Treasury take over federal student loans begins with a phased transfer that will move operational control of defaulted accounts to the Treasury Department, the Education Department announced.
The interagency agreement starts with the transfer of nearly nine million defaulted borrower accounts, and it assigns Treasury responsibility for collecting on defaulted debt and advising borrowers on returning to good standing.
Education Secretary Linda McMahon said borrowers should continue making payments through their federal servicer and will keep receiving communications from Federal Student Aid about repayment changes, including enrolling in new repayment plans.
McMahon blamed repayment confusion and errors on the prior administration in a letter accompanying the announcement, and she said Treasury offers “deep experience in finance and banking” to improve collections and servicing.
Treasury Secretary Scott Bessent said the department has operational capability and financial expertise to bring greater discipline to the program, and the agreement frames Treasury as supporting borrower outreach and collections.
The broader portfolio totals about $1.7 trillion, and the transition will take place in multiple phases. According to the interagency agreement, subsequent phases would expand Treasury management beyond defaulted loans and, ultimately, include responsibilities such as administering the FAFSA.
Reactions And Risks
Borrower advocates and consumer groups warned the move risks harming vulnerable borrowers and creating confusion. Aissa Canchola Bañez, policy director at Protect Borrowers, said the transfer “risks driving millions of borrowers further into financial hardship.”
National Consumer Law Center attorney Kyra Taylor warned the plan could create “a new set of obstacles and uncertainty” and questioned how Treasury staff will be educated about borrowers’ rights under the Higher Education Act.
The Education Department had announced a pause on collections in January, including wage garnishment and tax refund seizures, to allow borrowers more time to make arrangements, and advocates said that pause should remain while the transfer proceeds.
Some lawmakers and union representatives criticized the move as part of a wider effort to shrink or dismantle the Education Department. Sen. Patty Murray said the agreements create pointless new red tape and threaten basic services, and Rachel Gittleman of AFGE Local 252 said moves to disperse Education Department work continue despite questions about authority.
Reporting on the size of the defaulted population varied across accounts. The department’s announcement referenced nearly nine million defaulted borrowers, a senior Education Department official told reporters the figure was 9.2 million, and other reporting described more than seven million borrowers in default.
