What It Means to You

Student loan borrowers will automatically face a new collector – the US Treasury.

The Department of Education on March 19 announced that the Department of Treasury will take measures affecting all student loans in three stages. The first involves collecting on defaulted student loan debt and using private collection agencies to help defaulting borrowers get into rehabilitation programs or get back into good standing. Transfer of the full portfolio of student loan and financial aid programs will follow.

The move was widely expected after the Trump administration suggested last year that student loan obligations would be moved to the Treasury Department or the Small Business Administration.

Since the Treasury Department already has plans in place to deal with troubled debt, the collection will be more efficient and cost taxpayers less, said Treasury Secretary Scott Bessent.

“The Department of Finance has the unique experience, operational capacity, and financial expertise to bring long-overdue fiscal discipline to the system 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 dollars from December 2024, according to Federal Student Aid.

Of that number, less than half of borrowers are in repayment and about a quarter of borrowers are in default, the Department of Education said.

Of the loans held by the Department of Education (some older loans are held by private, commercial or government-backed organizations), about 7.7 million borrowers have $180 billion in outstanding student loans, representing 11% of the total portfolio as of December 2025, the FSA said.

Another 4 million are in delinquency, meaning nearly 12 million borrowers are in or close to default.

What Can Borrowers Expect?

Borrowers do not need to take immediate action and those making payments should continue to work on their assigned loan, 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 about to move from being a back-end infrastructure partner to an operational one: actually managing the collection process, running the Default Resolution Group, and directly overseeing private collection agencies,” said Robert Farrington, founder of The College Investor, in a post on his website.

Critics say the move will confuse people and put defaulting borrowers at risk of financial hardship.

“Instead of providing relief to millions of delinquent borrowers, the Department is transferring the portfolio of our most vulnerable borrowers to an agency that has little knowledge of the rights and benefits provided to borrowers under the Higher Education Act,” Director Aissa Canchola Bañez of the non-profit advocacy group Protect Borrowers Policy said in a statement.

“Policymakers should be very concerned about this transfer and how it will exacerbate borrower confusion and further ease where it can’t be reached,” he added.

Why is the Ministry of Education Partnering with the Treasury?

The Ministry of Finance is already working with the Ministry of Education on other student loans, said the Ministry of Education. They include:

• Paying off federal student loans
• Providing federal tax database systems to verify financial aid income and payment systems
• Collecting unwanted payments using the Cash Flow System

Andrew Gillen, a researcher at think tank Cato, wrote in the blog. “Indeed, the Education (Department) is already issuing automatic collections from the Treasury in the form of the Finance Program, which seizes tax refunds and other federal payments (eg, Social Security Benefits) from defaulting borrowers. More financial information for the Treasury will lead to higher repayment rates.”

But the success of the Treasury’s collection efforts is yet to be seen.

“The 2014-15 pilot project that tested Treasury’s ability to collect student loan defaults…was not very successful compared to the Department of Education’s existing infrastructure,” Farrington said.

Medora Lee is a money, markets, and personal finance reporter for USA TODAY. You can find him at [email protected] and sign up for our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.

This article first appeared in USA TODAY: Treasury to oversee student loans. What does it mean to you?

Reported by Medora Lee, USA TODAY / USA TODAY

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