WASHINGTON — The U.S. Treasury Department will take over the Department of Education’s responsibility for collecting on defaulted federal student loan debt, President Donald Trump’s administration announced Thursday.

It’s the first step in a multi-phase process that will end with Treasury taking on the entire federal student loan portfolio. It’s also the latest interagency agreement announced by the Education Department. 

A senior Department of Education official cited the agency’s “longstanding partnership” with Treasury in administering federal student aid programs and expressed confidence that the department was in a good position to increase its role. 

The administration continues to take sweeping steps to do away with the 46-year-old Education Department, as Trump seeks to return education “back to the states.” That effort comes despite much of the oversight and funding of schools already occurring at the state and local levels. 

In the first phase, Treasury will also “provide operational support” to the Education Department’s efforts to return borrowers to repayment, per the announcement. 

The Education Department’s student loan portfolio stands at roughly $1.7 trillion. The agency says fewer than 40% of borrowers are in repayment and nearly a quarter are in default. 

In later phases, Treasury is set to “work to provide operational support over non-defaulted Federal student loan debt, to the extent practicable and permitted by law, while also seeking opportunities to provide operational support to FSA’s other functions.” 

The senior Education Department official said that borrowers currently making payments “should see no change” and can expect to see “better customer service.” 

Department forges multiple agreements

U.S. Education Secretary Linda McMahon said that “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,” in a statement Thursday. 

The Education Department has announced nine other agreements with the departments of Labor, Health and Human Services, Interior and State that transfer several of its responsibilities to those agencies. 

Meanwhile, the U.S. Supreme Court in July 2025 temporarily greenlit mass layoffs and a plan to dramatically downsize the Education Department ordered earlier that year. Those layoffs inflicted a heavy hit on Federal Student Aid, among other units at the agency.  

That plan was outlined in a March 2025 executive order that called on McMahon to “take all necessary steps to facilitate the closure” of her own department.

‘Irresponsible, reckless’ 

Sen. Patty Murray of Washington state, the top Democrat on the Senate Appropriations Committee, said that “instead of helping student borrowers get the support they need, Secretary McMahon is focused on illegally hollowing out the department she leads and creating new, harmful bureaucracy while she’s at it,” in a statement Thursday.

“Despite all this administration’s talk about creating efficiency, the fact is these agreements simply create pointless new red tape — while threatening basic services and support that students depend on every day,” Murray added.

Rachel Gittleman, president of American Federation of Government Employees Local 252, which represents Education Department workers, lambasted the announcement Thursday.

Gittleman described it as “an insult to the nearly 43 million Americans with federal student loan debt and to the taxpayers who depend on federal oversight to prevent waste, fraud and abuse.”

Gittleman noted that since McMahon took over, “the agency has fired or pushed out nearly half of Federal Student Aid’s workforce, leading to the Government Accountability Office warning that the majority of federal student loan servicers running the government’s $1.7 trillion student loan portfolio have been repeatedly breaking the law without staff oversight.”

The GAO report found that the staffing reductions affected the government’s ability to determine how well student loan servicers are doing their jobs.

Aissa Canchola Bañez, policy director for the advocacy group Protect Borrowers, blasted the administration’s move as “irresponsible, reckless, and bad news for our most vulnerable student loan borrowers.”

She added that “in the midst of a growing affordability crisis where American families are already struggling to make ends meet, this risks driving millions of borrowers further into financial hardship.” 

The funding package President Donald Trump signed Feb. 3, 2026, includes $79 billion for the U.S. Education Department, representing a rejection by Congress of the president's plan to close the department. (Photo by kali9/Getty Images)

WASHINGTON — President Donald Trump’s attempts to dramatically slash funding for the U.S. Department of Education amid a broader push to dismantle the agency hit a major roadblock this week in the form of bipartisan approval of a spending law that gives the department a small raise. 

The president signed a measure that funds the department at $79 billion this fiscal year — roughly $217 million more than the agency’s fiscal year 2025 funding levels and a whopping $12 billion above what Trump wanted. 

