The Trump administration announced plans Thursday to transfer responsibility of the massive federal student-loan portfolio to the U.S. Treasury Department, the latest step in the strategy to dissolve the Department of Education and return education policy to the states.

Under the Federal Student Assistance Partnership, the Treasury Department will take over collections of defaulted student loans before assuming operational responsibility for non-defaulted student-loan debt and administration of the Free Application for Federal Student Aid program.

“Now is the time for a hard reset,” said Education Secretary Linda McMahon in a Thursday video message. “That is why the Department of Education and Department of the Treasury announced today a historic partnership to better align federal student aid programs with those they are intended to serve.”

She argued that the Treasury Department is better positioned to rescue the floundering federal-student loan program, saying her department “never intended to serve as one of our nation’s largest banks.”

Federal student loan portfolio stands at about $1.7 trillion, with fewer than 40% of borrowers in repayment versus nearly 25% in default.

“Americans know that the Department of Education has failed to effectively manage and deliver these critical programs,” Ms. McMahon said in a statement. “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.”

She emphasized that the partnership would have no impact on borrowers, students and families at this time.

As student loan debt nears $1.7 Trillion, it’s clear that @USEdGov was never intended to serve as our nation’s fifth largest bank.

That’s exactly why we are partnering with @USTreasury to restore fiscal sanity and better align student aid programs with students, families and… pic.twitter.com/fUFZANAw0a

— Secretary Linda McMahon (@EDSecMcMahon) March 19, 2026

The partnership comes as the latest step in the administration’s plan to “break up the education bureaucracy” by farming out the Department of Education’s responsibilities to other agencies.

The department has entered into nine interagency agreements in the last year, including a workforce development partnership announced in July that would shift management of programs on adult education and literacy to the Department of Labor.

The conservative Heritage Foundation cheered the latest interagency partnership as the “most significant effort to streamline student loans since the Higher Education Act was enacted in 1965.”

“Student loans account for two-thirds of the Education Department’s budget, making this collaboration an essential step toward eventually closing the Education Department,” said Heritage in a Thursday statement. “This agreement is the 10th interagency agreement between the Education Department and other federal agencies to downsize the agency.”

Meanwhile, American Federation of Teachers President Randi Weingarten predicted the move would increase costs to taxpayers by adding to the federal bureaucracy.

“Americans are already struggling to afford groceries, rent and child care — and this move, alongside the many others Secretary McMahon has made, will probably make things worse,” Ms. Weingarten said in a statement. “The shifting of Education Department programs elsewhere has only increased the bureaucracy and red tape the secretary says she wants to slash.”

The union leader called on Ms. McMahon to “state publicly that not one additional dollar will be billed to student loan borrowers as a result of this move, and that all existing discharge obligations will be honored in full.”

Federal student-loan debt is enormous, about twice the size of the endowments of all U.S. universities combined and larger than the nation’s cumulative private credit-card debt.

Heritage President Kevin Roberts praised the administration for implementing President Trump’s executive order to “finally end this bloated and unnecessary federal agency.”

“For almost 46 years, the Education Department has spent billions of taxpayer dollars while failing to show any measurable improvement for America’s students,” he said in a statement. “Meanwhile, states have made incredible progress, especially in empowering parents to have more options for their children’s education.”

Former President Jimmy Carter, a Democrat, established the Department of Education in 1980, fulfilling a 1976 presidential campaign promise to the National Education Association, the nation’s largest teachers’ union.