Student loans shifting to Treasury in Education Department overhaul

The Trump administration announced Thursday a three-phase plan to transfer the federal government’s nearly $1.7 trillion student loan portfolio from the U.S. Education Department to the U.S. Treasury Department — the latest and most consequential step yet in its bid to shutter the Education Department entirely.

More than 40 million borrowers hold federal student loans, including 9.2 million in default as of early March and another 2.4 million in late-stage delinquency. Those defaulted loans add up to about $180 billion, or 11% of the total portfolio.

“As the Federal student aid portfolio soars to nearly $1.7 trillion and with nearly a quarter of student loan borrowers in default, Americans know that the Department of Education has failed to effectively manage and deliver these critical programs,” Education Secretary Linda McMahon said in a press release. Treasury Secretary Scott Bessent added that his department has “the unique experience, the operational capability and the financial expertise to bring long overdue financial discipline to the program.”

Under the agreement, Treasury will first resume control of collecting on defaulted loans, an authority it has long held but deferred to the Education Department. The second phase expands Treasury’s role to cover non-defaulted loans “to the extent practicable.” The third and final phase would transfer administration of the Free Application for Federal Student Aid (FAFSA) to Treasury as well. Officials told reporters the transition would be invisible to borrowers: “You should see no change. This should be seamless.”

This is the 10th interagency agreement the administration has reached to disperse the Education Department’s work to other agencies — a workaround for the fact that formally closing the department requires an act of Congress. The department has already lost roughly half its workforce through layoffs, retirements and voluntary separations since Mr. Trump took office.

The announcement drew swift pushback. Aissa Canchola Bañez, policy director for Protect Borrowers, warned the transfer would “exacerbate borrower confusion and push relief further out of reach,” while National Consumer Law Center attorney Kyra Taylor said it would create a “new set of obstacles and uncertainty with no plan in place to resolve them.” Rachel Gittleman, president of AFGE Local 252, which represents more than 2,000 current and former Education Department workers, called the move unlawful and said it had “sown chaos for states and grantees.”

A senior Education Department official acknowledged that Treasury cannot fully assume all of the department’s statutory student loan obligations, and confirmed that only Congress has the power to formally close the agency. Nearly a year ago, President Trump had suggested a different arrangement — that the Small Business Administration would take over the student loan portfolio. It remains unclear why the administration changed course.