MW Trump administration looks to shift student-loan responsibilities to Treasury Department
By Jillian Berman
The move comes as officials work to severely diminish the Education Department, which oversees the $1.7 trillion student-loan portfolio
The Education Department, led by Secretary of Education Linda McMahon (left), has entered into an agreement with the Treasury Department, led by Treasury Secretary Scott Bessent (right), to help manage the student-loan program.
The Trump administration is moving to shift responsibility for much of the federal student-loan program from the Education Department to the Treasury Department, officials announced Thursday.
The two agencies are entering into a partnership that will allow Treasury to become more involved in collecting on federal student loans. The agreement comes following more than a year of speculation over the fate of the $1.7 trillion student-loan program under an administration that has said it wants to dismantle the Education Department.
It also comes as borrowers are facing unprecedented challenges managing their loans, and as policymakers are working to implement major changes to the student-loan program created by last year's Republican tax and spending bill.
Borrower advocates and other stakeholders have been wary of moving student-loan responsibilities over to another agency. They've said that the Education Department has the policy expertise necessary to deal with the complexity involved in oversight of colleges' loan management, borrowers' repayment plans, servicer behavior and more. In addition, they've noted that the Office of Federal Student Aid, which manages the loan program, is by law a unit of the Education Department.
Trump administration officials, on the other hand, framed Treasury's larger role as a benefit to borrowers and taxpayers.
"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," Education Secretary Linda McMahon said in a statement announcing the partnership.
Treasury will take over responsibility for collecting on defaulted student loans
The first phase of the partnership will focus on collecting defaulted student loans. Roughly 9 million borrowers are currently in default, and millions more are expected to default in the coming months. These borrowers face the harshest consequences of the student-loan system, including having their Social Security checks, tax refunds and paychecks seized.
They've also experienced whiplash over the past several months, as the Trump administration said it would resume these consequences for borrowers and then paused them several months later.
The Trump administration said that as part of the partnership, Treasury will use debt-collection agencies to collect on defaulted student loans. The agency will also take over responsibility for the default-resolution group, which borrowers call to get information and help with their defaulted student loans.
During the pandemic, the Biden administration ended the Education Department's contracts with the companies that collect on defaulted student loans. The decision was part of a broader effort to revamp student-debt collection, which advocates had complained for years was overly punitive.
Consumer advocates have expressed concern about moving student-debt collection to another agency. Collecting on student-loan debt can be more complicated than collecting on other types of debt, because student-loan borrowers have certain benefits and protections available to them that aren't available to other types of borrowers.
"Instead of providing relief to the millions of defaulted borrowers who have fallen behind, the [Education] Department is moving a portfolio of our most vulnerable borrowers to an agency with little to no expertise in the rights and benefits afforded to borrowers under the Higher Education Act," Aissa Canchola Bañez, the policy director at Protect Borrowers, an advocacy group, said in a statement following the announcement.
Treasury will eventually work with student loans in repayment
Under the next phase of the plan, Treasury will begin to work with nondefaulted student loans. A senior Education Department official said borrowers shouldn't feel a change from this transition, noting that servicers - the organizations the government hires to help borrowers manage their bills - will still be the ones working with borrowers directly.
The official described the transition as a "well-thought-out process that we have been working on with Treasury for months.
"We recognize that the federal student-loan portfolio and Office of Federal Student Aid are enormous," the official added. "We don't want to fold all of that in at once."
But borrower advocates immediately slammed the plan. Kyra Taylor, staff attorney at the National Consumer Law Center, said in a statement that it "raises a new set of obstacles and uncertainty, with no plan in place to resolve them.
"The stakes are high; any errors in the system that collects on defaulted loans and services loans in good standing will have devastating effects on families," Taylor said.
Rachel Gittleman, the president of AFGE Local 252, which represents current and former Education Department workers, framed the plan as part of the administration's efforts to "unlawfully dismantle the Education Department by moving programs and offices to other federal agencies."
Already, the Trump administration has significantly slashed staff at the Office of Federal Student Aid. A government watchdog said earlier this month that the agency also pulled back on oversight of servicers, putting borrowers at risk.
Policymakers have talked on and off for years about moving some federal student-loan responsibilities over to the Treasury Department. But they've held off for various reasons.
When talks around this topic began to heat up last year, experts told MarketWatch that shifting responsibility for the program to another agency wouldn't do much to solve its fundamental challenges.
"We have a very complicated repayment system [and] we have a lot of colleges in the system that do not leave students able to repay their debts," Clare McCann, managing director of policy and operations at the Postsecondary Equity & Economics Research Center at American University, said last year. "We have all kinds of logistical challenges. All of those problems still exist.
"You can move some of the staff over, you can move some of the servicing contracts over - it won't do anything to solve those problems," McCann said.
-Jillian Berman
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March 19, 2026 17:22 ET (21:22 GMT)
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