WASHINGTON, D.C.: In the first step towards the Trump administration's plan to dismantle the U.S. Department of Education, a portion of the department's student loan portfolio was handed down to the Treasury Department.

Under an agreement announced on March 19, the Treasury Department will take control of managing student loans whose borrowers have defaulted. Making up nearly US$180 billion, these borrowings account for 11 percent of the government's $1.7 trillion student loan portfolio.

According to the agreement, eventually, disbursing of student loans will be the responsibility of the Treasury Department. A second phase, without a timeframe, states that the Treasury will "assume operational responsibility" for non-defaulted loans "to the extent practicable."

Shutting down the student loan part of the department would be the biggest move yet toward closing it. President Donald Trump ordered the department to be dismantled about a year ago. Most Americans mainly know the department for giving out college grants and loans, which are its biggest functions.

The government says borrowers don't need to take any action as a result of this change. They will keep working with the same loan companies and continue paying in the same way.

The 17-page plan describes a major shift in how federal student loans are managed. The Education Department has handled these loans for more than 40 years.

Education Secretary Linda McMahon said the plan is a historic step to break up the federal education system and improve how student aid is managed.

Officials under Trump say the Education Department is not well-suited to manage such a large loan system. They also blamed the previous administration for focusing on canceling loans instead of helping people restart payments. They pointed to data showing that less than half of borrowers are currently paying, and nearly one-fourth have defaulted.

The plan is expected to face legal challenges. Critics say the law requires student loans to stay under the Education Department. Trump officials argue they can work around this by calling it a partnership, with some parts remaining in the department.

Frequent Rule Changes Make it Harder to Understand

Supporters of borrowers criticized the move, saying it will create more confusion. Kyra Taylor said that frequent rule changes are making it harder for people to understand their options and warned that mistakes in loan collection could seriously harm families.

This move is part of Trump's larger effort to shut down the Education Department, which he says is influenced by liberal ideas. Only Congress can officially close it, but his team is gradually shifting its work to other government agencies.

There has been uncertainty about who will manage the huge student loan system. McMahon earlier suggested the Treasury Department could handle it, while Trump later said the Small Business Administration might take over.

In Trump's first term, his education team discussed creating a semi-private bank to manage student debt. The Heritage Foundation also proposed a similar idea in its Project 2025 plan.

Some experts question whether the Treasury Department has the right skills to handle complex student loans. In a 2015 test, it collected fewer payments from defaulted borrowers than private agencies hired by the Education Department.

A borrower is usually considered in default after missing payments for more than 270 days. About 9.2 million Americans are currently in default. Defaulting can damage credit scores, and the government can take money from wages or Social Security benefits.

The timing of this change is risky. Around 12 million Americans are already behind on payments, and defaults may rise as pandemic relief measures end.

Earlier this year, Trump officials delayed plans to restart forced collections on defaulted loans, which could have reduced incomes for millions. The issue is politically sensitive, especially during an election period when many voters are worried about rising costs.