WASHINGTON (AP) — The U.S. Education Department is handing off a portion of its student loan portfolio to the Treasury Department, a first step toward shedding management of all student loans as Trump administration officials dismantle the federal education agency.
Under an agreement announced Thursday, the Treasury Department will take over management of student loans whose borrowers are in default, meaning they are months behind on payments. Those loans add up to about $180 billion, or 11% of the government’s $1.7 trillion student loan portfolio.
Eventually, the Treasury Department is to take responsibility for all student loans, according to the agreement. A second phase with no timeframe says Treasury will “assume operational responsibility” over non-defaulted loans, “to the extent practicable.”
Breaking off the student loan operation would mark the biggest step yet in closing the department, which President Donald Trump ordered to be dismantled almost exactly a year ago. Many Americans know the department mostly for its role doling out grants and loans for college, and those streams of funding are by far the agency's largest.
Borrowers do not need to do anything as the change goes through, the administration says. They will continue to work with the same loan servicer and repay their loans the same way.
The 17-page agreement outlines a stunning realignment of the nation’s federal student loan programs, which have been overseen by the Education Department since it was created more than 40 years ago.
The agreement “marks an intentional and historic step toward breaking up the Federal education bureaucracy and dramatically improving the administration of Federal student aid programs,” Education Secretary Linda McMahon said in a statement.
In justifying the change, Trump officials said the Education Department is “ill-equipped” to handle such a big loan portfolio. They blamed the Biden administration for focusing on efforts to cancel student loans rather then help borrowers get back on track with payments. Officials cited recent data showing that fewer than half of all borrowers are currently making payments on their loans, with almost a quarter in default.
The agreement is likely to invite legal challenges. Some opponents note that federal law requires student loans to be overseen by the Education Department. Trump officials believe they've found a workaround by framing it as a partnership, with some components, including the policies underpinning student loans, remaining at the Education Department.
Student loan advocates condemned the move, saying it only adds to confusion as the Trump administration overhauls student loan programs.
“The Department of Education has issued a dizzying series of rule changes that make it harder for borrowers to figure out what their options are on their federal student loans,” said Kyra Taylor, an attorney at the National Consumer Law Center. She warned that any errors in loan collection would have “devastating effects on families.”
The move is part of Trump’s campaign to shutter the Education Department, an agency he says was overrun by liberal thinking. Only Congress has authority to close the department, but Trump officials are picking it apart through a series of inter-government agreements that relocate the department’s operations to other federal offices.
The future of the government’s enormous student loan portfolio has been one of the biggest unanswered questions. At her Senate confirmation hearing, Education Secretary Linda McMahon called Treasury a “natural” place for student loans. Trump later said they would be overseen by the Small Business Administration.
During Trump’s first term, his education chief talked about setting up a semi-private bank to manage student debt. The conservative Heritage Foundation promoted something similar in its Project 2025 plan, calling for a new “government corporation with professional governance and management.”
The Treasury Department often has been discussed as an option, yet student loans are seen as a particularly complex form of debt and some question whether the agency has the right technical expertise. In a 2015 pilot, Treasury tried to collect payments from a sample of thousands of borrowers in default. Its success rate was lower than that of the private collection agencies contracted by the Education Department.
Federal student loan borrowers are typically considered in default if they haven’t made a payment in more than 270 days. About 9.2 million Americans are in default on student loans, according to Education Department data released this month. Going into default can bring a heavy hit to credit scores, and the government can withhold pay and Social Security benefits.
The latest deal from the administration indicates a willingness to open up the hood of student loan operations at a perilous moment. About 12 million Americans are behind on federal student loan payments in some way, and the industry is bracing for a potentially historic surge in loan defaults as pandemic-era protections come to an end.
Earlier this year, Trump officials postponed their plans to restart involuntary collections on defaulted loans, which could have meant withheld earnings for millions of Americans. It’s seen as a politically volatile issue during a tough midterm year where affordability is already on voters’ minds.
