Education Department Sought Treasury's Help Managing Student Loans, Court Records Reveal

The U.S. Department of Education had planned for the Treasury Department to assist in managing the nation’s $1.6 trillion federal student loan portfolio, according to court documents filed Tuesday.

The initiative was halted after a federal judge blocked the Trump administration’s attempt to dismantle the Education Department’s oversight of student loans. Rachel Oglesby, chief of staff at the Education Department, stated in a court declaration that the agency had been negotiating a memorandum of understanding with the Treasury.

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The proposed plan included reassigning nine Education Department employees from the Federal Student Aid Default Collections Unit to the Treasury to “discuss collections activities,” a department spokesperson confirmed to CNBC.

However, the collaboration was suspended following a ruling by U.S. District Judge Myong Joun in Boston on May 22. The judge ordered the Education Department to rehire more than 1,300 employees who were laid off in March and barred the administration from transferring loan management to the Small Business Administration (SBA), as had been announced by President Donald Trump.

“They’re all set for it,” Trump said of the SBA on March 21, indicating the agency was ready to assume responsibility for student loan accounts.

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Experts suggest the move to involve the Treasury Department was further evidence of the administration’s effort to reduce the Education Department’s role. Despite this, legal experts, including financial aid specialist Mark Kantrowitz, emphasized that such a transfer would require Congressional action. “The Higher Education Act of 1965 is very clear” that the Federal Student Aid office is responsible for student loans, he noted.

Consumer advocates warned that shifting management to another agency could result in administrative errors, compromise borrower data, and affect federal loan protections and forgiveness programs. Over 42 million Americans currently hold federal student loans