The Trump administration has announced its most consequential step yet toward dismantling the U.S. Department of Education (ED), transferring management of the federal student loan portfolio—totaling $1.7 trillion—to the Treasury Department.
Under an agreement announced last week, the Treasury will immediately assume oversight of loans currently in default, a pool representing roughly $180 billion, or about 11 percent of the total portfolio. A second phase of the agreement, with no defined timeline, calls for Treasury to eventually take “operational responsibility” over non-defaulted loans as well, “to the extent practicable.”
The shift comes one year after President Trump signed an executive order directing Education Secretary Linda McMahon to begin winding down the agency. Since then, the department has laid off roughly half its workforce, transferred several offices to other federal agencies, and faced ongoing legal challenges over its restructuring. Thursday’s agreement is by far the largest and most structurally significant of those transfers.
“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,” McMahon said in a statement.
Critics aren’t convinced. Federal law requires that student loans be managed by the Education Department, and legal challenges to the transfer are widely expected. Administration officials have sought to sidestep that requirement by characterizing the arrangement as a partnership rather than a full handoff, with loan policies remaining formally at the Education Department.
Advocates for borrowers expressed alarm. “Student loan borrowers are entitled to unique and important rights under the Higher Education Act—which has too often been denied as a result of incompetence and corruption,” said Aissa Canchola Bañez, policy director for Protect Borrowers. “Policymakers should have major concerns about this transfer and how it will exacerbate borrower confusion and push relief further out of reach.”
Kyra Taylor, an attorney at the National Consumer Law Center, warned that mistakes in the transition could ripple far beyond administrative headaches, saying that errors in loan collection would have “devastating effects on families.”
There is also the question of whether Treasury is equipped for the task. In a 2015 pilot program, the agency attempted to collect payments from a sample of defaulted borrowers and achieved lower success rates than the private collection agencies then under contract with the Education Department. Student loans are considered a particularly complex form of consumer debt, and some analysts question whether Treasury has the infrastructure to absorb the entire portfolio.
The stakes are high. Approximately 9.2 million Americans are currently in default on their federal student loans, and around 12 million are behind on payments in some form. Borrowers in default can face damaged credit scores, withheld wages, and reduced Social Security benefits. The administration has already delayed restarting involuntary collections—a politically sensitive move heading into midterm season—and advocates are calling on Congress to demand accountability before that process resumes.
Robert Kim, executive director of the Education Law Center, offered a sobering outlook on the longer-term implications: “What we’re seeing right now is a generational change. I think it will be, could very well be, decades before there’s a sufficient return to the levels and kinds of activity and federal assistance and role in education that we were accustomed to until January 2025.”
The administration has maintained that borrowers will not need to take any action as the transition proceeds and will continue working with the same loan servicers. But with millions of Americans navigating a student loan system already marked by confusion and policy reversals, the reassurance may offer limited comfort.
