The US Department of Education (ED), established in 1980 to consolidate federal education efforts, is undergoing profound changes under the current administration. Far from being fully eliminated—a step requiring congressional approval—the department is being systematically dismantled through executive actions, staff reductions, and program transfers to other agencies. This shift, often described as turning the ED into a 'shell of its former self,' has significant ramifications for higher education institutions across the United States. Universities and colleges, reliant on federal student aid, accreditation oversight, and civil rights protections, now face uncertainty in financial aid processing, compliance requirements, and funding streams.

These reforms align with long-standing conservative goals outlined in initiatives like Project 2025, aiming to devolve power to states and reduce federal bureaucracy. While proponents argue for greater efficiency and local control, critics warn of disruptions that could exacerbate administrative burdens on campuses and confuse millions of student borrowers. As of March 2026, key functions like the $1.7 trillion federal student loan portfolio are being handed off, marking a pivotal moment for higher education.

Timeline of the Dismantling Process

The transformation began shortly after President Trump's second inauguration in January 2025. An executive order in March 2025 kickstarted efforts to redistribute responsibilities, followed by massive staff layoffs—nearly 50% of the workforce, or about 2,000 employees, by late 2025. A government shutdown in October 2025 furloughed 87% of remaining staff, though courts intervened to reinstate some. By February 2026, interagency agreements proliferated, with the Department of Health and Human Services (HHS) taking school support programs and the State Department aiding foreign funding oversight for universities.

Landmark announcements continued into March 2026: On March 19, the ED revealed plans to transfer defaulted student loan collections to the Treasury Department, the first phase of shifting the entire portfolio. Concurrently, the department relocated from its iconic Lyndon B. Johnson headquarters to a smaller Washington office, symbolizing contraction. These steps, detailed in official press releases, underscore a phased approach avoiding outright abolition.

• March 2025: Executive order initiates closure moves.
• October-December 2025: Staff reductions and vendor contract cancellations totaling $1.2 billion.
• February 2026: New partnerships with State and HHS.
• March 2026: Student loan transfer to Treasury announced; headquarters relocation.

Student Loan Portfolio Shift to Treasury: A Game-Changer for Borrowers and Campuses

The crown jewel of the ED's operations—the Federal Student Aid (FSA) office managing $1.7 trillion in loans—is being transferred to the Treasury Department. Initially focusing on defaulted loans, this multi-phase process will eventually encompass all federal student assistance. Treasury's 'world-renowned expertise' in debt collection is cited as the rationale, addressing what the administration calls 'badly mismanaged' operations.

For higher education, this means financial aid offices at colleges must adapt to new servicing agencies and protocols, potentially delaying disbursements and complicating enrollment. Jennifer Steele, professor at American University, warns of 'administrative disruption and uncertainty for borrowers,' with stretched resources amplifying issues. Over 43 million borrowers could see account transfers, risking confusion in repayment plans amid ongoing litigation over forgiveness programs.ED-Treasury Partnership Announcement

Universities like public flagships, handling thousands of Pell Grants annually ($30 billion program preserved but admin-shifted), face heightened compliance scrutiny. The One Big Beautiful Bill Act (OBBA), effective July 2026, compounds this by capping graduate loans at $100,000 and professional at $200,000, ending Grad PLUS loans—a move Moody's analysts predict will slash access for fields like law and medicine.

Accreditation Reforms: Opening Doors or Inviting Risks?

In parallel, the ED has eased accreditation barriers, issuing an interpretive rule in February 2026 to recognize new and emerging accreditors and lift moratoriums on switching. This aims to foster innovation but raises concerns over quality control. Critics fear 'weaponization' of accreditation to enforce ideological conformity, as seen in probes tying aid eligibility to compliance.

Institutions must now navigate a fragmented landscape where states gain more authority over eligibility for federal aid. The Council for Higher Education Accreditation (CHEA) notes ongoing efforts to dismantle ED oversight, potentially benefiting online and competency-based programs but straining traditional universities. Real-world example: Community colleges adapting gainful employment rules face program cuts if earnings thresholds aren't met under new OBBA accountability systems, affecting only 2% of programs per HEA Group analysis but prompting widespread reviews.

Photo by Andy Feliciotti on Unsplash

Enhanced Scrutiny on Foreign Funding and National Security

Universities received over $5.2 billion in foreign gifts last year, prompting a February 2026 partnership with the State Department for Section 117 reporting under the Higher Education Act. State now supports the ED's portal, sharing data to flag security threats from donors in China, Qatar, and elsewhere. This bolsters enforcement amid congressional hearings on espionage risks at campuses like Harvard and Stanford.

Impacts include stricter compliance for research collaborations; failure risks aid ineligibility. Politico reports no funding disruptions expected, but administrative layers grow.

Civil Rights Enforcement and Campus Investigations Intensify

The Office for Civil Rights (OCR), potentially shifting to the Department of Justice, has ramped up probes into universities for Title VI violations, antisemitism, and DEI initiatives. Dozens of investigations in 2025 led to settlements, with threats to research funding. Brown University faced a Clery Act review post-shooting, exemplifying escalation predicted by experts like James Finkelstein.

Title IX enforcement, reinstated for sports equity, strains understaffed offices—only two racial harassment cases resolved early 2025 versus 25 prior. Colleges report board focus shifting to compliance, with presidents like Virginia's Jim Ryan resigning amid probes.

Staff Reductions and Operational Chaos

With half the staff gone, remaining employees juggle triple caseloads—Postsecondary Education staff now oversee 200+ grants each. Unions decry limbo, with $28 million spent on leave salaries. Higher ed grantees hesitate raising issues fearing cuts, per insiders.

Broader Policy Shifts: Endowments, Accountability, and OBBA

The OBBA introduces earnings-based penalties, prioritizing workforce outcomes—a nod to reforms favoring vocational training over liberal arts.

Photo by Andy Feliciotti on Unsplash

Stakeholder Perspectives: From Alarm to Optimism

Marybeth Gasman (Rutgers) calls it deliberate 'mess'; Frederick Hess (AEI) sees reduced federal overreach. Colleges adapt via state partnerships; NASFAA urges clarity on aid.

• Pro: Efficiency, state control.
• Con: Disruption, equity risks.

Future Outlook and Adaptation Strategies

By 2029, full devolution possible sans Congress. Universities should diversify funding, streamline aid ops, monitor accreditation. For more on navigating careers in this landscape, explore resources at Higher Ed Dive's 2026 trends.

Actionable insights: Audit foreign contracts, prepare for Treasury portals, invest in compliance tech. This era demands resilience, positioning adaptable institutions for success.