The U.S. Department of the Treasury and the U.S. Department of Education have announced a new Federal Student Assistance Partnership aimed at improving the management of federal student aid programs, addressing taxpayer costs from past mismanagement, and helping defaulted borrowers return to repayment.
The agreement marks a step toward reducing the federal education bureaucracy and shifting more responsibility to states, officials said.
The Education Department’s student loan portfolio has grown to nearly $1.7 trillion, with fewer than 40% of borrowers currently in repayment and almost 25% in default. That debt is roughly twice the combined value of all American university endowments and larger than total U.S. credit card or auto debt.
Education Secretary Linda McMahon described the partnership as a historic effort to fix long-standing problems.
“The Federal Student Assistance Partnership marks an intentional and historic step toward breaking up the Federal education bureaucracy and dramatically improving the administration of Federal student aid programs that millions of American students, families, and borrowers rely on to access higher education,” McMahon said. “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 manage and deliver these critical programs effectively.
“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.”
Under the interagency agreement, Treasury will take operational responsibility for collecting on defaulted federal student loans and supporting efforts to bring borrowers back into repayment. In later phases, it will provide similar support for non-defaulted loans and other functions of the Office of Federal Student Aid, to the extent allowed by law.
The Education Department will retain all policy-making authority.
Treasury Secretary Scott Bessent highlighted the need for better financial oversight.
“Under President Trump’s leadership we are undertaking the first serious effort to clean up a $1.7 trillion portfolio that has been badly mismanaged for years. Treasury has the unique experience, the operational capability, and the financial expertise to bring long overdue financial discipline to the program and be better stewards of taxpayer dollars,” Bessent said.
The departments will communicate directly with students, parents, borrowers, colleges, and vendors throughout the process to explain changes and timelines. Existing systems, such as the FAFSA form, loan origination, and data tracking, will remain in place and continue operating normally. Borrowers do not need to take any new actions and should continue working with their loan servicers.
The partnership follows nine similar interagency agreements signed in the past year, including one with the Department of Labor that streamlined workforce and education programs. It is authorized under the Economy Act and draws on the Treasury’s established role in disbursing student aid funds, verifying income data, and handling debt collection.
Officials said the arrangement aligns with the goals of the Federal Student Aid office as a performance-based organization by improving customer service and accountability while maintaining all statutory requirements for institutions and borrowers.
