Trump administration dismantles Education Department through interagency transfers

Overview

The federal government has managed student loans from the same place for decades: the Education Department's Federal Student Aid office. On March 19, the Treasury Department began absorbing that function — starting with $180 billion in defaulted loans held by 9.2 million borrowers, with plans to eventually take over the entire $1.7 trillion portfolio and the financial aid application that 17 million students complete each year.

This is the tenth and by far the largest interagency agreement the administration has used to hollow out the Education Department without congressional legislation. Career and technical programs went to Labor. School safety and mental health grants went to Health and Human Services. Foreign funding oversight went to State. With student loans — the department's biggest operation — now heading to Treasury, the agency that once employed over 4,100 people is down to roughly 2,800, with its core reason for existing migrating to other buildings across Washington.

Why it matters

Forty-two million borrowers now face a transition to a debt-collection agency with no track record managing loan forgiveness or repayment plans.

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Key Indicators

$1.7T

Total federal student loan portfolio

The full portfolio Treasury is set to eventually absorb — the largest consumer debt category held by the federal government.

9.2M

Borrowers currently in default

These borrowers are the first group affected by the Treasury takeover, with 2.4 million more in late-stage delinquency.

Interagency transfer agreements signed

The number of agreements used to move Education Department functions to other agencies without congressional approval.

~1,300

Education Department jobs eliminated

Workforce cut from over 4,100 to roughly 2,800, with the Institute of Education Sciences losing nearly 75% of its staff.

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People Involved

Linda McMahon

Leading the department's dismantling from the inside

Scott Bessent

Absorbing student loan operations into Treasury

Organizations Involved

U.S. Department of Education

Federal Cabinet Agency

Being systematically dismantled through interagency transfers

Created under President Carter in 1980, the department manages federal education policy, distributes financial aid, and enforces civil rights in schools — functions now being dispersed to at least five other agencies.

U.S. Department of the Treasury

Federal Agency

Absorbing Education Department's student loan operations

The federal government's fiscal manager is now taking on an entirely new role: running the country's largest consumer lending operation.

Federal Student Aid (FSA)

Federal Office (within Education Department)

Core functions being transferred to Treasury

The Education Department office that manages the $1.7 trillion student loan portfolio and FAFSA — the specific entity being dismantled in this transfer.

Timeline

Treasury begins managing $180 billion in defaulted loans
Administrative

Treasury starts absorbing the Default Resolution Group and revoking a 25-year exemption that let the Education Department service its own defaulted loans, directly affecting 9.2 million borrowers.
March 20th, 2026
Treasury announces takeover of student loan portfolio
Administrative

The Education and Treasury departments announce a three-phase partnership transferring defaulted loans immediately, with plans to absorb the entire $1.7 trillion portfolio and FAFSA administration. This is the tenth and largest interagency agreement.
March 19th, 2026
Foreign funding and mental health grants transferred out
Administrative

Two more interagency agreements move foreign funding oversight to the State Department and mental health grants to Health and Human Services, bringing the total to nine.
February 1st, 2026
Six interagency agreements scatter department functions
Administrative

McMahon announces agreements transferring career education programs to Labor, school safety and community programs to Health and Human Services, and other functions to additional agencies.
November 1st, 2025
Supreme Court lifts injunction, dismantling resumes
Legal

The Supreme Court stays the lower court's injunction without providing reasoning, allowing the administration to continue restructuring the department.
July 14th, 2025
Federal court blocks mass layoffs
Legal

A Massachusetts district court grants a preliminary injunction in a lawsuit brought by 20 states and the District of Columbia, temporarily halting the reduction in force and closure orders.
May 22nd, 2025
Executive order directs Education Department dismantling
Executive Action

Trump signs an executive order directing Secretary McMahon to shut down non-essential functions and return authority to states. Over 1,400 employees are fired.
March 20th, 2025
DOGE begins gutting Education Department operations
Administrative

The Department of Government Efficiency terminates over 200 contracts and grants, halts 89 education research projects, shuts down 10 regional research labs, and closes 4 equity assistance centers.
February 13th, 2025
Trump takes office with pledge to eliminate Education Department
Political

President Trump begins second term with campaign promise to shut down the Department of Education and return control to states.
January 20th, 2025

Scenarios

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Predictions leaderboard

Full transfer completes, Education Department reduced to shell agency

Treasury successfully absorbs all student loan servicing and FAFSA administration within 12-18 months. The Education Department retains only civil rights enforcement and a handful of grant programs, effectively becoming a shell agency with a few hundred employees. Congressional bills to formally abolish the department gain momentum as its remaining functions appear redundant. This outcome depends on no major legal setbacks at the June 2026 trial and Treasury demonstrating operational competence with the initial $180 billion tranche.

