The federal government is preparing to bring private debt collectors back into the collection of defaulted student loans for the first time in more than six years, according to documents reviewed by MarketWatch. The effort would be handled by the U.S. Treasury Department as the Trump administration shifts collection responsibilities away from the Department of Education.
Treasury is proposing new contracts for vendors that collect defaulted federal student debt. Under the proposal, a collection company would receive an additional $20 for each borrower it helps complete either loan rehabilitation or consolidation, in addition to the company’s standard collection fees.
How borrowers can leave default
Rehabilitation and consolidation are two federal processes that can allow a borrower to move out of default. Default generally means a borrower has failed to make required payments for a period defined by the loan program. The Treasury documents describe the two processes as ways for borrowers to escape the collection consequences associated with default.
Those consequences can include the government taking federal tax refunds, Social Security benefits or wages to repay a defaulted student loan. The documents reviewed by MarketWatch describe helping borrowers out of default as a central part of the proposed collection contracts.
| Proposed contract feature | Details |
|---|---|
| Agency overseeing the collection effort | Treasury Department |
| Borrowers targeted | People with defaulted student loans |
| Additional payment to a collector | $20 for each borrower helped through rehabilitation or consolidation |
| Status | Treasury has proposed the terms in a request for quotes |
A larger role for Treasury
The administration has moved collection of defaulted student loans to Treasury, which is led by Scott Bessent. The change reduces the role of the Education Department, led by Linda McMahon, in this part of the student-loan system.
The proposal does not represent a completed award of contracts. Treasury issued a request for quotes to vendors interested in participating in federal student-debt collection, and the payment terms were included in that request. The documents do not identify which companies would receive contracts or when collection activity under new agreements would begin.
For borrowers already in default, the proposed incentive focuses on resolving the default through one of the two available processes rather than simply pursuing payment. The government’s collection tools can affect income and federal benefits, including wages, Social Security payments and tax refunds. The Treasury plan would compensate collection companies separately for helping borrowers complete rehabilitation or consolidation, according to the documents reviewed by MarketWatch.
- Treasury is proposing to hire collection companies for defaulted federal student loans.
- Collectors could receive an extra $20 for each borrower they help through rehabilitation or consolidation.
- The plan would shift more of the collection role from the Education Department to Treasury.
