Key Points
- Department of Education is transferring responsibility for defaulted student loan collections to the Department of Treasury.
- Later phases would expand Treasury’s role to include non-defaulted loans and potentially other Federal Student Aid functions, including FAFSA administration and Pell Grants.
- Borrowers do not need to take any immediate action and should continue working with their assigned loan servicer.
The Department of Education and the U.S. Treasury Department announced a new interagency agreement on March 19, 2026, that will shift operational control of defaulted federal student loan collections from Education to Treasury. This comes as nearly 7.7 million student loan borrowers holding $180 billion in student loans are in default.
The move, which the administration has branded the “Federal Student Assistance Partnership,” marks a big step forward in dismantling the Education Department in what officials described as the equivalent of the “fifth-largest commercial bank in the United States.”
Under the agreement, Treasury will immediately take over collecting on defaulted student loan debt, using private collection agencies to help borrowers in default enroll in rehabilitation programs or return to good standing.
Treasury will also absorb the operations of FSA’s Default Resolution Group, which manages the Default Management and Collections System (DMCS). In future phases, Treasury would expand to managing non-defaulted loans and potentially other FSA functions, including FAFSA administration.
It's important to realize that Treasury already played a large role in collections, but this is now administrative control of the bigger program.
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Why The Administration Says This Step Is Necessary
The federal student loan portfolio now stands at nearly $1.7 trillion, with fewer than 40% of borrowers actively making payments.
There are an estimated 7.7 million borrowers in default, and another 4 million are in late-stage delinquency, meaning close to 12 million borrowers are either in or approaching default.
The portfolio is roughly twice the size of all American university endowments combined and exceeds total U.S. credit card debt and auto debt individually.
“The Federal Student Assistance Partnership marks an intentional and historic step toward breaking up the Federal education bureaucracy and dramatically improving the administration of Federal student aid programs that millions of American students, families, and borrowers rely on to access higher education,” said Secretary of Education Linda McMahon in a statement.
Secretary of the Treasury Scott Bessent framed the move as overdue financial oversight. “Treasury has the unique experience, the operational capability, and the financial expertise to bring long overdue financial discipline to the program and be better stewards of taxpayer dollars,” Bessent said.
The administration pointed to the Biden Administration’s 2021 decision to terminate all private collections contracts, which left the Education Department with limited infrastructure to handle calls and help defaulted borrowers. Many of those borrowers have remained stuck in default for more than six years, damaging their credit and limiting financial options.
How The Partnership Will Work
The basic premise that Treasury will now handle student loan debt collection. For most other government debt, Treasury handles collections. But the Department of Education received a waiver back in 2001 to collect their own debt. The Treasury Department is revoking this waiver.
The rollout will happen in phases. The first phase puts Treasury in charge of defaulted loan collections.
Subsequent phases would extend Treasury’s operational role to non-defaulted student loan debt and other FSA functions, to the extent “practicable and permitted by law.”
The Department of Education, through both the Office of Postsecondary Education and FSA, will retain all statutory responsibilities, including policy development.
Treasury Already Handles A Lot Of The Backend Work
The Treasury Department, specifically through its Bureau of the Fiscal Service (BFS), already touches student loans at several points.
The biggest one borrowers encounter is the Treasury Offset Program (TOP). TOP allows the government to intercept federal payments owed to a borrower (tax refunds, Social Security benefits, and more) and redirect them toward defaulted student loan debt.
This is the primary involuntary collection tool for defaulted federal student loans, and it's been in place for decades.
Beyond TOP, Treasury already disburses the actual funds for federal student loans: meaning the money students receive originates through Treasury's payment systems.
Treasury's IRS data systems are also used for income verification on the FAFSA and for income-driven repayment plan certification (the IRS Data Retrieval Tool). Both agencies have also contracted with many of the same private collection agencies, so there's workforce overlap.
What's new here is that Treasury is going from being a back-end infrastructure partner to an operational one: actually managing the collection process, running the Default Resolution Group, and overseeing private collection agencies directly.
What This Means For Borrowers
Borrowers do not need to take any immediate action as a result of the partnership. Borrowers in repayment should continue working with their assigned loan servicer.
Those in default should visit myeddebt.ed.gov for help getting out of default.
However, the move has drawn significant pushback. Protect Borrowers Policy Director Aissa Canchola Bañez said in a statement, "With more than 8.8 million Americans already in default and millions more at risk of falling behind after being kicked off the SAVE plan and forced into more expensive options, this move will cause even more confusion about a student loan system that has been fraught with unprecedented disruptions and instability."
Democratic lawmakers, led by Senator Elizabeth Warren, have warned that shifting the loan portfolio away from Education could be a precursor to selling the debt to private investors, which they argue would strip borrowers of protections tied to federal loan programs, including access to income-driven repayment and public service loan forgiveness.
The administration has not announced plans to sell the portfolio.
There is also a practical track record to consider. A 2014-15 pilot project that tested Treasury’s ability to collect defaulted student loans, and they didn't have as much success compared to the existing Department of Education infrastructure.
The Education Department has also recently delayed involuntary collections (including Social Security garnishments and Treasury Offset Program seizures) to prepare for the new repayment options under the One Big Beautiful Bill Act.
Wage garnishment notices had begun going out to about 1,000 borrowers in early 2026, with plans to scale up monthly.
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Editor: Colin Graves
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.