Sen. Patty Murray of Washington state, the top Democrat on the Senate Appropriations Committee, wrote in a social media post after the signing that the law was a direct rebuke of several Trump priorities, including eliminating the department.

“Our funding bills send a message to Trump,” she wrote. “Congress will NOT abolish the Department of Education.”

The measure also rejects efforts to dramatically reduce or fully slash funding for a host of programs administered by the department for low-income and disadvantaged students. 

Trump and his administration have sought over the past year to take an axe to the 46-year-old agency as part of a quest to send education “back to the states.” Much of the funding and oversight of schools already occurs at the state and local levels. 

Those dismantling efforts included six interagency agreements with four other departments in November that would shift several Education responsibilities to those Cabinet-level agencies. 

The department also saw mass layoffs initiated in March 2025 and a plan to dramatically downsize the agency ordered that same month — efforts that the U.S. Supreme Court temporarily greenlit in July. 

The spending package also holds full-year funding for the departments of Defense, Labor, Health and Human Services, Housing and Urban Development, Transportation, State and Treasury. The measure includes a two-week stopgap measure for the Department of Homeland Security. 

‘Inefficiencies’ 

The measure does not offer ironclad language to prevent the outsourcing of the Education Department’s responsibilities to other agencies — despite efforts from Senate Democrats to block such transfers. 

However, in a joint explanatory statement alongside the measure, lawmakers expressed alarm over the “assignment of such programmatic responsibilities to agencies that do not have experience, expertise, or capacity to carry out these programs and activities and lack developed relationships and communications with relevant stakeholders, including States.”

Lawmakers added they were “concerned that fragmenting responsibilities for education programs across multiple agencies will create inefficiencies, result in additional costs to the American taxpayer, and cause delays and administrative challenges in Federal funding reaching States, school districts, and schools.”

Due to those concerns, the funding measure directs the Education Department and the agencies that are part of the transfers to provide biweekly briefings to lawmakers on the implementation of any interagency agreements.

The briefings are supposed to include information on “staffing transfers, implementation costs, metrics on the delivery of services” and the “availability of technical support for programs to grantees,” among other matters. 

The Education Department clarified when announcing the interagency agreements in November with the departments of Labor, Interior, Health and Human Services and State that it would “maintain all statutory responsibilities and will continue its oversight of these programs.” 

‘Necessary’ staffing levels 

The funding agreement also mandates that the department “support staffing levels necessary to fulfill its statutory responsibilities including carrying out programs, projects, and activities funded in (the law) in a timely manner.” 

The department took heat last summer when it froze $6.8 billion in funds for K-12 schools and informed states just a day before the money is typically sent out. 

The funds were eventually unfrozen, following bipartisan pushback in Congress.  

Pell Grant spared 

The measure also maintains the total maximum annual award for the Pell Grant from the prior fiscal year at $7,395, according to a summary from Democrats on the Senate Appropriations Committee. The government subsidy helps low-income students pay for college. 

Trump’s budget request called for cutting nearly $1,700 from the maximum award for the 2026-2027 award year, a proposal that stoked alarm last year from leading House and Senate appropriators in both parties overseeing Education Department funding. 

Funding levels maintained for TRIO, GEAR UP 

The administration also called for defunding the Federal TRIO programs and the Gaining Early Awareness and Readiness for Undergraduate Programs, or GEAR UP, in fiscal 2026 — a move rejected in the measure.

The Federal TRIO Programs include federal outreach and student services programs to help support students who come from disadvantaged backgrounds, and GEAR UP aims to prepare low-income students for college.

Appropriators maintained funding for the programs at fiscal 2025 levels — with $1.191 billion for TRIO and $388 million for GEAR UP, per the Senate Democrats’ summary.

The administration also sought to axe funding for the Child Care Access Means Parents in School Program, which, according to the Education Department, “supports the participation of low-income parents in postsecondary education through the provision of campus-based child care services.” 

Instead, the measure allocates $75 million for the program. 

The Education Department did not respond to a request for comment on the funding package.

The administration expressed its support for the entire, multi-bill package, in a Jan. 29 statement of administration policy that barely mentioned the education provisions.