Treasury to Take Over Management of Federal Student Loans in Default

The Treasury Department will begin managing defaulted federal student loans as part of a sweeping realignment of the nation’s $1.7 trillion student loan portfolio, according to an agreement announced Thursday by the Education and Treasury Departments. The move, a key component of the Trump administration’s efforts to dismantle the Department of Education, initially involves approximately $180 billion in loans – roughly 11% of the total – held by borrowers months behind on payments.

The 17-page agreement details a phased transfer of responsibility, with the Treasury Department eventually aiming to assume operational control over all federal student loans, though no timeline has been established for the second phase. Currently, more than 40 million Americans hold federal student loans, and approximately 9.2 million are in default, according to recent Education Department data.

Education Secretary Linda McMahon stated that the partnership “marks an intentional and historic step toward breaking up the Federal education bureaucracy and dramatically improving the administration of Federal student aid programs.” The administration argues the Treasury Department’s financial expertise will improve loan management and facilitate the return of defaulted borrowers to repayment.

Borrowers will not experience immediate changes. The administration has stated that borrowers will continue to function with the same loan servicers and make payments as usual. Individuals with defaulted loans can access information about their loans at myeddebt.ed.gov.

The transfer of loan management is occurring despite concerns raised by some that federal law requires oversight of student loans to remain with the Education Department. Trump administration officials believe they have identified legal pathways to proceed with the realignment, viewing it as a significant step in fulfilling President Trump’s goal of dismantling the Education Department, a plan announced almost a year ago.

While the administration has paused involuntary collections, including wage garnishment and tax refund withholding, for borrowers in default, these measures remain authorized under federal law. Borrowers in default are encouraged to contact their loan holders to explore options such as loan rehabilitation programs.

The agreement comes as the Education Department’s student loan portfolio has grown to nearly $1.7 trillion, exceeding the combined size of all American university endowments and surpassing the nation’s total credit card and auto debt. The administration contends the Education Department is “ill-equipped” to manage such a large portfolio, justifying the transfer to the Treasury Department.