The Associated Press’ education coverage receives financial support from multiple private foundations. AP is solely responsible for all content. Find AP’s standards for working with philanthropies, a list of supporters and funded coverage areas at AP.org.
FILE - The U.S. Department of Education building is seen in Washington, Dec. 3, 2024. (AP Photo/Jose Luis Magana, File)
WASHINGTON (AP) — U.S. President Donald Trump has been fuming about NATO, musing about leaving the alliance, ratcheting up his criticism of European leaders and exposing a wider rift in the trans-Atlantic alliance — this time over the Iran war.
“NATO treated us very badly, and you have to remember it because they’ll be treating us badly again if we ever need them,” Trump said Wednesday at a private White House lunch for the upcoming Easter holiday that was posted online by a Business Insider reporter.
The president also suggested in an interview to The Telegraph newspaper in the U.K., published Wednesday, that he could potentially try to leave the alliance.
Yet in his televised Wednesday evening address to the American people about the Iran war, Trump chose not to mention NATO by name, suggesting only that countries that depend on oil flowing through the Strait of Hormuz “must grab it and cherish it” because the U.S. would not.
Trump's tension over NATO reflects the potentially dangerous consequences of breaking up the alliance, the limits on his own power to do so and the careful mending of the relationship performed by fellow world leaders. But one certainly is that Trump's displeasure with NATO appears to be a feature of his presidency, rather than an issue that can be easily settled.
Congress passed legislation in 2023 that would prevent any president from pulling out of NATO without its approval. The Trump administration, during his first term, had insisted the president had such authority on his own. It’s unclear whether Trump would challenge in any way the new law, which is the first of its kind and with the NATO provision specifically championed at the time by Trump's secretary of state, Marco Rubio, who was a Florida senator at the time.
There are efforts under way to reinforce America's relationship with NATO, with its secretary-general, Mark Rutte, scheduled to visit Washington next week. The visit by Rutte was confirmed by a White House official who was not authorized to comment on the yet to be formally announced visit and spoke on the condition of anonymity.
U.K. Prime Minister Keir Starmer said his government was “fully committed to NATO” and called it “the single most effective military alliance the world has ever seen.”
Before a Trump speech later Wednesday, U.S. Sen. Mitch McConnell, a Kentucky Republican, and Sen. Chris Coons, a Delaware Democrat, said in a joint statement that “NATO is the most successful military alliance in history” and stressed that the Senate “will continue to support the alliance for the peace and protection it provides" the United States, Europe and the world.
Many European leaders have felt political pressure over the war, which faces opposition in their countries and has sent petroleum prices soaring as Iran has effectively shut the Strait of Hormuz, the narrow waterway between Iran and Oman through which about one-fifth of the world’s oil passes.
The U.K. is working on plans that could help assuage Trump, and Starmer said military planners will work on a postwar security plan for the Strait.
On Thursday, British Foreign Secretary Yvette Cooper will host a virtual meeting of 35 countries that have signed up to help ensure security for shipping in the Strait — after the fighting ends.
Iulia-Sabina Joja, a senior fellow at the Middle East Institute, alluded to Trump's exhortation Tuesday for allies to “go get your own oil” in a social media post insisting it wasn't America's job to secure the Strait.
“The Europeans are not keen to go into an active warfare situation, to so-called ‘get’ their energy out of the Strait,” said Joba, a former deputy project manager at NATO Allied Command Transformation in Virginia.
As energy prices have spiked, Trump has called NATO allies “cowards” for not sending their military ships to the strait. It's an amplification of his message since his first term that European partners should assume greater responsibility for their own security.
Speaking Tuesday on Fox News, Rubio said, “I do think, unfortunately, we are going to have to reexamine whether or not this alliance that has served this country well for a while is still serving that purpose.”
Rubio raised questions with interviewer Sean Hannity about whether NATO has “become a one-way street where America is simply in a position to defend Europe — but when we need the help of our allies, they’re going to deny us basing rights and they’re going to deny us overflight.”
