The federal government is expected to initiate debt collection efforts this summer, targeting half a million borrowers who have defaulted on their federal student loans.
An estimated nine million borrowers are either in default or on the brink, a staggering number resulting from the end of pandemic-related protections introduced during the Trump administration.
In recent disclosures, the Education Department announced its collaboration with the Treasury Department to begin recovering defaulted student loan debts.
Sources familiar with these plans told Politico that the two federal agencies are set to commence collection activities for approximately 500,000 borrowers by July.
This coordinated initiative aligns with the administration’s broader strategy to phase out the Education Department, transferring its $1.7 trillion student loan portfolio to the Treasury for management.
“I perceive this as more of a pilot program,” Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, shared with the Daily Mail.
Last March, President Trump signed an executive order to ‘abolish’ the Education Department – although as with many similar pronouncements, only Congress has the effective power to dissolve a federal agency.
An Education Department spokesperson told the Daily Mail that both departments dispute the validity of the reports – and reiterated that the administration had delayed involuntary collections on federal student loans.
Secretary of Education Linda McMahon smiles during the signing event for an executive order to shut down the Department of Education next to President Donald Trump
Last March, President Trump signed an executive order to ‘abolish’ the Education Department – although as with many similar pronouncements, only Congress has the effective power to dissolve a federal agency
According to people familiar with the new plans who spoke to Politico , the two federal agencies would reportedly launch collections for around 500,000 borrowers by July
‘Both Treasury and ED are saying it’s very ambitious,’ one of the anonymous sources told Politico. ‘We are really pushing for starting with a few hundred, then a few thousand and slowly ramping up instead of just turning the floodgates on.’
The sources said that aggressive collection tactics like wage garnishing would not begin right away, with the administration waiting to begin those efforts sometime after the midterm elections.
‘It’s worth noting that a similar pilot program was attempted back in 2015 under the Obama administration and it was found that the Treasury wasn’t as effective in collections as the Education Department was,’ said Mayotte.
The US Treasury knows how to collect debts: Since 1996, the Bureau of Fiscal Service has been the federal government’s main debt collector for everything other than taxes.
Meanwhile, before the pandemic the Education Department had contracted with private debt collection agencies to pursue collections on student loan borrowers who were at least 270 days late on repayment.
According to policies outlined by the Education Department, if borrowers don’t make scheduled loan payments for at least 270 days, their federal student loan goes into default.
And if you haven’t made a payment on your loan for more than 360 days and don’t take action to resolve the default status, the government can withhold money to collect on the debt you owe.
Involuntary collections methods include wage garnishment of up to 15 percent of defaulted borrowers’s paychecks, or withholding tax refunds or other federal benefits.
Up to 9 million borrowers have defaulted or are close to defaulting on their student loans, a mind-boggling figure that’s due to the expiration of pandemic-era protections under the second Trump administration
Student loan borrowers stage a rally in front of The White House to celebrate President Biden cancelling student debt and to begin the fight to cancel any remaining debt on August 25, 2022
Further consequences may include the suspension of professional licenses (nursing, teaching, law), and defaulted federal debt is a major red flag during background checks.
In 2025, President Trump had mentioned that the Small Business Administration would take over the student loan program, and hinted that the Education Department had explored selling off some of the portfolio to private companies.
And last April, the Education Department warned that more than five million Americans with defaulted loans would face wage garnishment starting shortly – although that plan never came to pass.
Administration officials are on the record calling the Treasury a better fit to manage the loan portfolio.
‘Americans know that the Department of Education has failed to effectively manage and deliver these critical programs,’ said Education Secretary Linda McMahon.
