Education Department officials announced plans on Thursday to gradually move the nearly $1.7 trillion student loan portfolio to the Treasury Department — one of the most high stakes moves the Trump administration has made to shut down the education agency.
Shifting the portfolio will happen in three phases via an interagency agreement similar to the ones that the administration has already used to transfer education responsibilities to other agencies.
The idea of moving the entire portfolio has circulated through conservative policy circles for years.
The initial phase will be focused on student loans in default, as first reported by POLITICO.
The second phase will be focused on student loan debts not in default “to the extent lawful and practical, including servicing such debts,” an Education Department official speaking on background said in a call with reporters on Thursday.
The third phase will involve Treasury helping to enforce school eligibility for the federal student aid program, among other tasks.
“This is a very well thought out, intentional process that we have developed over the course of months to ensure that we are not breaking anything,” the official said. “I’m not going to attribute specific dates to any of those phases...but today is when we're starting.”
The official said the change should be “seamless” and borrowers should see no difference.
Many lawmakers and conservative policy experts were caught by surprise last spring when President Donald Trump said the entire student loan portfolio would go to the Small Business Administration.
When asked about what happened to those plans, the official said Education Secretary Linda McMahon had been “clear” over the last several months that Treasury was best positioned to take on the student loan portfolio.
The official pointed out the Education Department already works with Treasury on some programs like Free Application for Federal Student Aid, with the financial agency verifying income information for applicants.
The official did not answer a question about costs associated with the interagency agreement.
McMahon said student loan borrowers would be better off with Treasury overseeing the debt.
“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,” McMahon said in a statement.
Treasury Secretary Scott Bessent said the change should have happened a long time ago.
“Under President Trump’s leadership we are undertaking the first serious effort to clean up a $1.7 trillion portfolio that has been badly mismanaged for years,” Bessent said in a statement. “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.”
But for Sen. Patty Murray, a Democratic appropriator from Washington, the new agreement raises more questions than answers.
"Despite all this administration’s talk about creating efficiency, the fact is these agreements simply create pointless new red tape—while threatening basic services and support that students depend on every day," she said in a statement. "Are student borrowers eventually going to have to talk to two agencies to get the help they need? Will basic oversight and communication simply fall through the cracks? "
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