Treasury Set To Ramp Up Defaulted Student Loan Collections In July

Hundreds of thousands of federal student loan borrowers in default could start hearing from the government and their debt collectors as soon as July, as the Treasury Department prepares to take over a piece of the Education Department's collection work, Politico reported.

Why It Matters: This would be the first major step in moving the $1.7 trillion federal student loan portfolio out of the Education Department and the first sustained collection contact most defaulted borrowers have received since the Covid-era payment pause began in March 2020. Collections have been delayed various times since that paused ended in 2023.

The Details: Treasury and the Education Department plan to launch phase one of the partnership in July, starting with roughly 500,000 borrowers, according to people familiar with the plan. According to the Politico reporting, a Treasury spokesperson disputed the figure but declined to provide an alternative number.

Affected borrowers should expect phone calls and letters about missed payments. More aggressive tactics (including wage garnishment and benefit offsets) are not expected to begin until sometime after the midterm elections, one of the people told Politico.

Both agencies said some information in the report was "incorrect" or "false" but did not specify which parts. And the general trend of collections resuming makes sense in the bigger picture.

The Bigger Picture: The Trump administration announced in March that the federal student loan portfolio would gradually shift to Treasury through an interagency agreement. Phase one of the plan involves student loan collections.

Education Secretary Linda McMahon said at the time that Treasury was better equipped to handle the work, citing its "world-renowned expertise in finance and economic policy" and noting that nearly a quarter of student loan borrowers are in default.

How This Connects: Collections activity on federal student loans officially restarted on May 5, 2025, when the Education Department resumed the Treasury Offset Program for the first time since 2020. However, the Department then paused the offset program right before tax season. 

More than 5 million borrowers are currently in default, and several million more are at risk of joining them as missed payments accumulate. 

Borrowers worried about being pulled into collections still have options. Student loan rehabilitation and loan consolidation can move a defaulted loan back into good standing and stop wage garnishment or tax refund offsets before they begin. Borrowers at risk can enroll in income-driven repayment plans, which are cheaper than what collection costs would be.

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