Student loan borrowers in default will soon face a new collector — the U.S. Treasury.
The Department of Education on March 19 announced the Department of the Treasury will take over operations related to all student loans in three phases. The first involves collecting on defaulted federal student loan debt and using private collection agencies to help get defaulted borrowers into rehabilitation programs or return to good standing. Transfer of the full student loan portfolio and financial aid programs will follow.
The move was widely expected after the Trump administration suggested last year student loan responsibilities would be moved to either the Treasury Department or the Small Business Administration.
With the Treasury already equipped with systems to deal with troublesome loans, collections would be more efficient and cost taxpayers less, said Treasury Secretary Scott Bessent.
“Treasury has the unique experience, the operational capability, and the financial expertise to bring long overdue financial discipline to the program and be better stewards of taxpayer dollars,” he said in a statement.
How Many Borrowers Are Affected?
There are 42.8 million borrowers with federal student loans totaling $1.7 trillion, up 3.5% in dollar terms from December 2024, according to Federal Student Aid.
Of that total, fewer than half of borrowers in current repayment and almost a quarter of borrowers are in default, the Department of Education said.
Of the loans managed by the Education Department (some older loans are held by private, commercial or state-backed entities), approximately 7.7 million borrowers with $180 billion in outstanding federal student loans were in default, representing 11% of the total portfolio as of December 2025, FSA said.
Another 4 million are in late-stage delinquency, meaning close to 12 million borrowers are either in or are approaching default.
What Can Borrowers Expect?
Borrowers do not need to take any immediate action and those in repayment should keep working with their assigned loan servicer, the Department of Education said. Those in default should visit myeddebt.gov for help getting out of default.
“What’s new here is that Treasury is going from being a back-end infrastructure partner to an operational one: actually managing the collection process, running the Default Resolution Group, and overseeing private collection agencies directly,” said Robert Farrington, founder of The College Investor, in a post on his website.
Critics say the move will confuse people and put defaulted borrowers at risk of more financial hardship.
“Instead of providing relief to the millions of defaulted borrowers who have fallen behind, the Department is moving a portfolio of our most vulnerable borrowers to an agency with little to no expertise in the rights and benefits afforded to borrowers under the Higher Education Act,” Director Aissa Canchola Bañez of nonprofit advocacy group Protect Borrowers Policy said in a statement.
“Policymakers should have major concerns about this transfer and how it will exacerbate borrower confusion and push relief further out of reach,” she added.
Why Did the Department of Education Partner With Treasury?
The Treasury Department already works with the Department of Education on some student loan activities, the Education Department said. They include:
- Disbursing federal student loan funds
- Providing federal tax information data systems to verify income for financial aid and repayment plans
- Collecting involuntary payments using the Treasury Offset Program
“Treasury also has vastly more experience in risk management, fraud detection, and default collections,” wrote Andrew Gillen, research fellow at libertarian think tank Cato in a blog post. “Indeed, Education (Department) already outsources default collections to Treasury in the form of the Treasury Offset Program, which confiscates tax refunds and other federal payments (e.g., Social Security benefits) for borrowers who have defaulted. Treasury’s vast financial experience will result in higher recovery rates.”
But the success of Treasury’s efforts to collect has yet to be seen.
“A 2014-15 pilot project that tested Treasury’s ability to collect defaulted student loans…didn’t have as much success compared to the existing Department of Education infrastructure,” Farrington said.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
This article originally appeared on USA TODAY: Treasury Department to oversee student loans. What it means for you.
Reporting by Medora Lee, USA TODAY / USA TODAY
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