Treasury Department To Assume Control Of Defaulted Student Loan Portfolio

This historic interagency shift comes as federal student loan defaults hit pre-pandemic levels.

The U.S. Department of Education and the U.S. Department of the Treasury have entered into a historic interagency agreement to transfer operational responsibility for the nation’s defaulted student loan debt.

The agreement, known as the Federal Student Assistance Partnership, marks the first significant step in a broader plan to dismantle the Education Department’s debt management infrastructure and centralize student loan operations under the Treasury.

Under the terms of the partnership announced March 19, 2026, the Treasury Department will immediately take over the collection of defaulted student loan debt. This includes assuming the responsibilities of the Office of Federal Student Aid’s (FSA) Default Resolution Group, which oversees support for defaulted borrowers and the Default Management and Collections System.

The scope of the initial transfer is substantial. Roughly 7.7 million borrowers are currently in default on $180 billion in federal student loans, representing 11% of the total $1.7 trillion federal portfolio, according to Education Week.

While the Treasury has historically assisted in collections through the Treasury Offset Program, this agreement grants the agency direct operational control over the default portfolio.

According to a summary from Brownstein Hyatt Farber Schreck, “as the Treasury Department increases its responsibilities, stakeholders, including parents, borrowers, universities and vendors, will be consulted to discuss anticipated plans and timelines.”

The transition is expected to occur in phases. Following the initial shift of defaulted accounts, the Treasury Department will work to provide operational support for non-defaulted student loan debt “to the extent practicable and permitted by law,” according to the official fact sheet on the student assistance partnership (PDF).

The partnership also extends to other FSA functions, including the administration of the Free Application for Federal Student Aid (FAFSA) form.

Education Secretary Linda McMahon described the move as an “intentional and historic step toward breaking up the federal education bureaucracy.”

The announcement follows ongoing discussions within the Trump administration regarding the relocation of federal student loan administration to other agencies.

The current default count of 7.7 million mirrors the number of borrowers in default in December 2019, according to new data from the FSA, suggesting that the pandemic-era safety nets have fully cycled out. This provides a clearer landscape for recovery experts to apply proven strategies for assisting consumers who have been out of the repayment loop for several years.