Student Loan Management Is Shifting Out of the Education Department (original) (raw)

The Treasury Department is set to take over responsibility for federal student loan operations, marking the latest move the Trump Administration has taken to dismantle the Department of Education.

In a press release on Thursday, the Department of Education said that it “was never intended to operate what would be the fifth-largest commercial bank in the United States, distributing over $100 billion each year in Federal student loans and grants.”

“As the Federal student aid portfolio soars to nearly $1.7 trillion and with nearly a quarter of student loan borrowers in default, Americans know that the Department of Education has failed to effectively manage and deliver these critical programs,” Education Secretary Linda McMahon said in a statement. “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.”

Here’s what borrowers should know about the transition.

When will the Treasury Department take control of the federal student loan portfolio?

The transition will occur in several phases, according to a fact sheet about the agreement between the two agencies.

First, the Department of the Treasury “will assume operational responsibility for collecting on defaulted federal student loan debt.”

After that, the agency will expand its work “to provide operational support over non-defaulted federal student loan debt, to the extent practicable and permitted by law.”

Eventually, the department will take over other functions, including the administration of the Free Application for Federal Student Aid (FAFSA), paperwork that students have to fill out if they are seeking federal financial aid.

The agencies did not provide a timeline for when those phases are expected to occur.

How will this affect borrowers?

The agencies said that “borrowers will not have to take any additional actions.”

“Borrowers must continue to repay their student loans and work with their assigned loan servicer for any questions or assistance,” they said.

Officials at the Department of Education told reporters that borrowers “should see no change” and that the transition “should be seamless,” according to NPR.

But advocates expressed concerns about the new agreement, saying that this shift could cause confusion among Americans who have student loan debt at a time when the Trump Administration has already made significant changes affecting borrowers, including ending former President Joe Biden’s Saving on Valuable Education (SAVE) forgiveness plan.

The Student Debt Crisis Center (SDCC), a nonprofit organization, said in a press release that it “strongly opposes this reckless transfer,” arguing that the new agreement would “create more confusion and harm” to borrowers.

“For the past two years, borrowers have faced constant uncertainty and a troubling lack of communication from the Department of Education,” SDCC president and founder Natalia Abrams said in a statement. “Transferring the student loan portfolio to the Department of the Treasury will only deepen the confusion and chaos for millions who are still waiting for clear, reliable guidance.”

“Americans enrolled in the SAVE plan have yet to receive any meaningful direction about their options,” Abrams continued. “Instead of fixing these failures, the Department now appears ready to hand off the portfolio in a reckless and disorganized manner—leaving Americans with student loan debt to wonder: what comes next?”

Aissa Canchola Bañez, policy director at the advocacy group Protect Borrowers, also called the move “irresponsible” and “reckless,” saying in a statement that it would “cause even more confusion” about the student loan system.

“Instead of providing relief to the millions of defaulted borrowers who have fallen behind, the 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,” she said. “Policymakers should have major concerns about this transfer and how it will exacerbate borrower confusion and push relief further out of reach.”

Why is the Trump Administration making this change?

Treasury Secretary Scott Bessent said in a statement accompanying the announcement of the agreement that the move is meant to “clean up a $1.7 trillion portfolio that has been badly mismanaged for years.”

“Treasury has the unique experience, the operational capability, and the financial expertise to bring long overdue financial discipline to the program and be better stewards of taxpayer dollars,” he continued.

The agencies said that fewer than 40% of borrowers are in repayment, and nearly 25% of borrowers are in default. They accused the Biden Administration of mismanaging the federal student loan portfolio, and suggested that having the Department of the Treasury take control of it would help “facilitate the return of defaulted borrowers to repayment.”

The Trump Administration has been shifting responsibilities under the purview of the Department of Education to other federal agencies for months as it works to fulfill President Donald Trump’s pledge to dismantle the federal agency. Trump vowed in his 2024 campaign that he would fully close the department if reelected. Two months after returning to the White House last year, he signed an Executive Order aimed at doing so.

This past fall, the Department of Education announced that certain offices that serve schools and colleges would be transferred to other federal agencies, including the Department of Labor and the Department of Health and Human Services. The Department of Education said that the move would improve efficiency and cut through bureaucratic red tape. But education experts told TIME that the changes would do the opposite: increase bureaucracy, and even result in delays for processing and distributing funds to institutions.

“These are not agencies with expertise in these areas,” Kevin Carey, the vice president of education and work at the nonpartisan think-tank New America, told TIME. “Taking education programs and putting them in agencies that have no expertise in education is going to make those programs function worse.”