and advancement," or MAGA account. The government would put $1,000 into accounts for babies born after December 31, 2024, and before January 1, 2029. The baby would be required to have been born in the US and have a Social Security number to receive the cash.

The accounts would have tax incentives; earnings would be tax-deferred, meaning taxes on the accounts would not need to be paid right away. Withdrawals from the accounts would also be taxed at the long-term capital-gains rate, which is dependent on income and typically lower than the regular income tax rate.

Work requirements for Medicaid and SNAP

Lower-income Americans could face bigger healthcare costs or lose federal assistance benefits. The tax bill would mean significant changes for the millions who rely on Medicaid and SNAP. The legislation would mandate that states implement an 80-hour-a-month work requirement by the end of 2026 for childless adults on Medicaid without a disability.

The Congressional Budget Office previously estimated that work requirements on Medicaid could strip coverage from over 8 million Americans over the next decade.

Additionally, the bill would extend the age range of adults subject to work requirements to receive SNAP to include adults ages 55 to 64. Currently, adults ages 18 to 54 without children can receive SNAP benefits only if they work at least 20 hours a week.

• Nearly 2 million student-loan borrowers are still waiting for their income-driven repayment applications to be processed.
• Trump temporarily removed the online forms in March, saying it was in compliance with a court order blocking SAVE.
• An Education Department spokesperson told BI the department hopes to clear the backlog in a few months.

Millions of student-loan borrowers are still waiting for cheaper monthly payments.

President Donald Trump's Department of Education wrote in a legal filing on May 15 that, as of April 30, nearly 2 million student-loan borrowers' income-driven repayment applications were still pending. The department said just over 79,000 applications were processed during the month of April.

This data is the first glimpse into the Department of Education's work to process income-driven repayment applications since the department initially removed online access to the forms for a couple of weeks beginning in late February.

The department said at the time that it took down the applications to comply with a federal court's preliminary injunction on SAVE, one type of income-driven repayment plan created by former President Joe Biden. The court did not explicitly direct the department to remove the online forms.

An Education Department spokesperson told Business Insider that Biden's administration caused the backlog.

"The Trump Administration is actively working with federal student loan servicers and hopes to clear the Biden backlog over the next few months," the spokesperson said.

In the meantime, some borrowers have been placed on processing forbearance, during which servicers recalculate their monthly payments, and interest still accrues. In contrast, borrowers enrolled in the SAVE plan are in a forbearance during which interest will not accrue, and they will not receive credit toward loan forgiveness.

It is possible that the backlog began last summer when a federal court blocked implementation of Biden's SAVE plan, which was intended to give borrowers cheaper monthly payments and a shorter timeline to loan forgiveness. The ruling also blocked income-driven repayment plan processing, and while Biden's Department of Education said in December that processing had resumed for some repayment plans, it would take time for servicers to work through the applications.

The American Federation of Teachers filed a lawsuit against the Department of Education for initially removing online access to income-driven repayment applications. These applications allow borrowers to receive more affordable monthly payments that count toward Public Service Loan Forgiveness.

As part of the ongoing litigation, the department is required to provide updates on the number of applications it processes every 30 days. AFT President Randi Weingarten said in a statement that the backlog is "outrageous and unacceptable."

"It is all the more concerning that until their applications are processed, these borrowers are being denied credit toward debt cancellation under the PSLF program," Weingarten said.

This data came just 10 days after the Trump administration restarted collections on defaulted student loans after a five-year pause that began under Trump and was continued under Biden. The department already sent notices to nearly 200,000 borrowers that their federal benefits are at risk of garnishment in early June, and 5 million defaulted borrowers could see wage garnishment later this summer.

Are you a student-loan borrower with a story to share? Reach out to this reporter at [email protected].

• This summer, millions of defaulted student-loan borrowers could face wage and federal benefits garnishment.
• They have options to avoid those consequences, but some routes can take longer than others.
• Options include loan consolidation, loan rehabilitation, and bankruptcy.

This summer, millions of student-loan borrowers could lose some of their wages and federal benefits if they don't start making payments.

They have options to avoid those consequences — but it won't be easy.

After President Donald Trump's administration restarted collections on defaulted student loans on May 5, his Education Department said it sent notices to 195,000 defaulted borrowers that some of their federal benefits, like Social Security, may start being withheld in early June.

"Later this summer, all 5.3 million defaulted borrowers will receive a notice from Treasury that their earnings will be subject to administrative wage garnishment," the department said. Most federal borrowers enter default when they have not made a payment in over 270 days.

Business Insider has spoken to student-loan borrowers behind on payments and worried about how they'll budget th restart and navigate wage garnishment. Millions have been free of benefits garnishment and negative credit reporting for the past five years under a pandemic pause that began under Trump and continued under former President Joe Biden. Now that collections have restarted, borrowers in default can tap into three different options to evade long-term consequences: loan rehabilitation, loan consolidation, or bankruptcy.

Rae Kaplan, a student-loan attorney based in Chicago, told Business Insider that while default consequences were standard before the pandemic, the five-year pause brings extra stress to the collections restart because "a lot of people took this out of their budget," adding that "five years is a long time" to get used to not paying.

"So I think this period where they start ramping up collection activities is going to cause a lot of panic out there for borrowers," Kaplan said. Some borrowers in default previously told BI that they're not confident they'll be able to avoid garnishment.

Here are some options that defaulted student-loan borrowers have to avoid having some of their wages and federal benefits seized.

