Trump Shifts $1.7T Student Loan Portfolio to Treasury
The Trump administration is transferring the $1.7 trillion federal student loan portfolio from the Department of Education to the Treasury Department as part of its dismantling of the Education agency. The move initially affects approximately 10 million borrowers in default or late-stage delinquency, according to senior department officials. Education Secretary Linda McMahon characterized the shift as a “historic step” toward abolishing the Education Department, claiming Treasury’s financial expertise will end decades of alleged mismanagement.
Treasury will assume operational control of collecting defaulted federal student loan debt previously managed by the Office of Federal Student Aid. The multiphase process represents one of at least ten interagency agreements McMahon has implemented to shutter the Education Department by transferring its functions to other federal agencies including Health and Human Services, Interior, Labor, and State. McMahon has advocated for relocating the student debt portfolio to Treasury, calling it a “natural area” for the loans to reside.
Education advocates and Democratic lawmakers object to the transfer, warning it creates additional confusion and chaos for borrowers already struggling financially. Roxanne Garza, director of higher education policy at EdTrust, told ABC News that shifting the loan portfolio raises concerns about what support defaulted borrowers will receive and which agency they should contact for assistance. Ranking Member Rep. Bobby Scott, D-Va., questioned whether the administration intentionally seeks to create chaos for borrowers juggling student loan payments alongside rising costs for groceries, gas, child care, healthcare, and housing.
When federal loans enter default status, borrowers become eligible for mandatory debt collection, which damages credit scores, reduces future student aid eligibility, and can result in driver’s license revocation. The administration has phased out Biden-era student loan repayment plans and will introduce a new income-driven repayment option under the Working Families Tax Cuts Act beginning July 1. Department of Education officials stress borrowers should contact the Federal Student Aid office to arrange repayment, though the institutional transition creates uncertainty about which agency will handle inquiries and disputes.
Republican House Education and Workforce Committee Chairman Rep. Tim Walberg endorsed the transfer, claiming it will simplify aid delivery and reduce taxpayer costs. The Education Department announcement Thursday follows months of planning to dismantle the agency as fulfillment of Trump’s campaign pledge to abolish it, consolidating student aid administration under Treasury while the broader institutional dissolution continues across multiple federal departments.