The Trump administration is moving forward with its transfer of federal student-loan accounts to the Treasury Department.
The Treasury and Education Departments announced on Wednesday, first reported by Business Insider, that they are launching the “Defaulted Loans Support Center.” The new online portal is intended to serve as a centralized hub for borrowers in default to return to good standing and access default resources.
Previously, defaulted borrowers had to file printed paperwork to access rehabilitation and consolidation resources. The agencies said the new support center would streamline the process, making it faster for defaulted borrowers to reenter repayment.
A senior Education Department official said in an interview that the two agencies spent the past few months beta-testing the portal with 15,000 borrowers, and that more than 5,000 of those borrowers have made a payment online during the testing period.
“It’s a complete modernization of how we engage with borrowers who have unfortunately gone off the track,” the official said.
The Education Department announced in March that it would be transferring management of the defaulted student-loan portfolio to the Treasury. The transfer is set to occur in phases, with plans for the Treasury to eventually oversee non-defaulted federal student loans as well. The department official said that work for the second phase is underway, but did not provide further details.
Education Secretary Linda McMahon said in a statement on Wednesday that the department “was never intended to serve as the fifth largest bank in America, and that’s exactly why we partnered with the Treasury Department to improve the administration of federal student aid programs that millions of American students, families, and borrowers rely on.”
Lawmakers and former administration officials have expressed concerns with the Treasury’s capability to manage the $1.7 trillion student-loan portfolio. Sarah Bloom Raskin, who served as former President Barack Obama’s deputy treasury secretary, previously said that collecting defaulted student loans is “operationally quite challenging, and you need the right people there in your career service who can handle this.”
Over 60 Democratic lawmakers called on the Education Department in June to stop the transfer to the Treasury. Meanwhile, a Republican-led bill is pushing to codify the plans.
In addition to the new support center, the Treasury Department is also seeking to partner with vendors to facilitate collections on defaulted student loans, a Treasury official previously told Business Insider. Involuntary collections, which include wage garnishment and the seizure of federal benefits, are paused, and the administration has not commented on when the pause will lift.
Defaults on student loans continue to climb. Recent data from Federal Student Aid showed that, through June 30, 9.3 million borrowers were in default — an increase of 400,000 from the prior quarter. An additional 1.5 million borrowers were in late-stage delinquency and at risk of entering default in the next six months, FSA said.
Treasury Scott Bessent said in a statement that the new online portal for defaulted borrowers is “bringing Treasury’s unique financial and operational expertise to the program, providing defaulted borrowers a clearer path back to repayment, and building a more efficient and accountable system that better serves borrowers and taxpayers.”
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