Proposed Legislation Could Make Student Loan Oversight Transfer Permanent
A major restructuring of the federal student loan system may soon be written into law. House Republicans have introduced legislation that would permanently move responsibility for managing federal student loans from the Department of Education to the Department of the Treasury.
Supporters believe the change would improve oversight and strengthen financial accountability, while critics caution that the transition could present operational challenges. If approved, the proposal would affect more than 40 million Americans with federal student loans.
Reducing Administrative Burdens
Representative Tim Walberg has introduced H.R. 11, a bill that would formally transfer federal student loan responsibilities to the Treasury Department. The proposal would make permanent the temporary arrangement established in March 2026. It is one of ten Republican-backed measures aimed at reducing the Department of Education’s responsibilities by shifting key functions to other federal agencies considered better equipped to manage them.
Initial Transfer Begins With Defaulted Loans
The first stage of the transition would focus on federal student loans that are already in default. This portfolio represents roughly $180 billion in outstanding debt. Under the proposal, the Treasury Department would take full responsibility for collecting these delinquent accounts. Lawmakers say beginning with defaulted loans allows the government to address the most challenging portion of the portfolio before expanding the transfer.
Broader Expansion Planned
Once the defaulted loan portfolio has been transferred, the next phase would place all active federal student loans that are not in default under Treasury management. The legislation also envisions a third phase that would shift administration of the Pell Grant program and the Free Application for Federal Student Aid (FAFSA) process to the Treasury Department. Altogether, these changes would impact more than 40 million federal student loan borrowers.
Administration Cites Need for Greater Financial Oversight
Administration officials maintain that the Department of Education has not managed federal student loan programs effectively. Treasury Secretary Scott Bessent has expressed support for the proposal, arguing that the Treasury Department has the operational resources, financial expertise, and institutional experience needed to oversee the nation’s student loan system. According to Bessent, the transfer would bring stronger financial discipline to the program.
Experts Raise Concerns About the Transition
Not everyone is convinced the Treasury Department is prepared for the expanded role. Higher education policy experts argue there is little evidence that the agency currently has the infrastructure required to administer complex repayment and loan forgiveness programs, including Public Service Loan Forgiveness (PSLF). Representatives of federal employees have also warned that the proposal could introduce additional administrative layers rather than reduce bureaucracy. They caution that new servicing platforms, repayment systems, and collection procedures could create confusion for borrowers and increase the risk of processing mistakes that may negatively affect credit records.
Previous Repayment Programs Continue to Wind Down
The proposed legislation comes as millions of borrowers are already adjusting to the end of the SAVE repayment plan introduced during the Biden administration. After the program was ruled unlawful, it entered the process of being phased out. As borrowers move to alternative repayment options, the proposed transfer of loan administration would add another significant change to the federal student loan system.
New Repayment Deadlines
Beginning July 1, the Trump administration launched the new Repayment Assistance Plan, which includes interest subsidies while requiring borrowers to make a minimum monthly payment and follow a 30-year path toward loan forgiveness.
Borrowers have 90 days from the date they receive notice from their loan servicer to choose a new repayment plan. Borrowers notified on July 1, 2026, would have until September 29, 2026, to make their selection.
Those who do not make a selection within that period will be automatically placed into repayment options that may carry higher costs, marking another major milestone in the ongoing transformation of federal student loan repayment.