Discussed by: Bloomberg, Heritage Foundation analysts, and administration officials who frame the interagency agreements as a permanent restructuring

Consensus —

Courts block further transfers, department partially reconstituted

The June 2026 trial in the 20-state lawsuit produces a ruling that interagency agreements cannot be used to circumvent Congress's authority over agency structure. The court orders some transferred functions returned. The defaulted-loan transfer may survive as a narrower exercise of Treasury's existing statutory authority, but the broader takeover of non-defaulted loans and FAFSA stalls. The department limps forward in diminished form, creating legal uncertainty for borrowers caught between agencies.

Discussed by: Legal scholars at Brookings, the 20-state coalition challenging the dismantling, and consumer advocacy groups like the National Consumer Law Center

Consensus —

Transfer creates borrower chaos, political backlash forces reversal

Treasury's debt-collection infrastructure proves poorly suited to managing income-driven repayment plans, forgiveness programs, and borrower disputes. Borrowers experience widespread confusion, lost paperwork, and disrupted payments. Congressional appropriators — including Republicans who already rejected deep Education Department funding cuts — attach riders blocking further transfers. The administration quietly pauses phase two while declaring phase one a success.

Discussed by: Consumer advocates at Protect Borrowers, the National Consumer Law Center, and Democratic lawmakers

Consensus —

Congress passes legislation formally abolishing the department

Emboldened by the administrative dismantling, congressional allies introduce a clean abolition bill that formally distributes the department's remaining statutory authorities to Treasury, Labor, and Health and Human Services. The bill would need 60 Senate votes to overcome a filibuster — a threshold that appears out of reach given that more than 60 House Republicans voted against a similar measure. Formal abolition remains the administration's stated goal but faces the steepest political path.

Discussed by: Sponsors of H.R. 899 and H.R. 2691 in the House, though analysts widely note the 60-vote Senate threshold

Consensus —

Historical Context

Nixon's attempt to abolish the Office of Economic Opportunity (1973)

January-August 1973

What Happened

President Nixon tried to shut down the Office of Economic Opportunity — the agency running Lyndon Johnson's War on Poverty programs — by executive action. He appointed Howard Phillips as acting director with instructions to wind it down and impounded congressionally appropriated funds. Federal courts ruled the closure illegal, finding Nixon had exceeded his authority.

Outcome

Short Term

Courts blocked the closure. Phillips was ruled to be serving illegally because he was never Senate-confirmed. Congress's appropriations authority was upheld.

Long Term

The OEO was eventually abolished in 1981 — but only when President Reagan worked with Congress to pass legislation formally distributing its functions. The episode established that presidents cannot unilaterally close agencies Congress created.

Why It's Relevant Today

The Trump administration's interagency-agreement strategy is specifically designed to avoid the legal tripwire Nixon hit — transferring functions rather than formally closing the department. Whether courts view this as a distinction with a difference is the central question in the pending June 2026 trial.

Abolition of the Interstate Commerce Commission (1995)

January-December 1995

What Happened

Congress passed the ICC Termination Act, formally shutting down the 108-year-old Interstate Commerce Commission and transferring its remaining regulatory functions to a new Surface Transportation Board. The process took years of bipartisan negotiation, with Congress carefully distributing the agency's responsibilities before pulling the plug.

Outcome

Short Term

Functions transferred smoothly because Congress had legislated exactly where each responsibility would land and allocated resources accordingly.

Long Term

It remains the only major federal regulatory body ever formally abolished. The process demonstrated that shutting down an agency works when Congress controls the transition — and creates chaos when it doesn't.

Why It's Relevant Today

The ICC abolition is the textbook example of how agency elimination is supposed to work: through legislation, with clear authority transfers and transition planning. The Education Department dismantling is proceeding through executive action and interagency agreements — a fundamentally different and legally untested approach.

Creation of the Department of Education (1979-1980)

October 1979 - May 1980

What Happened

President Carter signed the Department of Education Organization Act in October 1979, splitting education functions out of the Department of Health, Education, and Welfare. The new department opened in May 1980 with about 3,000 employees. Republicans opposed it from the start — Ronald Reagan campaigned on abolishing it in 1980 and every Republican platform since has called for its elimination.

Outcome

Short Term

The department consolidated 152 federal education programs under one roof and gave education a Cabinet-level voice.

Long Term

Despite four decades of Republican pledges to eliminate it, the department survived and grew. Its student loan portfolio expanded from a modest program to the $1.7 trillion behemoth that now represents its largest function.

Why It's Relevant Today

The department has been targeted for elimination since before it opened its doors. What makes the current effort different is not the political will — that has existed for 45 years — but the mechanism: using executive transfers rather than waiting for the congressional votes that have never materialized.