Student loan collection will be managed by Treasury Department

Trump administration announced On Thursday, he will task the U.S. Treasury Department with collecting defaulted student loans.

Currently, the U.S. Department of Education manages the nation’s approximately $1.7 trillion federal education debt portfolio, held by approximately 42 million borrowers.

A joint announcement from the two agencies said the Treasury Department will take on more duties related to federal student debt over time and eventually provide “operational support” for existing loans.

President Donald Trump has repeatedly said he intends to disband the Department of Education. Transfer of education authority to the states. U.S. Education Secretary Linda McMahon said in a statement that the partnership with the Treasury was “a historic step toward dismantling the federal education bureaucracy.”

Some student loan borrowers may see the effects of change more directly and immediately than others.

“Borrowers want clarity and certainty about their student loans,” said Landon Warmund, a certified financial planner and certified student loan specialist with Reliant Financial Services in Kansas City, Missouri. “This latest announcement adds further uncertainty to the mix.”

This is what we know so far.

The government said the Treasury was in a better position to collect debt because the Treasury was in a better position. offset program. This program includes debt enforcement of child support and other past-due balances owed to the federal government and states.

“Under President Trump’s leadership, we are making the first serious effort to clean up a $1.7 trillion portfolio that has been mismanaged for years,” US Treasury Secretary Scott Bessent said in a statement about the transition.

“Treasury has the unique experience, operational capacity and fiscal expertise to bring long-overdue fiscal discipline to the program and better manage taxpayer dollars,” Bessent said. he said.

Nearly 9 million borrowers are in default, according to the Department of Education.

Department of Treasury to be included in past efforts to collect student loans. But the department itself found collected at lower rates More than private companies, according to a 2016 blog post archived on the Internet Archive’s Wayback Machine.

“Moving collections to the US Treasury will not lead to increased efficiency,” Kantrowitz said.

For now, only student loan borrowers who are in default are affected by the change. You are generally not in default on your federal student loans unless you make at least your scheduled payment. 270 days.

If you’re that far behind, the Treasury Department will likely be tasked with collecting your debt. Maximus, the student loan servicer that handles the government’s defaulted accounts, is unlikely to change, Kantrowitz said.

The federal government has extraordinary collection powers over student loans and can seize borrowers’ tax refunds. paychecks And Social Security retirement and disability benefits. But those collection efforts have been paused for now, and the Trump administration has not said when it will resume.

Experts say the terms and conditions of your federal student loans can’t change, even if the agency that oversees them does. Debtors’ rights are guaranteed when they sign the contract. master deed.

Borrowers are concerned that their data and repayment history will be lost during the transition from the Department of Education to Treasury supervision. National Student Loan Data Systemsaid Warmund, a member of CNBC’s Council of Financial Advisors.

Defaulters can contact the government Default Solution Group and enrolling in an income-driven repayment plan, or credit rehabilitation.

But its president, Betsy Mayotte, said their language was too vague to understand what it meant. Institute of Student Loan Consultantsis a non-profit organization that helps borrowers repay their debts.

“I have many more questions about the next phases and I suspect there may be pushback,” Mayotte said.

CNBC Make It reporter Kamaron McNair contributed reporting.