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Trump administration dismantles Education Department through interagency transfers

Trump administration dismantles Education Department through interagency transfers

Rule Changes

Treasury absorbs the government's $1.7 trillion student loan portfolio as the department's largest function migrates out

March 20th, 2026: Treasury begins managing $180 billion in defaulted loans

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.

The transfer starts with $180 billion in defaulted loans held by 9.2 million borrowers. Treasury will 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 largest operation — now heading to Treasury, the Education Department has shrunk from over 4,100 employees to roughly 2,800.

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.
10
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.

Voices

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People Involved

Linda McMahon
Linda McMahon
Leading the department's dismantling from the inside
 Scott Bessent
Scott Bessent
Absorbing student loan operations into Treasury

Organizations Involved

U.S. Department of Education
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
U.S. Department of the Treasury
Federal Department
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 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

January 2025 March 2026

9 events Latest: March 20th, 2026 · 4 months ago
Tap a bar to jump to that date

  1. Treasury begins managing $180 billion in defaulted loans

    Latest 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.

  2. 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.

  3. 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.

  4. 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.

  5. 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.

  6. 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.

  7. 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.

  8. 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.

  9. 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.

Historical Context

3 moments from history that rhyme with this story — and how they unfolded.

January-August 1973

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

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.

Then

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

Now

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 this matters now

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.

January-December 1995

Abolition of the Interstate Commerce Commission (1995)

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.

Then

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

Now

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 this matters now

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.

October 1979 - May 1980

Creation of the Department of Education (1979-1980)

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.

Then

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

Now

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 this matters now

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.

Sources

(11)
+5
CNBC NPR CT Mirror CNN PBS NewsHour The Hill U.S. Department of Education K-12 Dive Brookings Institution TIME NPR