In a shift that affects millions of student borrowers, the U.S. Department of Education is again collecting on defaulted federal student loans after a nearly five year pause that began during the coronavirus pandemic.
The Education Department did not immediately respond to a question about how many borrowers in California are affected by Monday’s action.
The move comes as the Trump administration works to dismantle the department and slash billions of dollars in funding for K-12 public schools and higher education, including many federal financial aid programs.
Last week, President Donald Trump revealed his “skinny budget” proposal for the 2026 fiscal year, which starts Oct. 1. The proposed budget would cut $12 billion from the Education Department — which had a $240 billion budget in the 2024 fiscal year — and end or significantly defund a number of student financial aid programs, including work-study and a federal grant for students with exceptional financial need.
Trump’s proposed budget cuts – which Congress must approve – come as a House committee on education approved a separate proposal for more than $330 billion in cuts over 10 years to education spending and sweeping changes to student loan programs and federal financial aid. The reconciliation bill — the Student Success and Taxpayer Savings Plan — now moves to the House Budget Committee.
Here’s what we know about the proposed changes how they might impact California schools and students.
Q: What changes to student loans have been proposed?
A: Trump’s proposed budget would eliminate $1.5 billion in federal programs aimed at recruiting low-income and first-generation college students, gut funding for federal work-study, which provides part-time jobs for students to help them pay for their education, and eliminate several programs designed to help schools support students, specifically low-income students and those with disabilities.
Major changes to federal student aid programs include eliminating need-based and interest-free subsidized loans for new undergraduates and ending the graduate student PLUS loan program — which can cover a graduate student’s full cost of attendance. Additionally, it sets a borrowing cap to $50,000 for undergraduates, $100,000 for graduate students and $150,000 for professional programs.
The plan would also redefine eligibility for Pell Grants — the need-based financial aid that doesn’t need to be repaid — and expand grant eligibility to short-term programs while cutting access to students enrolled less than half-time. This could make many low-income working students ineligible. The plan repeals the Biden administration’s changes to student loan repayment plans, consolidating existing student debt repayment plans into one 30-year repayment plan with limited relief and fewer borrower protections.
The bill would also require schools to reimburse the federal government for a percentage of unpaid student loans and include penalties to schools for late or missed payments, which could lead to schools losing their eligibility for federal student aid.
Education leaders were quick to condemn the bill, saying it would harm students, schools and borrowers.
“The overwhelming majority of provisions in the bill would reduce student aid to low-income students and would impose onerous financial penalties on institutions, particularly those least able to meet them,” a letter from six leading higher education associations warned lawmakers.
Q: What does this mean for California schools and students?
A: California received about $7 billion in federal funding for higher education in 2024. The University of California received about $1.7 billion in federal student aid in the 2022-23 fiscal year, the majority of which was Pell Grants and student loans.
California State University received about $2.3 billion in federal funding for the 2023-24 academic year. At UC, more than 77,000 students are Pell Grant recipients, more than 17,800 receive Federal Supplemental Educational Opportunity Grants, for students with high need, and more than 9,400 participate in the federal work-study program. Nearly half of CSU undergraduate students qualify for the Pell Grant, with over 200,000 CSU students receiving the aid for the 2023-24 academic year.
At California community colleges, about 24% of students received a Pell Grant in the 2023-24 school year.
In a statement Friday, UC president Michael Drake said he was deeply concerned about the impact Trump’s proposed budget cuts would have on the university and higher education as the university has already felt the “negative impacts” from federal grant cancellations and funding cuts.
“In addition to reductions in cutting-edge research, limits on financial aid would reduce support for those who need it most, limiting social mobility for students and narrowing the pathway to our much-needed skilled workforce for the future,” Drake said.
CSU declined to comment on Trump’s proposed budget and the impact it could have on the university’s 23 campuses, but posted online that the university will continue to work with California congressional leadership to show how federal funding drives “the workforce of California and provide avenues for social mobility.”
Q: What other changes could be coming?
A: A proposal by the House Ways and Means Committee in January suggested raising the endowment tax on universities from 1.4% to 14% and lawmakers are now considering bumping that to 21%, which could have a significant impact on schools like Stanford University, which has an endowment totaling more than $37 billion.
Trump also announced plans in March to move the entire $1.7 trillion federal student loan portfolio out of the Education Department and put it under the Small Business Administration. Experts warned that the agency’s 40% staff cut, combined with insufficient planning, would result in an “inevitable” system failure.
And last month, Trump signed an executive order that could reshape university accreditation, a process that determines which universities are allowed to access billions of dollars in federal financial aid. Trump’s order aims to expand the list of accreditors and allow schools to more freely change accreditors, but also directs the Education Department to deny, suspend or terminate accreditors’ powers who engage in diversity, equity and inclusion initiatives.