Department for Education Transfers Student Lending to Treasury
The Department for Education (ED) has made a notable decision to transfer student lending responsibilities to the Treasury, marking a significant shift in its operations.
This action aligns with an executive order from President Donald Trump aimed at dissolving the department. Established 45 years ago under President Jimmy Carter, fully abolishing it would necessitate congressional approval. Nevertheless, the department has been seeking ways to decentralize authority and streamline staff while awaiting Republican commitments to fulfill Trump’s promises.
On Thursday, the ED announced it has reached an interagency agreement (IAA) with the Treasury Department. This agreement will allow the Treasury to take over the collection of defaulted federal student loans and provide operational support for other repayment efforts. Eventually, Treasury is expected to assist with non-defaulted loans and various functions of Federal Student Aid (FSA).
U.S. Secretary of Education Linda McMahon remarked, “The Federal Student Aid Partnership signifies a deliberate and historic effort to break down the federal education bureaucracy and significantly enhance the management of federal student aid programs on which millions of American students, families, and borrowers depend.”
The ED pointed out that the student loan portfolio is nearly $1.7 trillion, with fewer than 40 percent of borrowers currently repaying their loans and about 25 percent in default. They also noted that this debt surpasses the total of university endowments in the U.S. and is greater than both credit card and auto debt combined.
As the student aid portfolio approaches $1.7 trillion, with a substantial portion of borrowers in default, it’s evident that many Americans believe the Department of Education has not effectively managed these vital programs. McMahon expressed confidence that utilizing the economic expertise of the Treasury can lead to a better functioning program for students and taxpayers alike.
Treasury Secretary Scott Bessent acknowledged the long-standing issues with the management of this $1.7 trillion portfolio, asserting that the Treasury is equipped with the necessary experience and financial acumen to ensure better oversight and fiscal responsibility.
This IAA represents the tenth agreement made between the ED and other agencies as part of efforts to reduce the size of the federal education bureaucracy.
In a past interview, McMahon described the IAA as “proof of concept” to illustrate to stakeholders and lawmakers the diminishing necessity of the department.
She mentioned that she regularly updates Congress through various means to ensure they understand the ongoing initiatives. Speaking on the need for better educational outcomes, McMahon emphasized that the current situation indicates a significant reset is necessary. She acknowledged that these changes would ultimately require congressional votes to be made permanent.
Addressing the delay in congressional action, particularly concerning the potential reinstatement of educational policies from previous administrations, she remarked on the importance of maintaining communication with lawmakers. The intention is to involve constituents and gather feedback throughout the process.
Deputy Minister of Education Nicholas Kent articulated that the IAA with the Treasury is a pivotal move toward minimizing the Department of Education’s size, highlighting progress made in a brief period. He pointed out that there has been more than a 40 percent reduction in department size, alongside multiple interagency partnerships.
Overall, Kent expressed optimism about continuing collaboration with Congress to formalize legislative changes, eventually aiming for the closure of the department and the potential elimination of certain positions.
