The Treasury Department will take on a central role in collecting federal student loan debt under a new agreement with the Department of Education, a shift officials said is part of the broader Trump administration effort to scale back and shut down the latter department.
The two departments on Thursday announced a partnership that will transfer operational responsibility for certain student loan activities, particularly collecting defaulted debts, to the Treasury.
The Education Department will retain authority over policy, program rules, and statutory obligations tied to federal student aid.
Officials described the move as a way to streamline the government’s management of the nation’s $1.6 trillion student loan portfolio, which serves tens of millions of borrowers.
The Treasury Department already plays a role in federal debt collection through its Treasury Offset Program, which allows the government to recover delinquent debts by withholding tax refunds and other federal payments.
Under the agreement, Treasury will initially focus on loans in default, a segment that accounts for a significant share of outstanding debt. Officials said the department could expand its role over time to include servicing additional portions of the loan portfolio where permitted by law.
The shift comes as President Donald Trump and his administration move to dismantle or significantly reduce the scope of the Education Department, redistributing key responsibilities across other federal agencies.
In recent months, the department has entered into nine similar agreements with other agenices, including the Labor and Health and Human Services departments, as part of what officials have described as an effort to “break up” the federal education bureaucracy.
Education Secretary Linda McMahon said the Treasury is better equipped to handle large-scale financial operations and debt collection.
Treasury Secretary Scott Bessent echoed McMahon’s sentiments and said his department has more experience managing federal payments and enforcing collections across multiple programs.
But the move is expected to face scrutiny from lawmakers and education advocates, who have warned it could create confusion from borrowers and raise legal questions about whether federal law allows such a transfer of responsibilities.
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The Higher Education Act has historically placed student loan oversight within the Education Department, and critics argue that shifting core functions could weaken borrower protections.
Officials said the implementation of the partnership will begin with an interagency agreement outlining the Treasury’s role in collection, with additional phases possible as the administration continues to restructure how federal student aid is managed.
