The U.S. Department of Education on Feb. 20, 2026. (Photo by Shauneen Miranda/States Newsroom)
WASHINGTON — The U.S. Treasury Department is set to assume the Department of Education’s duties for handling defaulted federal student loan debt, as announced by President Donald Trump’s administration recently. This marks the initial phase of a broader plan where Treasury will eventually manage the entire federal student loan portfolio, reflecting a significant interagency agreement by the Education Department.
A senior Education Department official highlighted the agency’s “longstanding partnership” with Treasury in managing federal student aid programs, confident about enhancing its role. The administration continues its efforts to dismantle the 46-year-old Education Department, aiming to shift educational control “back to the states,” despite much oversight occurring at state and local levels.
In the first phase, Treasury will “provide operational support” to aid the Education Department’s efforts in returning borrowers to repayment. The Education Department’s student loan portfolio is about $1.7 trillion, with less than 40% of borrowers in repayment and nearly a quarter in default. Future phases will see Treasury supporting non-defaulted federal student loan debt operations, as legally permissible.
Department Forges Multiple Agreements
U.S. Education Secretary Linda McMahon stated, “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.” The Education Department has also announced nine other agreements with departments like Labor, Health and Human Services, Interior, and State, transferring several responsibilities to these agencies.
In July 2025, the U.S. Supreme Court temporarily approved mass layoffs and a plan to significantly reduce the Education Department, following a March 2025 executive order directing McMahon to facilitate the department’s closure.
‘Irresponsible, Reckless’
Sen. Patty Murray, a leading Democrat on the Senate Appropriations Committee, criticized the focus on “illegally hollowing out the department” and creating “new, harmful bureaucracy.” Rachel Gittleman, head of American Federation of Government Employees Local 252, representing Education Department workers, condemned the move as “an insult” to Americans with federal student loan debt, noting significant workforce reductions impacting oversight.
The GAO report highlighted that staffing cuts have hampered the government’s ability to assess loan servicer performance. Aissa Canchola Bañez from Protect Borrowers labeled the administration’s actions as “irresponsible, reckless,” warning it could worsen financial hardship amid a growing affordability crisis.
