- Several federal student loan duties are being shifted from Education Department to Treasury Department.
- Opponents of the move say the changes will likely be challenged in the courts.
- The federal loan changes are the latest action in a historically disruptive year in the Education Department.
In a year defined by historic disruptions in the Department of Education (DOE), the federal agency is furthering its dismantling by shifting a portion of its student loan portfolio to the Treasury Department.
Under an interagency agreement announced this week, the Treasury Department will assume operational responsibility for collecting on federal student loan debt. Treasury will also take over the Federal Student Aid’s Default Resolution Group — which offers support to borrowers who have defaulted on their student loans.
And in the future, the Treasury will provide operational support over nondefaulted federal student loan debt, “to the extent practicable and permitted by law.”
The DOE reports that its student loan portfolio is nearly $1.7 trillion, with fewer than 40% of borrowers in repayment — and almost 25% of borrowers in default.
Those student loan figures, according to a DOE release, are roughly twice the size of all American university endowments combined.
If the department was a commercial bank, the release added, it would be the country’s fifth-largest — distributing over $100 billion each year in federal student loans and grants.
DOE officials also blamed the Biden administration for “mismanagement” of the federal student loan portfolio.
The new partnership between the DOE and the Treasury Department marks an essential step “toward breaking up the federal education bureaucracy,” said DOE Secretary Linda McMahon.
“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,” said McMahon in a statement.
“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.”
Added Treasury Secretary Scott Bessent: “Treasury has the unique experience, the operational capability, and the financial expertise to bring long overdue financial discipline to the program and be better stewards of taxpayer dollars.”
In its release announcing the agreement, the DOE pledged to stay well-connected with students, parents and borrowers “to outline anticipated plans and timelines and address any questions.”
How will the new school loan partnership affect borrowers?
In a fact sheet detailing its new Treasury partnership, the DOE said the two agencies already share a history of managing federal student assistance programs:
• Treasury disburses funds for federal student loans.
• DOE leverages Treasury’s federal tax information data systems for income verification for the Free Application for Federal Student Aid (FAFSA) and income-driven repayment plans.
• DOE uses the Treasury Offset Program for involuntary debt collections.
• Treasury and DOE have contracted with an overlapping set of private collection agencies that have experience collecting federal student loans.
• The Financial Literacy and Education Commission, which is chaired by Treasury, is used by DOE and institutions of higher education to educate borrowers on student loan debt.
• DOE has worked withTreasury on employment data for its forthcoming accountability framework.
All existing federal student aid systems such as the FAFSA and the National Student Loan Data System will remain in place, according to the DOE.
Meanwhile, borrowers will not be required to take any additional action.
“Borrowers must continue to repay their student loans and work with their assigned loan servicer for any questions or assistance,” the fact sheet added.
“Borrowers with defaulted loans should continue to visit myeddebt.ed.gov for help getting out of default and for updates as Treasury assumes responsibility for collecting on defaulted loans.”
Objections to DOE/Treasury student loan partnership
The student loan agreement between the DOE and Treasury is likely to invite legal challenges, The Associated Press reported.
Some opponents, the report added, note that federal law requires student loans to be overseen by the Education Department. Trump officials believe they’ve found a workaround by framing it as a partnership, with some components, including the policies underpinning student loans, remaining at the Education Department.
Meanwhile, student loan advocates say the new partnerships add to confusion as the Trump administration overhauls student loan programs.
“The Department of Education has issued a dizzying series of rule changes that make it harder for borrowers to figure out what their options are on their federal student loans,” said Kyra Taylor, an attorney at the National Consumer Law Center, told The Associated Press.
She warned that any errors in loan collection would have “devastating effects on families.”
Continuing Education Department’s disassembly
The latest action that further diminishes the DOE’s duties should come as little surprise to Trump-watchers.
The president has called the agency “a big con job,” issued a 2025 executive order calling for the DOE’s demise and instructed McMahon to work her way out of the job.
Approximately half of the DOE’s employees have been fired over the past year.
And last November, the agency shifted administrative duties of several of its key programs to other federal agencies — including the departments of Labor, Interior, Health and Human Services, and State.
The varied interagency agreements, according to DOE, were expected to move billions of dollars in grant programs to sister federal agencies to halt education bureaucracy and “ensure efficient delivery of funded programs.”
Notable modifications included shifting several key K-12 education programs such as Title I money for schools in low-income communities from the DOE to the Labor Department.
And last month, the DOE announced two additional interagency agreements “to further break up the federal education bureaucracy.”
One of the recent DOE agreements established a partnership with the State Department designed to improve the accuracy and transparency of foreign gift and contract reporting for “certain public and private institutions of higher education.”
And a new DOE partnership with the Department of Health and Human Services is hoped to improve safety at educational institutions.