WASHINGTON — The U.S. Treasury Department will take over the Department of Education’s responsibility for collecting on defaulted federal student loan debt, President Donald Trump’s administration announced Thursday.
It’s the first step in a multi-phase process that will end with Treasury taking on the entire federal student loan portfolio. It’s also the latest interagency agreement announced by the Education Department.
A senior Department of Education official cited the agency’s “longstanding partnership” with Treasury in administering federal student aid programs and expressed confidence that the department was in a good position to increase its role.
The administration continues to take sweeping steps to do away with the 46-year-old Education Department, as Trump seeks to return education “back to the states.” That effort comes despite much of the oversight and funding of schools already occurring at the state and local levels.
In the first phase, Treasury will also “provide operational support” to the Education Department’s efforts to return borrowers to repayment, per the announcement.
The Education Department’s student loan portfolio stands at roughly $1.7 trillion. The agency says fewer than 40% of borrowers are in repayment and nearly a quarter are in default.
In later phases, Treasury is set to “work to provide operational support over non-defaulted Federal student loan debt, to the extent practicable and permitted by law, while also seeking opportunities to provide operational support to FSA’s other functions.”
The senior Education Department official said that borrowers currently making payments “should see no change” and can expect to see “better customer service.”
Department forges multiple agreements
U.S. Education Secretary Linda McMahon said that “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,” in a statement Thursday.
The Education Department has announced nine other agreements with the departments of Labor, Health and Human Services, Interior and State that transfer several of its responsibilities to those agencies.
Meanwhile, the U.S. Supreme Court in July 2025 temporarily greenlit mass layoffs and a plan to dramatically downsize the Education Department ordered earlier that year. Those layoffs inflicted a heavy hit on Federal Student Aid, among other units at the agency.
That plan was outlined in a March 2025 executive order that called on McMahon to “take all necessary steps to facilitate the closure” of her own department.
‘Irresponsible, reckless’
Sen. Patty Murray of Washington state, the top Democrat on the Senate Appropriations Committee, said that “instead of helping student borrowers get the support they need, Secretary McMahon is focused on illegally hollowing out the department she leads and creating new, harmful bureaucracy while she’s at it,” in a statement Thursday.
“Despite all this administration’s talk about creating efficiency, the fact is these agreements simply create pointless new red tape — while threatening basic services and support that students depend on every day,” Murray added.
Rachel Gittleman, president of American Federation of Government Employees Local 252, which represents Education Department workers, lambasted the announcement Thursday.
Gittleman described it as “an insult to the nearly 43 million Americans with federal student loan debt and to the taxpayers who depend on federal oversight to prevent waste, fraud and abuse.”
Gittleman noted that since McMahon took over, “the agency has fired or pushed out nearly half of Federal Student Aid’s workforce, leading to the Government Accountability Office warning that the majority of federal student loan servicers running the government’s $1.7 trillion student loan portfolio have been repeatedly breaking the law without staff oversight.”
The GAO report found that the staffing reductions affected the government’s ability to determine how well student loan servicers are doing their jobs.
Aissa Canchola Bañez, policy director for the advocacy group Protect Borrowers, blasted the administration’s move as “irresponsible, reckless, and bad news for our most vulnerable student loan borrowers.”
She added that “in the midst of a growing affordability crisis where American families are already struggling to make ends meet, this risks driving millions of borrowers further into financial hardship.”
