Washington, D.C., The Treasury Department has quietly started running a big slice of the federal student loan system, taking over defaulted accounts while the Education Department is pared back under the Trump administration. The shift touches roughly $180 billion in defaulted loans and marks the opening phase of a plan to move much of the roughly $1.7 trillion portfolio out of the agency.
Under a 17‑page interagency agreement, Treasury will take over management of loans whose borrowers are in default, according to AP. The AP reporting says those defaulted accounts add up to about $180 billion, roughly 11% of the government’s $1.7 trillion student‑loan portfolio, and that borrowers will continue to work with the same loan servicers and repay their loans the same way. Federal rules generally treat loans as in default after more than 270 days without a payment, and Education Department data cited in the reporting show roughly 9.2 million borrowers in default and about 12 million borrowers behind on payments in some way.
“The agreement marks an intentional and historic step toward breaking up the Federal education bureaucracy and dramatically improving the administration of Federal student aid programs,” Education Secretary Linda McMahon said in a statement, AP reports. Administration officials argue the handoff will streamline collections and repayment operations even as critics warn the change comes while the agency is being dismantled.
What borrowers need to know
Borrowers should notice little immediate disruption, and officials say people do not need to take any action and should keep making payments to their current servicer. Earlier this year, the Education Department paused plans to restart involuntary collections while it implements repayment reforms, in a press release via the U.S. Department of Education. That delay was framed as a way to give defaulted borrowers extra time to explore rehabilitation and new repayment options under the administration’s overhaul.
Legal questions ahead
Legal and policy experts have flagged risks: federal law long has put student‑loan oversight at the Education Department, and moving large chunks of the portfolio to another agency opens the move to legal challenge and congressional scrutiny. Reporting on the administration’s broader plan has highlighted those concerns and quoted analysts who say shifting operations without a clear statutory basis or careful transition planning could prompt lawsuits and service disruptions, as noted by CBS News.
What comes next
The agreement lays out an initial phase focused on defaulted accounts and signals a later phase, with no set timetable, in which Treasury would “assume operational responsibility” for non‑defaulted loans “to the extent practicable,” according to reporting published at Click2Houston. Watch for court filings, congressional oversight actions and notices from servicers; the administration says payments and servicer relationships should remain unchanged during the transition.
For now, borrowers with questions should consult the Education Department’s guidance and contact their loan servicer for account‑specific help. The transfer marks a major realignment of federal student‑loan administration, and legal and policy fights over the coming weeks and months will determine how, and how quickly, the rest of the portfolio is moved.
