What the Education Department's Restructuring Means for Federal Student Aid Processing
By Muntasir Minhaz • Published Aug 04, 2026 • US Higher Ed News & Policy
FAFSA processing and Pell Grant disbursement still run through the Education Department, but federal student loans are moving to the Treasury Department in three phases that started with defaulted loans in March 2026.
📩 FAFSA submission and processing stay with Federal Student Aid for now, not Treasury.
Treasury took over servicing defaulted federal loans first, in March 2026.
A later phase would move FAFSA administration itself to Treasury, though no date is set.
Federal Student Aid lost hundreds of staff and closed or merged half its regional offices.
Financial aid offices report slower responses and processing delays behind the scenes.
The loan portfolio is moving to Treasury, in phases
On March 19, 2026, the Education Department and the Treasury Department signed an interagency agreement to shift the $1.7 trillion federal student loan portfolio out of the Education Department. NPR reported the move follows an earlier attempt in 2025 to hand loan management to the Small Business Administration, which a court order blocked.
The transition runs in three phases. Treasury first took over servicing defaulted loans through its Bureau of the Fiscal Service. The next phase expands Treasury's role to non-defaulted loan servicing. A final phase would move administration of the FAFSA itself to Treasury, though the department has not announced a timeline for that step.
What stays at the Education Department for now
FAFSA submission, processing, and Pell Grant disbursement to schools remain Education Department functions today. A department spokesperson said no employees working directly on the FAFSA or loan servicing were cut in the reductions, and the 2025-26 FAFSA cycle opened on schedule. If you apply for aid this year, you still file through studentaid.gov and your award still routes through your school's financial aid office the way it did last year.
The staff cuts are real, even where FAFSA itself was spared
Federal Student Aid lost significant staff. Inside Higher Ed reported at least 300 FSA staff were terminated in March 2025, and more than 650 total employees left the office within the year. At least five of FSA's ten regional offices closed, with others consolidated. The department later reinstated about 60 employees to fix mission-critical system failures and hired more than 100 new staff on two-year contracts to support new loan rules under the 2025 reconciliation law.
Financial aid administrators told Inside Higher Ed that their own work got harder even where individual borrowers saw no direct disruption. Communication with the department slowed, the National Student Loan Data System had problems, and loan servicing requests took longer to resolve. If your school's aid office seems slower answering questions this year, that is likely why.
What to do if you hit a delay
File your FAFSA as early as your state and school deadlines allow. Keep copies of everything you submit and confirmation numbers for every call or online request. If a loan servicing issue does not get resolved, escalate through your school's financial aid office first, then studentaid.gov's contact center, since some regional Education Department offices you used before are now closed or merged.