Treasury Takes Over $180 Billion in Defaulted Student Loans
The U.S. Department of the Treasury began taking over collection of defaulted federal student loans in April 2026, affecting 9.2 million borrowers who owe approximately $180 billion. Wage garnishment and seizure of tax refunds could resume once the transition is complete.
The U.S. Department of the Treasury is taking over management of defaulted federal student loans, a shift that affects 9.2 million borrowers.
The Education Department and Treasury announced the transfer in April 2026. The initial phase covers approximately $180 billion in defaulted loans. Future phases will extend Treasury's role to non-defaulted loans and eventually FAFSA administration.
The total federal student loan portfolio stands at nearly $1.7 trillion. Less than 40 percent of borrowers are currently in repayment, and almost 25 percent are in default.
Borrowers in default face potential wage garnishment and seizure of federal tax refunds and Social Security benefits. Involuntary collections are currently paused, but the transition to Treasury could affect the timeline for their resumption.
The shift may also cause delays for borrowers seeking counseling or rehabilitation programs, as the new system gets up to speed. Over 643,000 student loan borrowers are still waiting for repayment plans and forgiveness decisions.
Financial advisors say borrowers in default should contact their loan servicer now to understand their options before collections resume. Rehabilitation programs allow borrowers to make a series of on-time payments to remove the default status from their credit report.
The move is part of a broader restructuring of federal student loan administration under the current administration.
