Student Loan Collection Expected To Target Thousands Of People This Summer

A group of student loan borrowers far behind on their federal debt are about to be funneled into a new collection program largely run by the Treasury Department — the latest action by a Trump administration determined to break up the Education Department.

The two agencies plan to launch the first step of their program to service loans in default 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 provide a number for how many borrowers it planned to put in the program.

These borrowers can expect calls and letters as soon as July about their missed payments. Such a move would mean that thousands of borrowers will receive regular communications about their loans in default for the first time since the pandemic — putting them on notice that the government is restarting the process of collecting on their debts.

This would mark 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 workers close to the move fear the shift is happening too fast, according to one of the people.

“Both Treasury and ED are saying it's very ambitious,” said one of the people, who was granted anonymity to discuss the program. “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.”

Aggressive collection tactics, like seizing wages to pay debt, will not start immediately, according to one of the people. The administration does not plan to begin those efforts until sometime after the midterm elections.

An Education Department official said the “information” regarding the program was “incorrect,” but did not specify which parts.

“ED and Treasury are currently collaborating on how best to implement phase one of the partnership,” an Education Department spokesperson said.

A Treasury spokesperson also said the information was “false,” adding that it is working closely with the Education Department “to agree on the details of how to conduct these efforts.”

The departments announced in March that the student loan portfolio would gradually move to the fiscal agency, using an interagency agreement similar to the ones the administration has already used to transfer education responsibilities to other agencies. The agencies have not publicly stated any timelines.

Officials at Trump’s Education Department have long said Treasury was a better fit to manage the portfolio.

“As the Federal student aid portfolio soars to nearly $1.7 trillion and with nearly a quarter of student loan borrowers in default, Americans know that the Department of Education has failed to effectively manage and deliver these critical 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 functioning programs after decades of mismanagement.”

Concerns about rolling out 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 out late two years in a row. Experts in the tech world and even those who worked directly on the form said the administration should have started smaller and worked out any technical bugs.

A former department official thinks 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 it, and you're going to know pretty quickly whether or not the process will actually work,” said Wayne Johnson, the chief operating officer at Federal Student Aid during the first Trump administration.