Loan rehabilitation

Loan rehabilitation can take months, but it has several benefits, including eventual removal of the borrower's default status from their credit reports.

To rehabilitate a defaulted loan, the borrower needs to contact their student loan holder and sign an agreement to make nine payments within 20 days of the due date during a period of 10 consecutive months.

The payment amount is intended to be affordable; according to Federal Student Aid, the payment will be equal to up to 15% of the borrower's discretionary income divided by 12. Kaplan said that it's helpful to hire an attorney or an advocate to negotiate low payments, and it's possible that borrowers can end up with payments as low as $5 a month through this route.

Notably, wage and benefits garnishment will continue during part of the loan rehabilitation process, and the benefits that are seized would be in addition to the agreed-upon rehabilitation payments. Garnishment will continue until the borrower has made at least five rehabilitation payments or the loan is no longer in default.

Additionally, borrowers can only rehabilitate a defaulted student loan once; if the loan defaults again, rehabilitation will not be an option.

"Once we get you rehabilitated, then your credit score will go up," Kaplan said. "So it's a nice feature that you can both get back to current and in good standing, get your loans back into good status, and get that negative credit removed from your credit report."

Loan consolidation

Consolidating a defaulted student loan is quicker than rehabilitation, but the record of the default will remain on the borrower's credit history.

Borrowers can apply with Federal Student Aid to consolidate their defaulted student loans into a federal direct consolidation loan. To be approved for consolidation, the borrower must agree to pay off the consolidated loan under an income-driven repayment plan or make three consecutive, on-time, full monthly payments before consolidating.

After the loan is consolidated, the borrower can make use of all federal student-loan benefits, including deferments, forbearances, and loan forgiveness.

Bankruptcy

If a defaulted borrower does not think that consolidation or rehabilitation is feasible, they can file for bankruptcy.

Dustin Baker, an Iowa bankruptcy attorney, told BI that filing for bankruptcy is "a very efficient way" to stop wage and benefits garnishment because once a bankruptcy petition is filed, creditors are no longer allowed to contact and collect from the borrower.

"If nothing else, it's kind of a four or five-month break to figure out what to do," Baker said, adding that he's already received an increase in requests from borrowers worried about collections on defaulted student loans.

Prior to 2022, student-loan borrowers had to clear a high and burdensome threshold to discharge their loans in bankruptcy. However, Biden issued new guidance in November 2022 to streamline the process, and Baker said he's had much greater success discharging borrowers' student loans in recent years.

"It seems like it's moving more quickly now," Baker said. "They've allocated the appropriate resources, and it's not a partisan thing. Biden started this process, Trump reaffirmed it, and it sounds like the administration at least is providing the appropriate resources to make it happen."

• The New York Federal Reserve found that the share of delinquent student-loan borrowers surged.
• In the first quarter of 2025, 8.04% of borrowers transitioned to serious delinquency, up from 0.8% a year prior.
• It's largely a result of the end of the five-year pause on credit reporting for borrowers behind on payments.

Millions of student-loan borrowers are behind on payments, and it's putting them at greater risk of wage garnishment and seizure of federal benefits.

On Tuesday, the New York Federal Reserve released its quarterly household debt and credit report — and student-loan borrowers were a red flag in the new data.

In the first quarter of 2024, 0.8% of student-loan borrowers moved into serious delinquency, or being at least 90 days behind on payments. The New York Fed's Monday report found that in the first quarter of 2025, that number surged to 8.04%.

New York Fed researchers told reporters on a Tuesday press call that an increase in delinquencies was expected. For the past five years, student-loan borrowers behind on payments have not faced collections or consequences for defaulting or delinquency, including having those lapses affect their credit scores. The moratorium on credit reporting ended in October 2024, so the researchers said it made sense that reported delinquencies would rise — it was the extent of the surge that was unexpected.

The New York Fed also found that many newly delinquent borrowers — those who were current on their loans in the fourth quarter of 2025 but have at least one loan 90 or more days past due in the first quarter of 2025 — have seen drops in their credit scores. The data showed that 2.2 million of those borrowers saw their credit scores drop more than 100 points, and 1 million of those borrowers saw at least a 150-point drop.

The New York Fed's blog post on student-loan delinquencies said that those credit score drops "will increase borrowing costs or seriously limit their access to credit like mortgages and auto loans."

The New York Fed also said that while the surge in delinquencies was drastic following the five-year pause on payments, the rates are now at the "pre-pandemic 'normal,' with more than 10 percent of balances and roughly six million borrowers either past due or in default."

"The ramifications of student loan delinquency are severe," the blog post said. President Donald Trump restarted collections on defaulted student loans on May 5 and sent notices to nearly 200,000 borrowers in default that they will begin to face garnishment of federal benefits in 30 days if they don't begin making payments.

New York Fed researchers said that there is still time for borrowers who contributed to the surge in delinquencies to bring themselves back to good standing. For example, the researchers said, many of them might not have been aware that payments and credit reporting were resuming, and they might have had the capabilities to make payments had they known.

Still, some borrowers in default previously told Business Insider that they're aware that credit reporting restarted, and they cannot afford to make payments, so they're expecting to face garnishment of federal benefits, and eventually, wages.

"They're going to have to come and take it from me, and then I've got to figure out somehow how to live past that point," a defaulted student-loan borrower said.

Do you have a story to share about your student loans? Are you in default, or concerned about defaulting? Reach out to this reporter at [email protected].