A group of student loan borrowers who are far behind on their federal loans are about to be included in a new collection program largely run by the Treasury Department — the latest action by a Trump administration determined to break up the Education Department.
Both agencies plan to launch the first phase of their program to service defaulted loans in July, starting with about 500,000 borrowers, according to two people familiar with the matter. A Treasury spokesperson disputed the figure, but did not say how many borrowers it planned to include in the program.
These borrowers can expect calls and letters through July regarding their missed payments. Such a move would mean that thousands of borrowers would receive regular communications about their defaulted loans for the first time since the pandemic – letting them know when the government is resuming the recovery process on their loans.
It would be the first step in the administration’s plan to move the $1.7 trillion student loan portfolio out of the education agency. But some federal employees fear the change is coming too fast, according to one person involved in the move.
“Both Treasury and ED are saying it is too ambitious,” said one person, who was granted anonymity to discuss the program. “We’re really pushing to start with a few hundred, then a few thousand and go slowly rather than just turning on the floodgates.”
According to one person, aggressive collection tactics like garnishing salaries to repay the loan will not start immediately. The administration doesn’t plan to launch those efforts until sometime after the midterm elections.
An Education Department official said that “information” regarding the program was “incorrect”, but did not say which parts.
A Department of Education spokesperson said, “ED and Treasury are currently collaborating on how best to implement the first phase of the partnership.”
A Treasury spokesperson also said the information was “false”, adding that it was working closely with the Department for Education “to agree the details of how to conduct these efforts”.
The departments announced in March that the student loan portfolio would gradually be transferred to the fiscal agency, using the same interagency agreements the administration already uses to transfer education responsibilities to other agencies. The agencies have not publicly stated any timeline.
Trump’s Education Department officials have long said Treasury is better suited to manage the portfolio.
“As the federal student aid portfolio grows to nearly $1.7 trillion and nearly a quarter of student loan borrowers default, Americans know that the Department of Education has failed to effectively manage and deliver these vital programs,” Education Secretary Linda McMahon said in a statement when the agreement was announced. “By leveraging Treasury’s world-renowned expertise in finance and economic policy, we are confident that American students, borrowers, and taxpayers will finally have programs that work after decades of mismanagement.”
Concerns about introducing a complex education program were flagged during the Biden administration’s rollout of the new Free Application for Federal Student Aid, or FAFSA, which came at the end of two consecutive years. Experts from the tech world and even people who worked directly on the form said the administration should have started small and worked out any technical bugs.
A former official of the department believes that the size of the borrower pool is not an issue.
“The numbers are almost irrelevant. Whether you start with 100,000 or 500,000, you’re going to start with it, and you’ll know very quickly whether the process will actually work or not,” said Wayne Johnson, chief operating officer of federal student aid during the first Trump administration.
