· Minimal Long-Term Credit Impact Expected: Despite short-term funding uncertainties, APA anticipates limited long-term effects on municipal bond credit quality.
· Federal Aid Is a Small Slice of School District Budgets: With only 3% of school district revenues coming from federal sources, most districts are not heavily reliant on DOE funding.
· Local Governments Have Fiscal Flexibility: Many districts can adapt to funding changes through local and state resources, helping preserve creditworthiness.
SUMMARY
As part of a broader agenda to improve government efficiency and return control of educational policies to the states, President-Elect Donald Trump has revived his plan to dismantle the Department of Education. Trump believes that states should have more freedom to tailor education systems to their residents’ needs without federal oversight and has proposed redirecting programs back to state or other federal agencies. Eliminating the department would require Congress’ approval.
The U.S. Department of Education primarily oversees federal education policy, funding, and support for K-12 and higher education. The department administers billions of dollars in federal aid for K-12 education, including Title 1 funding for low-income schools and the Individuals with Disabilities Education Act funds for special education. In addition to programs for K-12 education, the department manages $1.7 trillion in student loans and $30 billion in financial aid through Pell Grants, supporting millions of low-income students.
Matthew Riggle
Co-Director of Research
· While the potential elimination of the Department of Education could create short-term uncertainties in terms of funding gaps, APA believes it will have a minimal long-term impact on municipal credit.
· While municipal credit within this sector may experience short-term volatility, the flexibility of local governments to manage fiscal pressures and find alternative funding sources should help mitigate significant long-term risks to creditworthiness.