Education Department transfers defaulted student loans to Treasury Department
The Education Department announced it will transfer management of $180 billion in defaulted student loans to Treasury as part of broader agency restructuring efforts.
The U.S. Education Department announced Thursday it will transfer management of defaulted federal student loans to the Treasury Department, marking the first phase of a broader plan to relocate student loan operations as the Trump administration works to restructure the federal education agency.
Under the agreement, Treasury will assume responsibility for student loans whose borrowers are in default, totaling approximately $180 billion or 11% of the government's $1.7 trillion student loan portfolio. About 9.2 million Americans are currently in default on their student loans, typically defined as being more than 270 days behind on payments.
The 17-page interagency agreement outlines a three-phase transition that will eventually transfer all federal student loan management to Treasury. A second phase, with no specified timeline, calls for Treasury to assume operational responsibility for non-defaulted loans "to the extent practicable." The final phase will include management of the Free Application for Federal Student Aid (FAFSA) process.
Education Secretary Linda McMahon described the move as "an intentional and historic step toward breaking up the Federal education bureaucracy." Administration officials justified the transfer by citing data showing fewer than half of all borrowers are currently making payments, with nearly a quarter in default. They characterized the Education Department as "ill-equipped" to handle the large loan portfolio.
Borrowers will not need to take any action during the transition and will continue working with the same loan servicers and repayment processes, according to the administration. The change represents a significant shift in federal student loan oversight, which has been managed by the Education Department since its creation more than 40 years ago.
The move is part of President Trump's broader effort to dismantle the Education Department through inter-agency agreements, since only Congress has the authority to formally close the department. The transfer may face legal challenges, as federal law currently requires student loans to be overseen by the Education Department.