A major shift in the federal government is underway.
Education Secretary Linda McMahon announced on Thursday a historic partnership to offload the Department of Education’s nearly $1.7 trillion student loan portfolio to the Treasury Department. The move presents more responsibilities to Treasury Secretary Scott Bessent, whose agency will be responsible for student loan debt collection.
The Treasury Department has a key power to collect the debt as its agency includes the Internal Revenue Service. The IRS wields the power to garnish up to 15% of a delinquent borrower’s paycheck.
It is the boldest move yet in the Trump administration’s plan to dismantle the Education Department and return power to the states.
“If you were setting it up today and you were saying, well, let’s create a student loan portfolio, your first thing that would come to your mind, I don’t think would be [Department of] education. I think it would naturally be Treasury,” McMahon said on Yahoo Finance’s Opening Bid (video above).
Read more: Student loan defaults are surging. Here’s how borrowers can avoid them.
The secretary noted that the $1.7 trillion portfolio is larger than the total US credit card debt. “And the fact that it was ever at the Department of Education, it makes me [run] the fifth-largest bank in the country. I don’t think that’s what was ever intended at the Department of Education,” she said.
McMahon said the transition to Treasury will be phased in, and the first aspect transferred over will be the collection of defaulted loans.
The move comes as the numbers around America’s student loan debt remain staggering. About 43 million Americans have student loan debt, with 9 million or so in default.
But as student loan paperwork gets pushed around D.C., the world is experiencing rising geopolitical risks. Operation Epic Fury in the Middle East has sent energy prices soaring and market volatility to new highs, hitting the wallets of millions of student borrowers.
“There were so many mixed messages [under the previous administration]. The loans were going to be forgiven, this payment plan was going to be set up … And I think borrowers who owed money said, ‘I don’t know what to do’ and ‘why would I be repaying a loan if they’re going to forgive it?’ I totally get that, but it’s wrong. If you borrow money, you owe it, you need to pay it back,” McMahon said.
“So our goal is to get people out of default, as is Treasury’s goal. We want to make sure that they can buy a house, that they can get a car loan. And when you’re in default, it’s just such a negative on your credit record … So the goal is to get people back on a repayment plan.”