The US Treasury Department is taking over federal student loan debt – and focusing on delinquent loans.
The new Federal Student Assistance Partnership, which is an agreement between the Treasury Department and the Department of Education, is the latest step in the Trump administration’s dismantling of the Department of Education. Now, delinquent student loan collections will be the responsibility of the Treasury.
According to the latest Federal Student Aid data, about 43 million borrowers have federal loans. About 7.7 million borrowers — a quarter of those with student loans maintained by the Department of Education — are currently in default. That’s about $180 million in non-performing loans.
“So our goal is to get rid of people in an efficient way, just like the Treasury’s goal,” Education Secretary Linda McMahon told Yahoo Finance in a recent interview. “We want to make sure that they can buy a house, that they can get a car loan. And if you don’t pay, it’s just as bad on your credit record, your credit score, that you can’t do that.”
If you have federal student loans, the good news is that you won’t see a big impact on your credit anytime soon — but there are still some important changes you should be aware of.
The Department of Education and the Department of Treasury are entering into an Interagency Agreement, which means they will work together to manage federal student loans and repay borrowers with a repayment plan.
The Federal Student Assistance Partnership is one of many changes for student loan borrowers in 2026. Earlier this year, the cash-driven SAVE repayment plan was phased out, and there are several other changes to student loans that will take effect later this summer, part of last year’s One Better Bill.
The Federal Student Assistance Partnership intends to begin in phases.
Currently, the Treasury will take the lead in collecting nonperforming student loan debt, including working with private organizations to help borrowers enroll in credit rehabilitation and other programs designed to get out of default. The Treasury Department will also manage the Federal Student Aid’s Default Resolution Group.
The goal is to get defaulted borrowers back on a regular repayment schedule, McMahon told Yahoo Finance.
The Treasury will not act on non-remedial loans until the next phase of the agreement.
A fact sheet on the new partnership says the Department of Education is “not equipped to manage a task of this size or complexity.”
But why Treasury? In the program announcement, the organizations point to their shared history and existing collaboration in managing the loan portfolio. The Treasury Department also has experience working with the same independent contractors used for loan servicing, according to McMahon.
“…They’re in a good position to vet contractors, make sure they have the right number of people servicing this mortgage, and get it where it’s needed,” McMahon told Yahoo Finance.
Treasury Secretary Scott Bessent said the same in a statement: “The Treasury Department has the unique experience, operational skills, and financial knowledge to bring long-term financial control to the program and to be good stewards of taxpayer dollars.”
Some advocates say that moving loans from the Department of Education to the Treasury would cause great confusion and disadvantage borrowers.
“Instead of providing much-needed support for struggling borrowers, this change risks pushing stability away from where they need it most,” said senior policy adviser Ashley Harrington at the Legal Defense Fund in a statement. “The consequences of defaulting on a federal school loan are severe and any delay in a borrower’s ability to get back on track can have long-term consequences.”
There has also been pressure from Democrats in Congress, who say shifting loans away from the Department of Education creates an “administrative barrier” to repayment.
Representative Robert Scott, ranking member of the House Education and Labor Committee, said in a statement that “[defaulted] Borrowers need more support, but now they will have less access to academic experts in the ED. In addition, this amendment requires borrowers who may be eligible for a full discharge or other assistance to discuss their situation with people who do not know how the student loan program actually works. ”
You do not need to take any action if you have federal student loans.
You can continue to make payments to the same lender, just like you did before. If you’re not sure what job you’ve been assigned, you can get more information by visiting the Federal Student Aid site.
If you currently take out student loans or plan to borrow later this year, you also don’t need to make any changes. The Department of Education says the existing systems for applying, verifying, granting loans and tracking will continue to be implemented.
If you have defaulted on your student loan, you can follow the same steps as before to get out of default. Start by visiting myeddebt.ed.gov, where you can find more information about your options for resolving your student loans – including loan refinancing or consolidation.
That’s where you’ll find updates as the Treasury takes responsibility for collecting delinquent student loans.
Remember: Paying off your student loan can lead to involuntary withholding from your tax return and even your earnings. As of January 2026, voluntary collections have been delayed by the Department of Education, but the delay is temporary. If you are currently unemployed, it may pay to get help to solve your problem now before you risk your earnings.
Read more: How to make your student loans go away
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