Written by: Eric Bank
Edited by: Lillian Guevara-Castro
Reviewed by: Adam West
Key Takeaways
- Maryland launched a program offering interest-free loans of $700 to federal workers laid off this year.
- The move is in response to concerns over a greater need for quick loans due to federal workforce cuts.
- As federal layoffs spread nationwide, states and municipalities step up efforts to support displaced workers.
The state of Maryland, home to tens of thousands of federal government workers, established an emergency loan program recently to help residents who have lost their jobs in the latest round of federal government layoffs.
Cuts in the federal workforce could drive an increase in the demand for emergency loans, shifting the market.
Maryland’s effort is evidence of how state and local government organizations may be required to fill in the gaps as fiscal pressure is felt in federal workforce communities.
The loan program offers interest-free loans of $700 to eligible residents who were employed by the federal government until recently. Eligible workers are those who can prove they were laid off on or after January 1, 2025, and not as a result of any fault on their part.
The loans are intended to cover basic expenses like rent, utilities, and medicine and are to be repaid within 180 days. Extensions are available, though not with any forgiveness, and contractors are not covered.
This is not merely a local solution to a local problem. In Maryland alone, some 1,600 unemployment claims by displaced employees have been filed since early in the year.
Agencies such as Education, Energy, and Transportation all have restructured affecting federal workers through staff reductions, reassignments, or hiring freezes. These changes are imposing extra burdens on public relief programs and the consumer lending industry as a whole.
Maryland in Action
Most noteworthy is not Maryland’s lending program itself, but the level of urgency in the tone with which it is framed. In April, the Protect Our Federal Workers Act was signed into law by Gov. Wes Moore to enable the initiative.
When defending the program, Moore stated, “This is not patriotism. This is cruelty,” referring to the mass layoffs of federal workers. That same bill provided increased legal support to out-of-work workers and spurred retraining into positions within the state.
Indeed, Maryland is currently recruiting laid-off federal workers for hard-to-fill roles, including education and public safety, highlighting how inextricably linked the state economy is to federal personnel.
A National Trend in the Making
The implications stretch beyond the state of Maryland. If layoffs continue on their current trajectory, other states with sizable federal employee populations, like Virginia, California, or Georgia, could be compelled to follow suit. Atlanta, Denver, and St. Louis, which all have large federal operations, are also set to feel the pinch.
The demand for small-dollar loans could increase, particularly if workers are tempted to turn to high-interest alternatives just to make ends meet.
What Does It Say About Emergency Loan Markets?
The big question is whether this moment will shift the emergency loan market. During times of eroding traditional job security, the demand for short-term borrowing demand typically increases.
Cuts in the federal workforce could drive an increase in the demand for emergency loans, shifting the market.
And in this case, it’s not merely a case of some individual employer cutting back — it’s the government. That is an unusual deviation from the normal economic cycle and one that will put pressure on state and federal budgets and policy.
A Sign of What’s to Come
Maryland’s solution is modest, but it is based on a shrewd recognition that out-of-work individuals cannot wait six months to get federal relief.
The loans of $700 are small, but they are timely. And if this is the first step in a broader trend of belt-tightening by D.C., other states besides Maryland are cautioning that they will not remain passive:
- New York announced an initiative to hire out-of-work federal employees into more than 7,000 available state jobs in law, engineering, and health.
- The state of Hawaii began ‘Operation Hire Hawaii’ to bring displaced federal workers into state government positions immediately.
- New Mexico implemented job fairs and streamlined hiring programs designed to recruit former federal workers into state and local government.
- Virginia’s Governor Glenn Youngkin is encouraging affected workers to shift to the private sector.
For policymakers and lenders alike, this may be preemptive advice to ready themselves to confront tighter household finances, more short-term borrowing needs, and a more localized mosaic of relief policies.
