Trump Administration Begins Moving Student Loan Responsibilities to Treasury Department
By Maria Carrasco, NASFAA Staff Reporter
The Department of Education (ED) on Thursday announced it is shifting its student loan portfolio responsibilities to the Treasury Department through a new interagency agreement (IAA), with the subsequent goal of phasing out other Federal Student Aid (FSA) functions to the agency.
Under this agreement’s first phase, according to a fact sheet released by ED, Treasury will assume operational responsibility for collecting on defaulted federal student loans, and will “leverage private default resolution agencies” to help defaulted borrowers enroll in rehabilitation or return to good standing. ED cited that this move will facilitate the return of defaulted borrowers to repayment, which has been a goal Trump administration since taking office.
Treasury will also assume operational responsibilities for FSA’s Default Resolution Group, which operates the Default Management and Collections System (DMCS) and provides support to defaulted borrowers.
Following this first phase, Treasury will then begin to provide operational support for non-defaulted federal student loan debt “to the extent practicable and permitted by law” and will “seek opportunities to provide operational support” to FSA’s other functions. That includes the administration of the FAFSA and more, ED wrote, although specific details on what this effort could look like were not included. However, some reporting found that this agreement could mean Treasury would eventually administer other student aid programs, including the Pell Grant program.
ED maintains that it will continue all of its statutory responsibilities through the Office of Postsecondary Education and FSA, which includes policy development.
Education Secretary Linda McMahon on Thursday said that this agreement will “dramatically” improve the administration of the federal student aid programs.
“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,” McMahon 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.”
However, NASFAA President and CEO Melanie Storey responded to Thursday’s announcement with serious concerns for borrowers, and urged ED to establish and communicate clear timelines for execution with stakeholders, including financial aid professionals.
“Regardless of which entity is servicing student loans or collecting on defaulted loans, what’s most important is that students and borrowers have frictionless service and maintain access to the information they need to make progress on repaying their loans,” Storey said in a statement. “That means providing clear communications on the status of their loans, information on how to rehabilitate defaulted loans, and who they can reach out to for assistance. Making a transition of this magnitude would require significant time and careful planning to avoid potential disruption to borrowers — an undertaking that could be challenging given the steep staff reductions that have taken place across the federal government.”
ED stated that it will share any anticipated plans and timelines with stakeholders, such as students, parents, borrowers, institutions, and vendors, and claimed that the department will ensure that the agreement is “implemented effectively and enhances the delivery of federal financial aid.”
As for how this agreement will impact institutions, ED wrote that all existing federal student aid systems – such as the FAFSA, Common Origination and Disbursement (COD) System, and the National Student Loan Data System (NSLDS) – will remain in place and be “administered in accordance with applicable statutory requirements.” Institutions should continue to use the [email protected] email with matters related to FSA. ED also maintained that this move will not impact students, families, and borrowers.
Over the past few months, ED has announced several IAAs to shift its various responsibilities to other agencies in the federal government, with the ultimate goal of dissolving ED. That includes six IAAs announced in November with the Departments of Labor (DOL), Interior (DOI), Health and Human Services (HHS), and State, which aimed to “streamline” education programs at both the postsecondary and K-12 levels. Most recently, ED announced a new IAA in February with State to help manage the foreign funding reporting portal.
Some Democratic lawmakers have questioned the authority of these IAAs over the past few months, arguing that only Congress has the authority to dissolve ED. In the fact sheet provided by ED, the department claimed that it has the statutory authority to implement this agreement, and that this agreement is “aligned” with the FSA Performance-Based Organization (PBO) legislation.
Rep. Tim Walberg (R-Mich.), chair of the House Education and Workforce Committee, praised the move, stating that this agreement will “simplify” the federal student aid programs.
“Treasury already handles large, complex financial systems, so it’s well positioned to manage student aid more efficiently and responsibly,” Walberg said. “This shift will simplify how aid is delivered, reduce delays, and make better use of taxpayer dollars. Most importantly, it will make the process easier and more reliable for students and families who depend on this support.”
However, Rep. Bobby Scott (D-Va.), ranking member of the committee, warned that Thursday’s move could bring even more confusion to borrowers and reiterated that only Congress has the power to dismantle ED.
“ED has historically functioned as a one-stop shop for student borrowers, including financial services and advisors to assist with issues,” Scott said in a statement. “Today’s transfer will likely add yet another administrative barrier to borrowers navigating an already opaque student loan repayment process. This is also happening just as borrowers are about to face new, harmful changes to the student loan program under Congressional Republicans’ ‘Big Ugly Bill’ and the ramifications of eliminating the SAVE plan.”
This is a developing story. Stay tuned to Today’s News for more updates.
Publication Date: 3/20/2026
Leah M | 3/20/2026 2:7:29 PM
Sorry, David S. You were right about everything. :(
David S | 3/20/2026 1:54:48 PM
Aside from the deeply lamentable fact that dismantling ED is all about America being the only developed country in the world actively deprioritizing education, approximately 1500 Department of Treasury staff got RIF'd. So who's going to do the work, and being that ED shed roughly half its workforce, who's going to train them how to do it?
I wish my predictions at https://www.nasfaa.org/news-item/35002/Donald_Trump_Elected_47th_President_of_the_United_States weren't all coming true. I really wish someone could tell me I was wrong and I was overreacting.
Carson W | 3/20/2026 12:44:13 PM
Remove politics and private interests from higher ed. and the outcomes will be better.
You must be logged in to comment on this page.