Student Loans Moving to Treasury as Administration Advances Plan to Scale Back Education Department

The Trump administration is transitioning student loans from the Department of Education to the Treasury Department. It’s the administration's latest move as part of a broader effort to shrink the Education Department.

The transition of the $1.7 trillion student loan portfolio will happen in three phases under a new interagency agreement known as the Federal Student Assistance Partnership, the tenth interagency agreement signed by the Education Department since President Trump took office.

Loans currently in default will be transitioned first to the Treasury which will be responsible for collecting defaulted debt and supporting efforts to bring borrowers back into repayment.

In a new release, Education Secretary Linda McMahon noted that almost 25 percent of student loan borrowers are currently in default and less than 40 percent of borrowers are in repayment. That equates to about 9.2 million borrowers in default with another 2.4 million in late-stage delinquency on their payments.

“By leveraging Treasury’s world-renowned expertise in finance and economic policy, we are confident that American students, borrowers, and taxpayers will finally have functioning programs after decades of mismanagement,” said Secretary McMahon. 

The second phase of the agreement would allow Treasury to service much of the remaining federal student loan portfolio, including non-defaulted debt.

The third phase could transfer key administrative responsibilities to Treasury, including oversight of the Free Application for Federal Student Aid (FAFSA), which all students must fill out to receive financial aid. 

Education officials say current borrowers will notice no change. 

“The secretary has been clear here over the course of the last several months that the Department of the Treasury is best positioned to assume responsibility,” said an unnamed Education Department official to ABC News. “We already work with them, so it just makes sense."

Critics Warn of Overreach

Critics argue the move is essentially an attempt to dismantle the Department of Education without getting the required congressional approval.

"The Trump Administration continues to unlawfully dismantle the Education Department by moving programs and offices to other federal agencies despite clear warning from Congress that Education Secretary Linda McMahon lacks the authority to do so," said AFGE Local 252 president Rachel Gittleman to NPR.  AFGE Local 252 represents more than 2,000 current and former Education Department employees.