Treasury Department Takes Over Defaulted Federal Student Loans From Education

The U.S. Treasury Department began taking over management of defaulted federal student loans from the Department of Education in March 2026. The transfer covers approximately $180 billion in outstanding loans owed by 9.2 million borrowers.

The move is part of a broader plan by the Trump administration to dismantle the Department of Education. Education Secretary Linda McMahon said the department had been "woefully unable to collect on debt owed to taxpayers." Treasury Secretary Scott Bessent said his department has the financial expertise to bring "long overdue financial discipline" to the program.

The transition is happening in phases. The first phase covers defaulted loans. Eventually, the Treasury is expected to assume responsibility for the entire $1.7 trillion federal student loan portfolio.

Borrowers do not need to take immediate action. They should continue working with their current loan servicers and repaying loans in the same way. Involuntary collections on defaulted loans, including wage garnishment and tax refund withholding, remain on hold as of March 2026.

Advocacy groups raised concerns. Critics said the Treasury has limited expertise in the rights and benefits afforded to borrowers under the Higher Education Act. A 2014-2015 pilot project testing Treasury's ability to collect defaulted student loans showed less success than the existing Education Department infrastructure.

Defaulted borrowers can visit myeddebt.ed.gov for information on their loans and to apply for rehabilitation programs.

The transfer comes as April marks Financial Literacy Month, designated by the U.S. Senate to raise awareness about smart money management. Financial advisers say borrowers in default should act quickly to understand their options before involuntary collections resume.