The Trump administration announced a plan to move significant management of and responsibility for the nation’s federal student loan portfolio from the U.S. Education Department to the U.S. Treasury Department.
Alex Brandon/AP
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Alex Brandon/AP
The Trump administration revealed a plan on Thursday to transition substantial management and oversight of the federal student loan portfolio from the U.S. Education Department to the U.S. Treasury Department through a three-phase process.
The administration asserts that the Treasury Department is more capable of assisting millions of borrowers who are in default to resume repayments, although the move is also politically motivated as part of President Trump’s broader efforts to dismantle the Education Department.
“With the federal student aid portfolio approaching $1.7 trillion and nearly a quarter of borrowers in default, it is clear that the Department of Education has not successfully managed these essential programs,” stated U.S. Secretary of Education Linda McMahon in a press release. “By harnessing the Treasury’s renowned expertise in finance and economic policy, we are confident that students, borrowers, and taxpayers will finally benefit from effective programs after years of mismanagement.”
More than 40 million individuals have federal student loans.
According to an interagency agreement obtained by NPR, the first phase of the plan involves the Treasury Department resuming control over collecting defaulted student loans, a responsibility it traditionally held but had delegated to the Education Department. A senior official noted that as of early March, 9.2 million borrowers were in default, with an additional 2.4 million facing severe delinquency.
In the second phase, the Treasury’s management will extend to servicing most of the remaining loans, including non-defaulted debts under the Education Department, as far as is feasible based on Treasury’s evaluation of the portfolio.
The final phase will see the Treasury taking over key responsibilities beyond current loan management, including the administration of the Free Application for Federal Student Aid (FAFSA), which is crucial for students seeking federal financial aid.
The Treasury Department already plays a significant role in FAFSA by using its data-retrieval tool to streamline the income-verification process for families.
Almost a year ago, President Trump proposed transferring the student loan portfolio to the Small Business Administration (SBA). The reason for the switch to the Treasury Department remains unclear.
This marks the 10th interagency agreement aimed at distributing the Education Department’s responsibilities to other agencies.
“The Trump Administration continues to unlawfully dismantle the Education Department by reallocating programs and offices to other federal agencies, despite Congress’s clear warnings that Education Secretary Linda McMahon does not have the authority to do so,” stated Rachel Gittleman, president of AFGE Local 252, representing over 2,000 current and former Department of Education employees.
In response to an NPR inquiry, a senior Education Department official acknowledged that, similar to many previous agreements, the Treasury Department cannot fully assume all statutory obligations related to student loans. The official indicated that the department would be reduced to the extent permitted by law, with Education Secretary Linda McMahon recognizing that “only Congress can legally close the Department.”
Regarding the potential impact on borrowers, department officials assured reporters, “You should see no change. This transition should be seamless.”
