WASHINGTON — The U.S. Treasury Department will assume responsibility for collecting on defaulted federal student loan debt, a shift announced Thursday by the Department of Education. The move marks the first phase of a broader plan to transfer the entire federal student loan portfolio to Treasury, according to officials.
The interagency agreement between the Department of Education and the Treasury Department aims to improve the administration of federal student assistance programs. A senior Education Department official stated the change is also intended to address issues stemming from what the administration characterizes as mismanagement of the federal student loan portfolio.
Currently, the Education Department’s student loan portfolio totals approximately $1.7 trillion. Agency data indicates that fewer than 40% of borrowers are actively in repayment, with nearly a quarter of loans currently in default. The transfer of defaulted loan collection responsibilities to Treasury will initially focus on borrowers who are at least 270 days behind on payments, effectively in default status.
According to the Department of Education, borrowers currently making payments should experience no immediate changes and can anticipate improved customer service. Treasury will initially provide operational support to the Education Department’s efforts to assist borrowers in re-entering repayment plans. Later phases will involve Treasury providing operational support for non-defaulted loans, as permitted by law.
The move is part of a larger effort by the Trump administration to dismantle the Department of Education, with a stated goal of returning control of education policy to the states. Despite this effort, much of the oversight and funding for schools already occurs at the state and local levels.
The Department of Education’s Default Resolution Group (DRG) and guaranty agencies, which currently handle defaulted loans, will observe their roles shift as the Treasury Department takes over collection activities. Borrowers with Federal Family Education Loan (FFEL) Program loans in default will be transferred to guaranty agencies initially, but ultimately will fall under Treasury’s purview.
The Treasury Department will also be responsible for utilizing tools such as Treasury offset, which involves withholding federal payments to collect on the debt and wage garnishment to recover funds from defaulted borrowers. The Federal Student Aid website provides information on options for borrowers facing default and collections, including loan rehabilitation.
As of Friday, the Department of Education has not specified a timeline for the complete transfer of the federal student loan portfolio to the Treasury Department.
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