The fraying of NATO could weaken the alliance’s deterrence, particularly with Russia: It seeks to limit conflict by having Russian President Vladimir Putin believe that NATO would retaliate if he decides to one day expand Moscow's war in Ukraine.
NATO is built on Article 5 of its founding treaty, which pledges that an attack on any one member will be met with a response from them all.
As the Iran war has spread, missiles and drones have been fired toward NATO member Turkey and a British military base on Cyprus, fueling speculation about what might prompt NATO to trigger its collective security guarantee and come to their rescue.
The alliance hasn't intervened or signaled any plan to do so. Rutte — who has voiced support for Trump and Washington's role in the alliance — has been focusing mostly on the Russia-Ukraine war since Ukraine borders four NATO countries.
NATO operates uniquely by consensus. All 32 countries must agree for it to make decisions, so political priorities play a role. Even invoking Article 5 requires agreement among the allies. Turkey or the U.K. can't trigger it alone.
European leaders have called for the Middle East conflict to stop and want the U.S. and Iran to return to negotiations over Tehran's nuclear program, which Washington and Israel see as a threat.
The vocal opposition in Europe to Trump's war against Iran has started to turn into action.
Spain has closed its airspace to U.S. planes involved in the war.
Early last month, France agreed to let the U.S. Air Force use a base in southern France after receiving a “full guarantee” from the United States that planes not involved in carrying out strikes against Iran would land there.
The government of Italian Premier Giorgia Meloni, long seen as one of the European Union leaders with the best personal ties to Trump, denied permission for U.S. bombers to land at the Sigonella air base in Sicily for one mission related to the Middle East.
Franco Pavoncello, a professor of political science at Rome’s John Cabot University, said that decision might cost Meloni a lot of her political capital in Washington.
But he said, “The Italian government could not be seen by the European allies as too submissive to American interests, as it would have very negative repercussions both at home and in the EU.”
U.S. relations with Europe had already soured in recent months over Trump's call for Greenland — a semiautonomous territory of stalwart NATO ally Denmark — to become part of the United States, prompting many EU countries to rally behind Copenhagen.
Jill Lawless reported from London and Jamey Keaten from Geneva. Lorne Cook in Brussels, Giada Zampano in Rome, Sam McNeil in Dubai, United Arab Emirates, and Matthew Lee in Washington contributed to this report.
NATO Secretary General Mark Rutte speaks during the launch of the NATO Secretary General's Annual Report for 2025 at NATO headquarters in Brussels, Thursday, March 26, 2026. (AP Photo/Virginia Mayo)
People watch a TV screen showing a live broadcast of U.S. President Donald Trump's speech at the Seoul Railway Station in Seoul, South Korea, Thursday, April 2, 2026. (AP Photo/Ahn Young-joon)
In this image made with a long exposure, President Donald Trump speaks about the Iran war from the Cross Hall of the White House on Wednesday, April 1, 2026, in Washington. (AP Photo/Alex Brandon, Pool)
President Donald Trump speaks about the Iran war from the Cross Hall of the White House on Wednesday, April 1, 2026, in Washington. (AP Photo/Alex Brandon, Pool)
President Donald Trump answers questions from reporters after signing an executive order in the Oval Office of the White House Tuesday, March 31, 2026, in Washington. (AP Photo/Alex Brandon)
Britain's Prime Minister Keir Starmer speaks during a press conference at Downing Street in London, Wednesday, April 1, 2026. (AP Photo/Frank Augstein, Pool)
Britain's Prime Minister Keir Starmer speaks during a press conference at Downing Street in London, Wednesday, April 1, 2026. (AP Photo/Frank Augstein, Pool)
Britain's Prime Minister Keir Starmer speaks during a press conference at Downing Street in London, Wednesday, April 1, 2026. (AP Photo/Frank Augstein, Pool)
