Student Loan Transfer to Treasury Department Signals Education Department Downsizing

Washington, D.C. – The Trump administration is moving forward with a plan to transfer responsibility for managing a portion of the federal student loan portfolio from the U.S. Department of Education to the U.S. Department of the Treasury, a move signaling the ongoing effort to dismantle the Education Department. The shift will initially focus on loans already in default, impacting approximately 7.7 million borrowers with $180 billion in outstanding debt as of December 2025.

Phase One: Defaulted Loans to Treasury

The first phase of the agreement, announced on March 19, 2026, will see the Treasury Department resume control of collecting on defaulted student loans. This authority was previously held by the Treasury but had been deferred to the Education Department. As of early March 2026, 9.2 million borrowers were in default, with an additional 2.4 million in late-stage delinquency [Washington University].

Expanding Treasury’s Role

The second phase expands Treasury’s management beyond defaulted loans, potentially including servicing a significant portion of non-defaulted debts. This expansion will occur “to the extent practicable” following a thorough assessment of the portfolio and current operations by the Treasury Department [Washington University].

Potential FAFSA Transfer

The final phase of the plan contemplates transferring key responsibilities, including administration of the Free Application for Federal Student Aid (FAFSA), to the Treasury Department. The Treasury Department already utilizes a data-retrieval tool to streamline the income-verification process for FAFSA applicants.

Political Context and Congressional Approval

This move aligns with the Trump administration’s stated goal of dismantling the Department of Education. The transfer of the $1.6 trillion student loan portfolio has been a long-term objective for conservatives [US News & World Report]. However, the Higher Education Act of 1965 assigns responsibility for student loans to the Federal Student Aid office within the Education Department, meaning congressional approval would be required for a full transfer [Washington University].

Concerns and Reactions

Rachel Gittleman, president of AFGE Local 252, representing Education Department employees, criticized the move as an unlawful attempt to dismantle the department [US News & World Report]. Education Department officials have stated that the transition should be seamless for borrowers, but the long-term impact remains to be seen.

Recent Education Initiatives

In January 2026, the Departments of Education and Treasury jointly announced a fact sheet on the Education Freedom Tax Credit, part of the Working Families Tax Cuts Act, aimed at expanding school choice options [U.S. Department of Education].