Federal Student Loans to Move to Treasury Department Under Trump Administration Plan

The U.S. Department of Education will begin transferring management of federal student loans to the Treasury Department, a move initiated by the Trump administration as part of a broader effort to potentially dismantle the Education Department. The shift, announced on March 19, 2026, will initially focus on loans in default, with a phased transition aiming to eventually encompass the entire $1.7 trillion federal student loan portfolio .

Partnership Aims to Improve Loan Administration

The Federal Student Assistance Partnership, a joint initiative between the Department of Education (ED) and the Treasury Department, is intended to enhance the administration of federal student aid programs and facilitate the return of defaulted borrowers to repayment . Currently, fewer than 40 percent of borrowers are in repayment, and almost 25 percent are in default .

Rationale Behind the Transfer

Education Secretary Linda McMahon stated that leveraging the Treasury Department’s financial expertise will “dramatically” improve the handling of federal student loans, which she characterized as having been subject to “decades of mismanagement” . Treasury Secretary Scott Bessent echoed this sentiment, emphasizing the Treasury’s “unique experience, operational capability, and financial expertise” to bring “long overdue financial discipline” to the program .

Concerns and Criticisms

The move has drawn criticism from consumer advocates, who express concerns about potential confusion and increased obstacles for borrowers. Kyra Taylor, a staff attorney at the National Consumer Law Center, highlighted the lack of a clear plan to educate Treasury staff on borrowers’ rights or ensure clear communication during the transition .

Part of a Larger Effort to Restructure the Education Department

This transfer of responsibility is part of a broader strategy by the Trump administration to dismantle the Department of Education. President Trump signed an executive order last year to begin this process, and the administration has been seeking ways to transfer the department’s workload to other federal agencies . While abolishing the department requires Congressional approval, the administration is utilizing “partnerships” and staff reductions—nearly half of the department’s staff has been cut—to achieve its goals .

Phased Implementation

The transition will occur in three phases. The initial phase involves the Treasury Department taking over the collection of defaulted federal student loans. Subsequent phases will see the Treasury assume control of the entire $1.7 trillion loan portfolio .