Treasury Dept. Takes Control of $180B in Defaulted Student Loans

The Treasury Department will now manage $180 billion worth of defaulted student loans as part of the Trump administration's efforts to dismantle the Education Department. This affects about 9.2 million Americans who are behind on their federal student loan payments by more than 270 days.

WASHINGTON — Federal officials announced Thursday that the Treasury Department will assume control of a massive portion of student debt from the Education Department, marking the initial phase of the Trump administration’s plan to eliminate the federal education agency.

The Treasury will now oversee approximately $180 billion in student loans where borrowers have fallen into default status, representing 11% of the nation’s total $1.7 trillion student debt portfolio. Default occurs when borrowers haven’t made payments for over 270 days.

This transfer represents the first of three planned phases designed to eventually shift complete student loan oversight to Treasury. The second phase, which has no set timeline, would transfer “operational responsibility” for performing loans to Treasury “to the extent practicable,” according to the 17-page agreement.

Officials assured borrowers they won’t need to take any action during this transition. Students will continue working with their current loan servicers and making payments through existing channels.

The arrangement represents a dramatic restructuring of federal student loan operations, which have remained under Education Department control since the agency’s establishment more than four decades ago.

Trump administration officials defended the shift by claiming the Education Department lacks the capability to manage such an extensive loan program. They criticized the previous Biden administration for prioritizing loan forgiveness initiatives instead of helping borrowers resume regular payments. Current statistics show less than half of all borrowers are actively making payments, with nearly 25% in default.

This action advances President Trump’s pledge to eliminate the Education Department, which he characterizes as dominated by liberal ideology. While congressional approval is required to officially close the department, Trump’s team is systematically transferring its functions to other federal agencies through inter-departmental agreements.

The destination for the government’s substantial student loan portfolio had remained unclear. During her Senate confirmation process, Education Secretary Linda McMahon described Treasury as a “natural” home for student loans, though Trump later suggested the Small Business Administration would handle oversight.

Conservative groups have previously attempted to relocate federal student loans. During Trump’s initial presidency, his education secretary explored creating a semi-private banking entity to manage student debt. The Heritage Foundation’s Project 2025 blueprint similarly advocated for a new “government corporation with professional governance and management.”

While Treasury has often been considered for this role, student loans present unique complexities, raising questions about the agency’s technical capabilities. A 2015 trial run where Treasury attempted to collect payments from defaulted borrowers produced lower success rates than private collection companies used by the Education Department.

Currently, 9.2 million Americans are in default on federal student loans, according to recent Education Department figures. Default status severely damages credit ratings and allows the government to garnish wages and Social Security payments.

This operational overhaul comes at a critical time, with approximately 12 million Americans currently behind on federal student loan payments. The lending industry anticipates a potential wave of defaults as pandemic-era payment protections expire.

Earlier this year, Trump officials delayed plans to resume involuntary collections on defaulted loans, which could have resulted in wage garnishment for millions of Americans. The issue remains politically sensitive as affordability concerns dominate voter priorities.