As the Shutdown Drags On, Student Loan Relief Halts and Default Risks Rise

The government shutdown impact goes beyond Capitol Hill and national parks. The ongoing shutdown, which shows no signs of slowing down, is also wreaking havoc on the student loan system. Millions of student loan borrowers now face delayed decisions, suspended relief processing, and mounting uncertainty as agencies that administer and review federal student loans operate with limited capacity or remain shuttered. In the midst of legal, administrative, and financial pressure, the shutdown has become another layer of instability layered over an already fractured repayment system.

If you’re one of the roughly 45 million Americans dealing with student loan debt, you’re probably wondering what you need to do next. With relief uncertain, you need to know what comes next, what you can do, and what is still off the table. We’ve got you covered with the insights you need as you continue to navigate federal student loans in the face of a government that’s currently closed.

How Borrowers Are Affected: Delays, Frozen Processing & Uncertainty

Because the U.S. Department of Education and related agencies rely on appropriated funds, a government shutdown can force large parts of their staff into furlough. That means applications for income-driven repayment plans, forgiveness under Public Service Loan Forgiveness (PSLF), and other relief programs may not be processed. If they are processed, it’s safe to assume that processing will be much slower than normal. Borrowers waiting for relief may see their balances continue to accrue interest, pushing them deeper into debt even as the entity holding that debt isn’t open for business.

In some cases, ongoing lawsuits connected to student loan forgiveness have been paused or delayed because justice and legal staff are constrained by the shutdown. For instance, borrowers challenging delays in processing applications or fighting for enforcement of relief may find court actions held in abeyance until staffing resumes. This legal limbo exacerbates anxiety for borrowers who are already living under deferred hope.

Forgiveness Resumptions and Plans in Flux

Even before the shutdown, there were questions surrounding the Department of Education. President Trump hasn’t tried to hide his plans to shut down the department. While it’s still in operation, many onlookers wonder if the shutdown is going to result in its being ended. However, before the shutdown, the DOE had restarted student loan forgiveness under the Income-Based Repayment (IBR) plan, which was previously paused in July 2025.

Borrowers eligible for cancellation were notified and given an opt-out period. However, the utility of that move may be undermined by the furlough of federal employees and procedural slowdowns caused by the shutdown. Meanwhile, other income-driven plans such as SAVE, PAYE, and ICR remain blocked or entangled in court rulings, contributing to a backlog of unresolved applications.

Additionally, many borrowers must carefully time their application and documentation so they don’t lose eligibility windows. With staff off duty or under reduced capacity, critical deadlines could pass unprocessed.

The Rising Risk of Default and Collections

Perhaps the most urgent danger is default. In April 2025, the Education Department announced it would resume collecting on defaulted student loans, reactivating measures like wage garnishment, the Treasury Offset Program, which can legally seize tax returns, and other involuntary collections. Approximately 5.3 million borrowers are currently in default, and bringing these measures back adds immediate financial risk.

Loan default dramatically erodes credit scores, making it harder to rent homes, get auto loans, or even secure a job in some cases. As Senator Elizabeth Warren warned, a default or damaged credit can become a “financial scarlet letter” that follows borrowers for years.

There are also some concerns surrounding those government employees who are furloughed, as well as those who may lose their jobs in the coming weeks or months. Those employees may lose their PSLF credit. PSLF requires employment at a qualifying organization while making payments. With over 4,100 federal workers reportedly laid off during this shutdown period, many stand to lose previously earned forgiveness credit.

The Financial Toll: Interest, Accrual & Missed Relief

Since interest continues to accumulate, these delays pose a hidden financial risk. Every day that a forgiveness application sits unprocessed or a repayment plan is in limbo, balances are growing. The same people who are applying for these forms of assistance will likely need it even more when they’re tasked with repaying loans following the shutdown.

Additionally, delays in approving forgiveness or enrollment into reduced payment plans mean borrowers may continue paying high standard payment amounts rather than lower, income-driven ones. The stress of paying more than a sustainable amount, while awaiting relief, can push households into financial hardship.

If forgiven later than expected, forgiven amounts may also become taxable gains unless legislative protections continue, which is a major worry. This is especially true since protections originally instituted by the American Rescue Plan are scheduled to expire at the end of 2025. Some borrowers fear forgiven balances will be considered taxable income if processed late.

What Borrowers Can Do Amid Chaos

While there’s nothing that borrowers can do to force the government to resume operations, there are some steps that can protect you against the volatility. Start by documenting everything. Keep records of applications, communications, dates submitted, and reference numbers. If relief is delayed, having documentation may strengthen legal or administrative recourse later.

If possible, you also need to stay current on your payments. Missing payments can trigger delinquency, default, or loss of a favorable repayment status. When possible, maintain at least minimal payments or contact your servicer to explain delays.

The government shutdown isn’t going to last forever, and when things get back up and running, you need to be your own biggest advocate. Once operations resume, refile or follow up promptly, especially for forgiveness or repayment plan enrollment. Borrowers may need to expedite appeals or requests once staff return.

A Stress Test for the System

The government shutdown is more than a political standoff. For people dealing with student loan debt, it's a pressure cooker of uncertainty, deferred relief, and financial risk. Between frozen processing, accumulating interest, revival of collections, and structural policy changes, the coming weeks may define financial outcomes for tens of millions.

When the shutdown ends, the backlog will be immense, and many borrowers may emerge with higher balances, fewer protections, and damaged credit. The real question is not just how long the shutdown lasts, but how effectively the Department of Education and Congress shore up systemic gaps, restore trust, and ensure that delays don’t translate into catastrophic financial damage for vulnerable borrowers.