WASHINGTON — In a significant policy shift, Education Secretary Linda McMahon is reaching out to 43 million Americans burdened with student loan debt, including approximately 9 million who have defaulted. The Post has obtained information that the Treasury Department will now oversee the collection of these debts.
The letter, obtained by The Post prior to its wide distribution, outlines the rationale behind this change. It is framed as a strategy to safeguard taxpayers by enhancing the efficiency of the debt collection process, especially following the pause in loan repayments during much of the Biden administration. Borrowers have been protected from delinquency until September 2024.
“For too long, Americans have shouldered the consequences of poor leadership and persistent mismanagement of our federal student aid portfolio. Today’s actions reclaim integrity and accountability for you, the American people,” McMahon states in the letter. Her words signal a new approach to managing the student loan crisis.
The total student debt in the U.S. currently stands at $1.7 trillion, with around 25% of this amount, or $425 billion, believed to be in default as of the previous year.
This transition of responsibility marks a new chapter for Treasury Secretary Scott Bessent, whose department’s Bureau of the Fiscal Service will now be in charge of the debt collection process.
McMahon criticizes the Education Department’s past performance, writing, “The department has proven woefully unable to collect on debt owed to taxpayers.” This move indicates a shift towards a more centralized and, presumably, effective collection strategy under the Treasury’s oversight.
“The previous Administration created a web of confusion, leaving borrowers uncertain about their repayment obligations, and lacking the tools and support to get back on track,” the education secretary wrote.
“The status quo has failed our students and mired our nation in financial stalemate. It’s time for an entity with deep experience in finance and banking to support this major fiscal responsibility.”
McMahon wrote that the FAFSA form for students seeking financial aid won’t be altered and that borrowers currently making loan repayments should continue to do so through their normal loan-serving company.
“Treasury will assume operational responsibility for collecting on defaulted student loan debt and provide support to help return borrowers to repayment,” the letter says.
The Treasury Department includes the IRS, which has the power to garnish up to 15% of a delinquent borrower’s paycheck.
Student loan holders can enter into income-driven repayment plans with repayments capped as low as 10% of their discretionary income.
“Under President Trump’s leadership we are undertaking the first serious effort to clean up a $1.7 trillion portfolio that has been badly mismanaged for years,” Bessent said in a statement on the broader announcement of federal student loans moving to the Treasury Department. “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.”
McMahon is supporting President Trump’s goal of ultimately abolishing her department and used the letter to slam colleges for using federally underwritten loans as a way to escalate sticker prices.
“Americans have taken on crippling student debt as colleges raise tuition and treat federally-backed loans as a blank check underwritten by American taxpayers, leaving millions floundering financially,” she wrote. “In fact, 23% of bachelor’s and 43% of master’s degree programs leave students worse off than had they not enrolled.”
