Trump plan to shift student loan oversight to Treasury draws Senate Democrats' backlash

Senate Democrats this week blasted the Trump administration’s attempts to shift management of federal student loans from the Education Department to the Treasury Department, saying it would contribute to dysfunction in the student loan system.

In a Wednesday letter, the ranking members of five Senate panels — the committees covering banking, finance, education, federal spending and the Appropriations subcommittee overseeing the Education Department — called on Education Secretary Linda McMahon and Treasury Secretary Scott Bessent to “immediately” rescind the interagency agreement announced in March.

The letter is part of Democrats’ efforts to stop President Donald Trump and his administration from outsourcing Education Department responsibilities to other agencies as part of the administration’s attempts to dismantle the department, which Congress created and only Congress can abolish.

Democratic Sens. Elizabeth Warren of Massachusetts, Ron Wyden of Oregon, Patty Murray of Washington state and Tammy Baldwin of Wisconsin, along with independent Sen. Bernie Sanders of Vermont, who caucuses with the Democrats, penned the letter.

They are the respective ranking members of the Senate committees on Banking, Housing and Urban Affairs; Finance; Appropriations; the Appropriations subcommittee overseeing Education Department funding; and Health, Education, Labor and Pensions.

They argued the transfer would introduce “more dysfunction into the federal student loan system, worsening the ongoing student loan default crisis that the Trump administration has already exacerbated.”

An illegal scheme

Under the agreement, Treasury will take over Education’s responsibility for collecting on defaulted federal student loan debt, the first step in a multistep process toward Treasury taking on the entire, roughly $1.7 trillion federal student loan portfolio.

The senators called the move an “illegal scheme” that “threatens to trap student loan borrowers, students and families in chaos and bureaucracy, all while American taxpayers are left to foot the bill for Treasury to administer programs that [the Education Department] can and should administer itself, likely costing more money and burying borrowers and families in unnecessary red tape.”

The lawmakers also emphasized the spending package Trump signed into law in February rejects the president’s calls to axe the agency, funding the Education Department at $79 billion this fiscal year.

The senators point to the joint explanatory statement accompanying the measure, which states that “no authorities exist for the Department of Education to transfer its fundamental responsibilities under numerous authorizing and appropriations laws, including through procuring services from other federal agencies, of carrying out those programs, projects and activities to other federal agencies.”

The lawmakers gave McMahon and Bessent two weeks to respond to their inquiries on the logistics, timing, costs and implementation of the transfer.

A hard reset

Education Department spokesperson Ellen Keast said in a statement shared with States Newsroom on Thursday that the current approach to student loan management was not working.

“With the student loan portfolio approaching $1.7 trillion and defaults nearing 25%, now is the time for a hard reset in how the federal government provides and services student loans,” Keast said.

“We are confident that our partnership with the Treasury, an experienced and proven fiduciary, will strengthen program administration and better serve American students, borrowers and taxpayers,” she added.

The Treasury Department did not immediately respond to a request for comment Thursday.