The U.S. Education Department has begun transferring a portion of its student loan portfolio to the Treasury Department, marking the first step in dismantling federal oversight of all student loans as part of President Donald Trump’s effort to eliminate the agency.
Under an agreement announced Thursday, the Treasury will assume responsibility for managing student loans where borrowers are in default—meaning they have missed payments by months. These defaulted loans total approximately $180 billion, representing 11% of the government’s $1.7 trillion student loan portfolio.
The Treasury Department will initially handle debt collection for defaulted loans, with a second phase planned to take over nondefaulted loans “to the extent practicable.” Borrowers are not required to take any action as this transition occurs; they will continue using their existing loan servicers and repayment methods.
The 17-page agreement details a significant realignment of federal student loan programs, which have been managed by the Education Department for over four decades. Trump administration officials cited the agency’s perceived inability to manage such a large portfolio and blamed the Biden administration for prioritizing loan cancellations over helping borrowers regain payment stability.
Recent data reveals that fewer than half of all borrowers are currently making payments on their loans, with nearly a quarter in default. The move is part of President Trump’s broader campaign to shutter the Education Department, which he claims has been “overrun by liberal thinking.”
Only Congress holds the authority to close the department, but administration officials have used intergovernmental agreements to shift its operations to other federal entities. Education Secretary Linda McMahon previously described Treasury as a “natural” place for student loans, while Trump indicated they would be overseen by the Small Business Administration.
The Treasury has historically been considered an option for managing student debt, though some analysts question whether the agency possesses the necessary technical expertise. A 2015 pilot program showed lower success rates than private collection agencies contracted by the Education Department. Approximately 9.2 million Americans are currently in default on federal student loans, with the government able to penalize borrowers through reduced credit scores and withheld benefits.
The administration’s latest action occurs at a critical juncture as about 12 million Americans face delinquency in some capacity. Industry experts warn of a potential surge in defaults as pandemic-era protections expire, compounded by delays in restarting involuntary collections for defaulted loans that could have impacted millions. This transition takes place amid heightened political tensions during the upcoming midterm elections, where affordability concerns remain at the forefront of voter anxieties.
