Washington — The U.S. Department of Education delivers part of it Student loan portfolio to the Treasury Department, a first step toward getting rid of all student loan management as Trump administration officials Dismantling the Federal Education Agency.
Under an agreement announced Thursday, the Treasury Department will take over administration of student loans that borrowers are in default, meaning they are months behind on payments. These loans are worth about $180 billion, or 11% of the government’s $1.7 trillion student loan portfolio.
Ultimately, the Treasury Department will assume responsibility for all student loans, according to the agreement. The second phase, which has no time frame, stipulates that the Treasury will “assume operational responsibility” for non-performing loans, “to the extent practicable.”
Halting the student loan process would be the biggest step yet in shutting down the department, which President Donald Trump announced He ordered it to be dismantled Almost exactly a year ago. Many Americans know the department primarily for its role in providing grants and loans to universities, and these funding streams are the largest ever at the agency.
The administration says borrowers don’t need to do anything as the change passes. They will continue to work with the same loan servicer and repay their loans in the same way.
The 17-page agreement outlines a stunning reorganization of the nation’s federal student loan programs, which the Education Department has overseen since its creation more than 40 years ago.
Education Secretary Linda McMahon said in a statement that the agreement “represents an intentional and historic step toward dismantling the federal education bureaucracy and significantly improving the administration of federal student aid programs.”
In justifying the change, Trump officials said the Education Department was “ill-equipped” to handle such a large portfolio of loans. They blamed the Biden administration for focusing on efforts to cancel student loans rather than helping borrowers get back on track with payments. Officials cited recent data showing that less than half of borrowers are currently making their loan payments, with nearly a quarter of them defaulting.
The agreement is likely to raise legal challenges. Some opponents point out that federal law requires the Department of Education to oversee student loans. Trump officials believe they have found a workaround by framing it as a partnership, with some components, including the policies underpinning student loans, remaining at the Education Department.
Student loan advocates condemned the move, saying it adds to the confusion as the Trump administration reforms student loan programs.
“The Department of Education has issued a stunning series of rule changes that make it harder for borrowers to know what options they have on their federal student loans,” said Kira Taylor, an attorney at the National Consumer Law Center. She warned that any errors in loan collection would have “devastating effects on families.”
This step comes within the framework of Trump’s campaign Closing the Directorate of Educationan agency he says has been overrun by liberal thinking. Only Congress has the authority to close the department, but Trump officials are dismantling it through a series of actions Agreements between governments Which transfers the Ministry’s operations to other federal offices.
The future of the government’s massive student loan portfolio has been one of the biggest unanswered questions. At her Senate confirmation hearing, Education Secretary Linda McMahon described the Treasury Department as a “natural” place to take out student loans. Trump later said the Small Business Administration would oversee them.
During Trump’s first term, his education director talked about creating a semi-private bank to manage student debt. The conservative Heritage Foundation has promoted something similar in its Project 2025 plan, calling for the creation of “a new state corporation with professional governance and management.”
The Treasury Department has often been discussed as an option, yet student loans are viewed as a particularly complex form of debt and some question whether the agency has the appropriate technical expertise. In a 2015 pilot, the Treasury Department tried to collect payments from a sample of thousands of distressed borrowers. Its success rate was lower than that of private collection agencies contracted by the Department of Education.
Federal student loan borrowers are typically considered in default if they do not make a payment in more than 270 days. About 9.2 million Americans are behind on student loans, according to Education Department data released this month. A default can take a huge hit to credit scores, and the government can do that Withholding payment And Social Security benefits.
The latest deal from management signals a desire to open the lid on student loan operations at a risky moment. About 12 million Americans are behind on their federal student loan payments in some way, and the industry is bracing for a potentially historic spike in loan defaults as pandemic-era protections expire.
Earlier this year, Trump officials said Postpone their plans To resume involuntary recovery of defaulted loans, which would have meant withholding profits from millions of Americans. It is seen as a politically explosive issue during a difficult midterm year when affordability is already on voters’ minds.
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