The U.S. Treasury Department is taking over federal student loan debt — and setting its sights on defaulted loans.
The new Federal Student Assistance Partnership, an agreement between the Treasury and the Department of Education, is the latest move by the Trump administration to dismantle the Education Department. Now, defaulted student loan collections will be the Treasury’s responsibility.
According to the most recent Federal Student Aid data, nearly 43 million borrowers have outstanding federal loans. About 7.7 million recipients — one quarter of those with student loans held by the Education Department — are currently in default. That’s about $180 million in defaulted loans.
“So our goal is to get people out of default, as is 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 when you’re in default, it’s just such a negative on your credit record, on your credit score, that you’re precluded from doing any of that.”
If you have federal student loans, the good news is that you won’t see much impact on your loan in the near-term — but there are still some important changes you should know.
The Education Department and Treasury Department are entering into an Interagency Agreement, which means they will work together to manage federal student loans and get defaulted borrowers back on a repayment plan.
The Federal Student Assistance Partnership is one of many changes for student loan borrowers in 2026. Earlier this year, the income-driven SAVE repayment plan was eliminated, and there are still several more student loan changes set to begin later this summer, part of last year’s One Big Beautiful Bill.
The Federal Student Assistance Partnership is set to roll out in phases.
For now, the Treasury will take the lead on collecting defaulted student loan debt, including working with private agencies to help borrowers enroll in loan rehabilitation and other programs designed to get out of default. The Treasury will also manage the Federal Student Aid’s Default Resolution Group.
The goal is to get those defaulted borrowers back on a regular repayment plan, McMahon told Yahoo Finance.
The Treasury won’t take action on non-defaulted loans until a later phase of the agreement.
The fact sheet on the new partnership states that the Education Department says it is “ill-equipped to manage a portfolio of this size or complexity.”
But why the Treasury? In the program announcement, the agencies point to their shared history and existing partnership in managing the loan portfolio. The Treasury Department also has experience working with similar independent contractors used for loan servicing, according to McMahon.
“…They are well positioned to evaluate the contractors, make sure they have the right number of people servicing this loan debt, and to really get it where it needs to be,” McMahon told Yahoo Finance.
Treasury Secretary Scott Bessent made similar remarks in a statement: “Treasury has the unique experience, the operational capability, and the financial expertise to bring long overdue financial discipline to the program and be better stewards of taxpayer dollars.”
Some advocates say that moving loans from the Education Department to the Treasury could lead to more instability and a lack of access for borrowers.
“Rather than offering much-needed support for struggling borrowers, this shift risks pushing stability further out of reach for those who need it most,” said senior policy counsel Ashley Harrington at the Legal Defense Fund in a statement. “The consequences of defaulting on a federal student loan are devastating and any delays in a borrower’s ability to get back on track can have long-term ramifications.”
There’s also been pushback from Democrats in Congress, who say transferring loans away from the Education Department creates an “administrative barrier” for repayment.
Rep. Robert Scott, a ranking member of the House Committee on Education and Workforce, said in a statement that “[defaulted] borrowers need the most support, but they will now have limited access to the subject-matter experts at ED. Moreover, this transfer requires student borrowers who may be eligible for total discharge or other relief to discuss their situation with the people who don’t have a clue about how the student loan program actually works.”
You don’t need to take any action if you have federal student loans.
You can continue to make payments to your same loan servicer, just like you have been. If you’re unsure which servicer you’ve been assigned, you can find more information by logging into the Federal Student Aid site.
If you’re currently taking on student loans or plan to borrow later this year, you also don’t need to make any changes. The Education Department says existing systems to apply for, certify, disburse, and track loans will continue to be administered.
If you have defaulted on your student loan, you can also 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 rehabilitation or consolidation.
That’s also where you’ll find updates as the Treasury assumes responsibility for collecting defaulted student loans.
Remember: Defaulting on your student loan can lead to involuntary collections from your tax refund and even your wages. As of January 2026, involuntary collections have been delayed by the Education Department, but that delay is temporary. If you’re currently in default, it can pay to get help resolving your default now before risking wage garnishment.
Read more: How to get your student loans out of default