Federal student loans will move to Treasury, further shrinking Education Department

The Trump administration announced Thursday a three-phase transition that will move significant management of and responsibility for the nation's federal student loan portfolio from the U.S. Education Department to the U.S. Treasury Department.

The administration says the Treasury Department is better equipped to, among other things, help millions of borrowers who are in default return to repayment on their loans, though the move is also political: The latest sign of President Donald Trump's efforts to close the Education Department.

"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," said U.S. Secretary of Education Linda McMahon in a press release. "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."

More than 40 million borrowers hold federal student loans.

According to the interagency agreement obtained by NPR, the deal's first phase will see Treasury resuming control of collecting on defaulted student loans, an authority it has long held but deferred to the Education Department. A senior Education Department official told reporters that 9.2 million borrowers were in default as of the beginning of March, with another 2.4 million in late-stage delinquency on their payments.

The agreement's second phase expands Treasury's management beyond defaulted loans to include servicing much of what's left, even the Education Department's non-defaulted debts, "to the extent practicable, following Treasury's assessment of the portfolio and its operations."

The third and final phase would see Treasury take over key responsibilities beyond the handling of current loans, assuming administration of the Free Application for Federal Student Aid (FAFSA), which students are required to complete if they want to receive federal financial aid.

The Treasury Department already plays an important role in the FAFSA, using its data-retrieval tool to expedite the once-onerous income-verification process for families.

It was nearly one year ago that President Trump suggested a very different move – that the Small Business Administration (SBA) would assume responsibility for the student loan portfolio. It's unclear why the administration changed its thinking and pivoted to the Treasury Department.

This is the 10th interagency agreement the administration has reached to disperse large swaths of the work of the Education Department to other agencies.

"The Trump Administration continues to unlawfully dismantle the Education Department by moving programs and offices to other federal agencies despite clear warning from Congress that Education Secretary Linda McMahon lacks the authority to do so," said Rachel Gittleman, president of AFGE Local 252, which represents more than 2,000 current and former employees at the U.S. Department of Education.

In response to an NPR question, a senior Education Department official acknowledged that, as was the case with many of those previous agreements, the Treasury Department cannot fully assume all the Education Department's statutory student loan obligations. The official said the department will be wound down to the extent allowable by law and that Education Secretary Linda McMahon understands that "Congress is the only entity that can close the Department."

As for what impact this may have on borrowers, the department officials told reporters: "You should see no change. This should be seamless."

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