The Trump administration announced a sweeping three-phase plan to shift management of the federal student loan portfolio from the U.S. Department of Education to the U.S. Treasury Department — a historic restructuring the administration says will finally bring competent oversight to a system that has failed millions of American borrowers.

The interagency agreement comes as the federal student loan portfolio has ballooned to nearly $1.7 trillion, with more than 9.2 million borrowers in default and another 2.4 million in late-stage delinquency as of early March.

“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 Education Secretary Linda McMahon. “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.”

How the Three-Phase Plan Works

The first phase restores Treasury’s long-held but previously deferred authority to collect on defaulted student loans. The second phase expands Treasury’s role to include servicing non-defaulted loans across the broader portfolio. The third and most consequential phase hands Treasury administration of the Free Application for Federal Student Aid (FAFSA) — the gateway through which millions of students access federal financial assistance each year.

Administration officials emphasized that borrowers should expect no disruption. “You should see no change. This should be seamless,” a senior Education Department official told reporters.

Dismantling a Failing Bureaucracy

The move marks the 10th interagency agreement the Trump administration has reached to redistribute the Education Department’s functions to other agencies — a key step toward President Trump’s broader goal of closing the department entirely. Education Secretary McMahon has been candid about her mission to “peel back the layers of federal bureaucracy.”

Predictably, left-wing union bosses pushed back. Rachel Gittleman, president of AFGE Local 252 — which represents Education Department employees — called the move “unlawful,” claiming McMahon lacks the authority to restructure the department. A senior Education Department official acknowledged that fully transferring all statutory obligations requires an act of Congress, noting McMahon understands that “Congress is the only entity that can close the Department.”