Treasury Takes Over $180 Billion in Defaulted Student Loans from 9.2 Million Borrowers

The U.S. Department of Education and the Treasury Department are transferring management of approximately $180 billion in defaulted federal student loans to the Treasury, affecting 9.2 million borrowers.

The Treasury will initially handle collection of the defaulted loans. Future phases of the transition will expand its role to non-defaulted loans and FAFSA administration, according to Experian's personal finance news team.

Borrowers seeking counseling or rehabilitation programs may face delays during the transition. Involuntary collections on defaulted loans are currently paused, but that pause is expected to end as the transfer is completed.

Student loan advocates warned that the shift could create confusion for borrowers who are already struggling to navigate the federal loan system. Several servicers have exited the market in recent years, leaving millions of borrowers with new servicers and unfamiliar processes.

The transfer is part of a broader effort by the Trump administration to consolidate federal financial operations under the Treasury Department. Treasury Secretary Scott Bessent has said the move will improve efficiency and reduce administrative costs.

Borrowers in default have several options to get back on track, including loan rehabilitation, consolidation, and income-driven repayment plans. Advocates recommend contacting loan servicers directly to understand what options remain available during the transition period.

The average tax refund this year is 11.2 percent higher than last year, up $350 according to the latest IRS filing data, which some borrowers may be able to apply toward outstanding loan balances.