WASHINGTON, D.C. – In a historic move, the U.S. Department of Education is transferring a segment of its student loan management responsibilities to the Treasury Department. This shift marks the beginning of a larger transition as the Trump administration seeks to reconfigure the federal education agency.

Announced on Thursday, the agreement allows the Treasury Department to assume control over managing student loans that are in default—those that are significantly overdue. This portion of loans in default represents approximately $180 billion, constituting around 11% of the federal government’s total $1.7 trillion student loan portfolio.

The agreement outlines a phased strategy, beginning with the Treasury taking over debt collection for defaulted loans. Ultimately, the plan aims to transfer full management of student loans to the Treasury. The timeline for the second phase remains unspecified, but it stipulates that Treasury will extend its operational oversight to include non-defaulted loans “to the extent practicable.”

For borrowers, the transition is expected to be seamless. They are not required to take any action and will continue to interact with their current loan servicers, making payments as usual.

This strategic reallocation of responsibilities marks a significant restructuring of a student loan system that has been under the purview of the Education Department for over four decades.

Officials from the Trump administration argue that the Education Department lacks the capacity to effectively manage such an extensive loan portfolio. They criticized the Biden administration for prioritizing loan forgiveness initiatives over helping borrowers resume regular payments. Recent statistics indicate that less than half of all borrowers are actively making payments, with nearly a quarter in default.

The move is part of President Donald Trump’s campaign to shutter the Education Department, an agency he says was overrun by liberal thinking. Only Congress has authority to close the department, but Trump officials are picking it apart through a series of inter-government agreements that relocate the department’s operations to other federal offices.

The future of the government’s enormous student loan portfolio has been one of the biggest unanswered questions. At her Senate confirmation hearing, Education Secretary Linda McMahon called Treasury a “natural” place for student loans. Trump later said they would be overseen by the Small Business Administration.

Conservatives have tried in the past to move federal student loans. During Trump’s first term, his education chief talked about setting up a semi-private bank to manage student debt. The conservative Heritage Foundation promoted something similar in its Project 2025 plan, calling for a new “government corporation with professional governance and management.”

The Treasury Department often has been discussed as an option, yet student loans are seen as a particularly complex form of debt and some question whether the agency has the right technical expertise. In a 2015 pilot, Treasury tried to collect payments from a sample of thousands of borrowers in default. Its success rate was lower than that of the private collection agencies contracted by the Education Department.

Federal student loan borrowers are typically considered in default if they haven’t made a payment in more than 270 days. About 9.2 million Americans are in default on student loans, according to Education Department data released this month. Going into default can bring a heavy hit to credit scores, and the government can withhold pay and Social Security benefits.

The latest deal from the administration indicates a willingness to open up the hood of student loan operations at a perilous moment. About 12 million Americans are behind on federal student loan payments in some way, and the industry is bracing for a potentially historic surge in loan defaults as pandemic-era protections come to an end.

Earlier this year, Trump officials postponed their plans to restart involuntary collections on defaulted loans, which could have meant withheld earnings for millions of Americans. It’s seen as a politically volatile issue during a tough midterm year where affordability is already on voters’ minds.

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