The U.S. Department of Education is handing off a portion of its portfolio to the Treasury Department, a first step toward shedding management of all student loans as Trump administration officials .
Under an agreement announced Thursday, the Treasury Department will take over management of student loans whose borrowers are in default, meaning they are months behind on payments. Those loans add up to about $180 billion, or 11% of the government鈥檚 $1.7 trillion student loan portfolio.
The Treasury Department will take over debt collection on defaulted loans in the first of three phases that eventually aim to give the agency full responsibility for student loans, according to the agreement. A second phase with no timeframe says Treasury will 鈥渁ssume operational responsibility鈥� over non-defaulted loans, 鈥渢o the extent practicable.鈥�
Borrowers do not need to do anything as the change goes through, the administration says. They will continue to work with the same loan servicer and repay their loans the same way.
The 17-page agreement outlines a stunning realignment of the nation鈥檚 federal student loan programs, which have been overseen by the Education Department since it was created more than 40 years ago.
In justifying the change, Trump officials said the Education Department is 鈥渋ll-equipped鈥� to handle such a big loan portfolio. They blamed the Biden administration for focusing on efforts to cancel student loans rather then help borrowers get back on track with payments. Officials cited recent data showing that fewer than half of all borrowers are currently making payments on their loans, with almost a quarter in default.
The move is part of President Donald Trump鈥檚 campaign to , an agency he says was overrun by liberal thinking. Only Congress has authority to close the department, but Trump officials are picking it apart through a series of that relocate the department鈥檚 operations to other federal offices.
The future of the government鈥檚 enormous student loan portfolio has been one of the biggest unanswered questions. At her Senate confirmation hearing, Education Secretary Linda McMahon called Treasury a 鈥渘atural鈥� place for student loans. Trump later said they would be overseen by the Small Business Administration.
Conservatives have tried in the past to move federal student loans. During Trump鈥檚 first term, his education chief talked about setting up a semi-private bank to manage student debt. The conservative Heritage Foundation promoted something similar in its Project 2025 plan, calling for a new 鈥済overnment corporation with professional governance and management.鈥�
The Treasury Department often has been discussed as an option, yet student loans are seen as a particularly complex form of debt and some question whether the agency has the right technical expertise. In a 2015 pilot, Treasury tried to collect payments from a sample of thousands of borrowers in default. Its success rate was lower than that of the private collection agencies contracted by the Education Department.
Federal student loan borrowers are typically considered in default if they haven鈥檛 made a payment in more than 270 days. About 9.2 million Americans are in default on student loans, according to Education Department data released this month. Going into default can bring a heavy hit to credit scores, and the government can and Social Security benefits.
The latest deal from the administration indicates a willingness to open up the hood of student loan operations at a perilous moment. About 12 million Americans are behind on federal student loan payments in some way, and the industry is bracing for a potentially historic surge in loan defaults as pandemic-era protections come to an end.
Earlier this year, Trump officials to restart involuntary collections on defaulted loans, which could have meant withheld earnings for millions of Americans. It鈥檚 seen as a politically volatile issue during a tough midterm year where affordability is already on voters鈥� minds.
