The office managing $1.7 trillion in student loans lost 40% of its staff in a year

The Office of Federal Student Aid (FSA) is the part of the U.S. Department of Education that actually runs the federal student loan system: it processes the FAFSA, disburses aid, and polices the private companies that service loans and the colleges that receive the money.▸ In fiscal year 2025 alone it handled 19.2 million FAFSA applications and delivered more than $131.1 billion in aid to 10.5 million students, according to the department's own inspector general. Over that same year, the office lost 40% of the staff who make that possible — and on March 19, 2026, the Treasury Department began taking over pieces of the $1.7 trillion loan portfolio FSA no longer had the people to run.

Two Executive Orders issued in February 2025 directed federal agencies to prepare large-scale reductions in force.▸ Education's Office of Federal Student Aid had 1,446 employees across 136 suboffices as of January 20, 2025. The department's reduction in force, effective March 11, 2025, hit 72 of those suboffices — 918 employees. By March 31, 411 of them had been separated through the RIF itself and another 174 through other separation programs (deferred resignation, early retirement, and buyout offers), leaving 861 people, according to the Education Department Office of Inspector General's June 2026 review of the department's staffing changes. The IG's own phrase for the result: "an overall reduction of at least 40 percent of FSA employees."

The RIF's impact wasn't spread evenly.▸ Of the 72 FSA suboffices it touched, 55 were left with half or fewer of their employees — and of those, 32 suboffices have no employees left at all. The inspector general found that some of the emptied-out offices performed statutory functions: overseeing the lenders, guaranty agencies, and servicers participating in federal loan programs, and overseeing the eligibility and financial responsibility of the colleges that receive the aid.

That gap in servicer oversight shows up independently in a Government Accountability Office report published three months earlier: FSA stopped assessing loan servicers on billing accuracy and call quality in February 2025, citing staff capacity, after finding that four of the five servicers it still had time to grade were missing its own accuracy standards — misses that had triggered about $850,000 in financial penalties before the assessments stopped.▸ GAO recommended Education resume the assessments; the department disagreed.

FSA's own hiring didn't stop when its headcount did — its contracting did the opposite.▸ Between January 20 and March 31, 2025, the office terminated 4 contracts worth a combined $52.0 million. In the same window it awarded 9 new contracts worth $461.4 million — nearly nine times as much. The two largest were both outsourced loan operations: $247.4 million for Perkins Loan Servicing, and $188.5 million for the Debt Management and Collections System that "manage[s] the defaulted loan portfolio" and stores debtor information, per the inspector general's own description of the award.

The math behind the Treasury handoff follows from here.▸ FSA's own portfolio stands at nearly $1.7 trillion, with fewer than half of borrowers in current repayment and almost a quarter in default — more than 9 million borrowers, some of whom have sat in default for over six years, per the Treasury Department's own account of why it is stepping in. Under the March 2026 interagency agreement, Treasury first takes over collection on defaulted loans, then in later phases the rest of the non-defaulted portfolio and other FSA functions including the FAFSA. It is, per reporting on the handoff, the tenth interagency agreement the administration has used to move pieces of the Education Department's work to other agencies.

Staffing and contracting figures cover the Inspector General's review window (January 20 – December 31, 2025, with contract activity specifically tracked January 20 – March 31, 2025); the $1.7 trillion portfolio figure and repayment-status breakdown are Treasury's own, as stated in its March 19, 2026 fact sheet.