The transfer of student-loan accounts to the Treasury Department is moving forward.
On Friday, the Treasury released new plans to take over management of the federal defaulted student-loan portfolio.
The plans, first reported by Business Insider, include creating a new “Default Resolution Hub” intended to serve as a centralized location for borrowers to plan their steps to return to good standing. The Treasury is also seeking to partner with vendors who will facilitate collections on defaulted loans and advise borrowers on their options to leave default, according to a Treasury official.
“Transforming the way defaulted loans are serviced is the foundation for a federal student loan program that is more efficient and delivers better outcomes for both borrowers and taxpayers,” Treasury Sec. Scott Bessent said in a statement.
The Treasury official said the agency is also working to streamline the process by which defaulted borrowers securely share tax information.
The consequences of defaulting include wage garnishment and the seizure of federal benefits, like Social Security. Those involuntary collection efforts have been paused since January, and the Trump administration has not specified when the pause will be lifted.
This follows the Education Department’s March announcement that it would transfer management of the student-loan portfolio to the Treasury, beginning with the accounts of the 10 million borrowers in default. The transfer is set to occur in phases and is part of the Trump administration’s broader goal of dismantling the Education Department and transferring its responsibilities to other agencies.
Former administration officials previously told Business Insider that it’s unclear if the Treasury is equipped to handle the $1.7 trillion student-loan portfolio, citing the complexity of student-loan repayment. The Obama administration also conducted a pilot program in 2015 during which the Treasury took over a portion of defaulted student-loan accounts, and it was ultimately unsuccessful, collecting at lower rates than private agencies.
Mason Champion, the Treasury’s assistant secretary, wrote in a May letter to lawmakers that the Treasury reached an agreement with the Education Department to send seven Education employees to Treasury, and two Treasury employees to Education, which Champion said will “support the implementation of the partnership, with an initial focus on the transition of operational responsibility for the defaulted portfolio to Treasury.”
Lawmakers have also weighed in. Over 60 Democratic lawmakers called in a June letter for a stop to the transfer of student-loan accounts to the Treasury, citing record-high default rates. A month later, Republican lawmakers introduced a bill to codify the plan.
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