Trump administration's student loan plan blocked by court, keeping treasury transfer on hold
Trump administration
attempted to shift the management of the $1.6 trillion federal student loan portfolio from the
Department of Education
to the US Treasury. The plan, however, has been halted by a
federal court order
, according to a report by Newsweek.
According to filings submitted to a federal court, the
Department
of Education had been negotiating with the Treasury Department to take over the management and collections of student loans, a function historically carried out by the Federal Student Aid office. The court intervention came after a judge blocked broader efforts by the administration to reduce the Department of Education's role.
As per the Newsweek report, this shift would have impacted more than 42 million borrowers in the US, raising questions about changes to repayment systems, oversight, and borrower protections.
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'The Department of Education signed an Interagency Agreement with the Department of Labor on May 21 regarding administration of certain career, technical, and adult education grants. The Workforce Development Partnership will allow ED and DOL to better coordinate and deliver on workforce development programs and strengthen federal support for our nation's workforce, a top priority of the
Trump
Administration,' said Madi Biedermann, deputy assistant secretary for communications at the Department of Education to Newsweek.
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However, the Department said implementation has been paused following a preliminary injunction from a US district judge. This ruling also ordered the rehiring of over 1,300 employees laid off in March and barred the transfer of loan oversight to other agencies like the Small Business Administration without congressional approval.
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Experts pointed out that any such structural change would require legislative backing. The Higher Education Act mandates that federal loans are to be managed by the Department of Education.
Kevin Thompson, CEO of 9i Capital Group, told Newsweek, 'The Trump administration is largely restricted from making sweeping changes here. Dismantling a federal agency like the Department of Education requires an act of Congress.'
The court's action comes as many borrowers face rising delinquencies. The Federal Reserve Bank of New York reported that between January and March 2025, around six million borrowers were more than 90 days late or in default.
Financial literacy instructor Alex Beene said to Newsweek, 'The proposal for the Treasury to take over the federal administrative responsibilities for student loans is no surprise... but it would more than likely not mark a substantial change to their current payment plans.'
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Beene added, 'Disbanding and relocating aspects of the Department of Education would require congressional involvement, and there's already signs of hesitation to support such.'
For now, the Department of Education retains control over federal student loans. Borrowers are advised to continue regular payments while legal and policy matters are reviewed.
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