Washington, D.C. — The U.S. Department of the Treasury and the U.S. Department of Education announced a new Federal Student Assistance Partnership aimed at overhauling the administration of federal student aid programs and addressing widespread repayment and default challenges.
The initiative comes as the federal student loan portfolio has grown to nearly $1.7 trillion, with fewer than 40 percent of borrowers currently in repayment and almost 25 percent in default. Officials said the scale of the program—now larger than total U.S. credit card or auto debt—has exposed structural weaknesses in how the system is managed.
“The Federal Student Assistance Partnership marks an intentional and historic step toward breaking up the Federal education bureaucracy and dramatically improving the administration of Federal student aid programs that millions of American students, families, and borrowers rely on,” said U.S. Secretary of Education Linda McMahon.
McMahon added that the current system has struggled to meet expectations as the loan portfolio expanded. “As the Federal student aid portfolio soars to nearly $1.7 trillion and with nearly a quarter of student loan borrowers in default, Americans know that the Department of Education has failed to effectively manage and deliver these critical programs,” she said.
Under the agreement, Treasury will assume operational responsibility for collecting defaulted federal student loan debt and provide support to help bring borrowers back into repayment. The partnership is expected to roll out in phases, with Treasury potentially expanding its role to include servicing non-defaulted loans and assisting with other Federal Student Aid (FSA) functions, where legally permitted.
Treasury Secretary Scott Bessent said the move is part of a broader effort to impose financial discipline on the system. “Under President Trump’s leadership we are undertaking the first serious effort to clean up a $1.7 trillion portfolio that has been badly mismanaged for years,” Bessent said. “Treasury has the unique experience, the operational capability, and the financial expertise to bring long overdue financial discipline to the program and be better stewards of taxpayer dollars.”
Officials also emphasized that the Department of Education was not originally designed to function at the scale it now operates. Today, the agency distributes more than $100 billion annually in federal loans and grants, effectively managing what leaders described as one of the largest lending operations in the country.
Throughout implementation, both agencies said they will communicate directly with stakeholders—including students, parents, borrowers, institutions, and vendors—to outline timelines and program changes. The departments also pointed to recent efforts to improve the Free Application for Federal Student Aid (FAFSA) process as part of a broader modernization push.
The partnership follows a series of interagency agreements over the past year, including a workforce development collaboration with the U.S. Department of Labor. Officials said those efforts are intended to create a more integrated federal education and workforce system while reducing administrative complexity for states and program administrators.
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