The Donald Trump administration has taken its biggest step so far in breaking apart the US Education Department, quietly moving a huge part of the student loan system to the Treasury Department.
The new deal, announced on March 19, is being called the “Federal Student Assistance Partnership.” On paper, it’s an agreement between the Education Department and the Treasury. But in reality, it’s slowly moving responsibilities out of the Education Department and shrinking it over time.
This process started about a year ago with an executive order. Since then, several functions have already been shifted to other departments. This is believed to be around the tenth such move, and by far the biggest one yet.
US education dept overhaul: A $1.7 trillion system, and millions of borrowers
To understand how big this is, look at the numbers. The federal student loan system covers around 43 million borrowers and totals about $1.7 trillion. Out of this, roughly 9.2 million people are already in default, that’s about $180 billion, or 11% of the total. These are borrowers who haven’t made payments for more than 270 days.
On top of that, millions more are behind on payments in some way. In fact, fewer than half of all borrowers are currently paying their loans.
The administration says the Education Department simply isn’t capable of managing something this large. Officials argue that under former President Joe Biden, the focus was more on cancelling loans rather than helping people repay them.
Education Secretary Linda McMahon called the move a turning point, saying it is a “historic step toward breaking up the Federal education bureaucracy.” Treasury Secretary Scott Bessent also backed the shift.
How the transition will happen
Right now, the first phase has already begun. The Treasury Department is taking over the handling of defaulted loans. Later, in the next phase, Treasury is expected to take on the rest of the loan system as well. There’s no clear timeline for this yet.
A final phase would move control of FAFSA, which is the application system students use for financial aid, to Treasury, too. The department already helps with income verification, so this would expand that role.
At the same time, the Education Department will continue to shrink. Staff numbers have already been cut, and more functions are being moved out.
What will NOT change for borrowers right now?
Borrowers don’t need to do anything. They will keep paying their loans the same way, through the same servicers. Loan terms, like interest rates, balances, and eligibility for existing relief programmes, are set by law and won’t suddenly change. Officials are calling the transition “seamless” and say there will be “no impact to you at this time.”
Who could feel the impact first
Borrowers already in default, around 9.2 million people, are first in line. With Treasury now in charge, collections could pick up speed. That might mean wage garnishment or benefit cuts restarting, though there could also be efforts to bring people back into repayment plans.
Those who are currently paying, or using programmes like income-driven repayment or public service loan forgiveness, may see indirect effects. There could be delays, confusion, or system hiccups as responsibilities shift.
Future students may also feel the change if FAFSA moves fully under Treasury, possibly changing how aid is processed.
Legal questions likely to follow
Not everyone is convinced this move will hold up. Some critics say federal law clearly puts student loan oversight under the Education Department. That could open the door to legal challenges.
Trump officials, however, believe they’ve found a workaround. They are framing this as a partnership, where certain elements, like policy decisions, will still technically remain with the Education Department.
Earlier this year, Trump officials had planned to restart aggressive collections on defaulted loans, moves that could have led to wages being withheld for millions. But those plans were put on hold. The issue is politically sensitive, especially in a midterm election year when cost of living and affordability are already major concerns for voters.