Musical Chairs, Cont’d: U.S. Department of Education to Shift Federal Student Loan Programs to Treasury

On March 19, 2026, the U.S. Department of Education (ED) announced an interagency agreement (IAA) with the U.S. Department of the Treasury (Treasury), through which ED will transfer all student loan functions — and potentially all FSA functions — to Treasury. This IAA follows a significantly different approach than the nine IAAs issued over the past several months by describing a “three-phase” approach to the transfer of functions. While Phase 1 includes specific steps that ED and Treasury will take, Phases 2 and 3 describe general goals and do not include specifics on the scope of the phases or the functions that will be transferred.

A “Three-Phase” Plan

 In Phase 1of this IAA, Treasury will take over administration of all delinquent and/or defaulted student loans. They will do so by revoking the May 11, 2001 exemption that allowed ED to process delinquent/defaulted student loans, shifting those loans under Treasury’s general authority to administer delinquent debts to the U.S. Government. While this shift will begin gradually, Treasury will assume “full operational control” over all such loans once “full operational capacity” is reached.

Under Phase 2, Treasury will assume “full operational control” over non-default student loan debt, “including debts in repayment and early and late stages of delinquency.” While the IAA does not provide any specifics on which specific functions will be transferred to Treasury, it does provide that Treasury (not ED) will identify “legal, operational, system, contractual, and policy challenges and opportunities related to the servicing of non-default student loan debts” and decide the “future state” of those functions.

Phase 3 of the IAA states that Treasury will conduct a review of “programmatic and policy requirements” governing student federal financial aid eligibility and eligibility for institutions of higher education to participate in federal student financial assistance programs, including oversight and enforcement. Phase 3 does not identify the purpose of this review, nor does it identify how the results of the review will be used. However, given the overall purpose of the IAA, it is likely that this will lead to Treasury assuming general administrative functions regarding ED’s student loan portfolio.

Potential Legal Concerns

Many of the responsibilities identified or referenced in this IAA are designated specifically and exclusively to ED through the Higher Education Act of 1965 (HEA) and/or ED’s Federal Student Aid performance-based organization statute. As in the previous IAAs, this IAA does not identify the legal authority under which ED is permitted to transfer these responsibilities to another agency. Additionally, the HEA includes certain provisions — such as rehabilitation and discharge — that are not within the statutory scope of Treasury’s authority. It is unclear how these provisions can and will be handled under this IAA.

Implications for Higher Education Institutions and Borrowers

Given the overall lack of specificity in this IAA, we expect a great deal of confusion over the next several months as we wait for more details to emerge. Given the many potential areas of overlap, IHEs and borrowers may face increased administrative burdens, along with decreased consistency, transparency, and predictability in federal student loan processing.

How Sligo Law Group Can Help

Sligo Law Group is closely monitoring this IAA and its potential impact on federal student loan programs, particularly given its likely conflict with the HEA and other statutory authorities. As former senior attorneys at the U.S. Department of Education with specific and deep experience in federal student loan programs and processing, our team can assist higher education institutions, nonprofits, and other stakeholders with: 

• Assessing how the proposed changes may affect specific federal student loan programs 

• Evaluating compliance risks and developing mitigation strategies 

• Interpreting statutory and regulatory requirements in a shifting landscape 

• Preparing comments, inquiries, or formal responses to federal agencies 

• Supporting higher education institutions as they navigate new administrative structures  

We will continue to track developments and provide updates as more information becomes available. 

The ED/Treasury IAA regarding federal student loans can be found here. For questions or assistance, please contact us at contact@sligolawgroup.com.