• The Department of Education announced an agreement to transfer student-loan borrowers to the Treasury Department.
• The transfer will begin with defaulted student-loan borrowers' accounts.
• It's Trump's first step toward moving federal student loans out of the Department of Education.

The Trump administration took its first step toward transferring the student-loan portfolio out of the Department of Education.

On Thursday, the Department of Education announced a partnership with the Treasury Department on overseeing the $1.7 trillion student-loan portfolio. The partnership, known as an interagency agreement, would hand over the portfolios of defaulted student-loan borrowers to the Treasury, allowing the agency to collect on defaulted debt and support borrowers who have defaulted.

Nearly 9 million borrowers are in default, which typically happens after 270 days of missed federal student-loan payments.

Prior to this agreement, the Department of Education's Default Resolution Group held those responsibilities. A fact sheet said that the agreement will be carried out in phases; the Treasury will begin its work with defaulted portfolios and will later "work to provide operational support over non-defaulted federal student loan debt, to the extent practicable and permitted by law."

"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," Linda McMahon, the education secretary, said in a statement. "By leveraging Treasury's world-renowned expertise in finance and economic policy, we are confident that American students, borrowers, and taxpayers will finally have functioning programs after decades of mismanagement."

The Department of Education said that the Treasury is the best agency to help oversee federal student loans because it disburses funds for federal student aid programs and has tax data on borrowers. Treasury Sec. Scott Bessent said in a statement that the agency 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."

President Donald Trump has previously indicated he was looking to transfer the student-loan portfolio to a new federal agency as part of his larger goal to dismantle the Department of Education. He said in March 2025 that he was considering the Small Business Administration for the job, while McMahon said in later comments that the Treasury was on the table.

This announcement comes at a critical time for student-loan borrowers. The Trump administration is preparing to implement its sweeping repayment changes from Trump's "big beautiful" spending legislation, which includes new repayment plans and borrowing caps. The fact sheet on the agreement said that the new partnership presents a "promising opportunity to return borrowers to repayment."

Advocates criticized the announcement. Kyra Taylor, staff attorney at the National Consumer Law Center, said in a statement that shifting student-loan management to the Treasury "raises a new set of obstacles and uncertainty with no plan in place to resolve them."

"The Department of Education hasn't answered the question of how it will educate Treasury staff on borrowers' rights under the Higher Education Act or how it will ensure clear communications with borrowers during this confusing transition," Taylor said.

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