Collection of delinquent student loans resumes
Collections on defaulted federal student loans will begin Monday.
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Borrowers who default on their student loans will soon face a new collector: the U.S. Treasury.
The Ministry of Education announced on March 19 that the Ministry of Finance will take over all student loan-related operations in three stages. The first is to collect defaulted federal student loan debt and use private collection agencies to get defaulted borrowers into rehabilitation programs or back into good standing. The transfer of the entire student loan portfolio and financial aid programs will follow.
The move had been widely expected since the Trump administration last year indicated it would transfer responsibility for student loans to either the Treasury Department or the Small Business Administration.
Treasury Secretary Scott Bessent said collections will be more efficient and less costly to taxpayers because the Treasury already has systems in place to deal with troublesome loans.
“Treasury has the unique experience, operational capabilities and financial expertise to bring long-overdue financial discipline to the program and be better stewards of taxpayers,” he said in a statement.
How many borrowers will be affected?
According to Federal Student Aid, there are 42.8 million borrowers with federal student loans totaling $1.7 trillion, an increase of 3.5% in dollar terms from December 2024.
According to the Department of Education, less than half of these borrowers are currently repaying their loans, and nearly a quarter are in default.
About 7.7 million borrowers with $180 billion in federal student loan balances are in default on loans administered by the Department of Education (some older loans are held by private, commercial, or state-backed entities), representing 11% of the total portfolio as of December 2025, according to the FSA.
An additional 4 million people are in late-stage delinquency, meaning nearly 12 million borrowers are in default or close to default.
What can borrowers expect?
Borrowers do not need to take any immediate action, and those in repayment should continue to work with their designated loan servicer, the Education Department said. Default users should visit myeddebt.gov for help getting out of the default.
“What’s new here is that Treasury is moving from being a back-end infrastructure partner to an operational partner, actually managing the collection process, running the default resolution group, and directly overseeing private collection agencies,” College Investor founder Robert Farrington said in a post on his website.
Critics say the measure will confuse people and expose defaulting borrowers to further financial hardship.
“Instead of providing relief to millions of delinquent defaulters, the department is transferring a portfolio of the most vulnerable borrowers to institutions with little expertise in the rights and benefits afforded to them under the Higher Education Act,” Aissa Canchola Báñez, director of the nonprofit advocacy group Borrower Protection Policy, said in a statement.
He added: “Policymakers should be very concerned about this transfer and how it could exacerbate disruption for borrowers and push relief further out of reach.”
Why did the Department of Education partner with the Treasury Department?
The Department of Education said the Treasury Department is already working with the Department on some student loan activities. They include:
- Disbursing federal student loan funds
- Provides a federal tax information data system to verify income and repayment plans for financial aid.
- Collecting involuntary payments using a financial offset program
“Treasury also has far more experience with risk management, fraud detection, and default collection,” Andrew Gillen, a researcher at libertarian think tank Cato, wrote in a blog post. “In fact, the Department of Education (Department) has already delegated default collection to the Treasury Department in the form of the Treasury Offset Program, which forfeits tax refunds and other federal payments (such as Social Security benefits) to defaulting borrowers. Recovery rates will be high due to Treasury’s extensive financial experience.”
However, the results of the Ministry of Finance’s collection efforts are not yet visible.
“Pilot projects in 2014-2015 that tested the Department of the Treasury’s ability to recover defaulted student loans were less successful compared to the existing Department of Education infrastructure,” Farrington said.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
