Trump's plan for federal student loan revealed: New details emerge in court documents

Hindustan Times

16-06-2025

Newly released court documents reveal the Trump administration tried to move control of the country's $1.6 trillion federal student loan program from the Department of Education to the Treasury Department.
The plan, which was being quietly developed, would have shifted responsibility for managing and collecting student loans—a job traditionally handled by the Education Department's Federal Student Aid (FSA) office. That effort was paused after a federal judge blocked broader attempts to restructure the Education Department.
The federal student loan system affects over 42 million Americans. Moving oversight to another agency could change how payments are collected, how borrowers are protected, and how the system is regulated.
With more borrowers falling behind on payments and credit scores dropping, pressure is rising on the government to manage the system better. The court ruling keeps the current setup in place, at least for now, but future legal or political changes could shift the system in major ways.
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According to court filings, the Department of Education, under Trump, had been working on an agreement with the Treasury to review how federal student loans are managed. Rachel Oglesby, the department's chief of staff, confirmed this in a court filing on Tuesday.
Nine Education Department staffers were also scheduled to move to the Treasury to help review loan collections. That plan was stopped after US District Judge Myong Joun issued a ruling last month. The judge also ordered the Education Department to rehire over 1,300 workers laid off earlier this year and blocked efforts to shift loan oversight to the Small Business Administration (SBA).
The ruling keeps the federal student loan program under the Education Department's control. It also prevents any transfers of authority to other agencies without Congress getting involved.
Some policy experts argue the Treasury has more experience handling public funds than the SBA, but say a move like this would still require a change in law. Under the Higher Education Act of 1965, loan management must stay within the Federal Student Aid office.
A past Treasury pilot program from 2014 to 2015 tried collecting defaulted student loans but brought in less money than private collection firms. Other proposals to link student loan payments to wages have also faced problems tied to income tracking and privacy rules.
Meanwhile, student loan debt is becoming a growing problem. The pandemic-related pause on loan payments has ended, and many borrowers are struggling to catch up.
Between January and March 2025, nearly six million borrowers were 90 days or more behind on payments or in default, according to the Federal Reserve Bank of New York. Many saw large drops in their credit scores, which could make it harder to qualify for mortgages, car loans, or other types of credit.