The Trump administration has handed the US Treasury Department its first major test in reshaping the country’s vast $1.7 trillion student loan system, starting with the most troubled segment—defaulted loans. Under a new agreement, Treasury will take over management of roughly $180 billion in overdue debt affecting more than 9 million borrowers, marking a significant shift in federal loan oversight and a key step in President Donald Trump’s push to dismantle the Education Department.
While only Congress can formally dismantle the education department, the administration is pursuing incremental changes through inter-agency agreements.
Concerns over harsher collection tactics
Officials argue the Treasury Department is better equipped to manage overdue loans due to its experience in collecting federal debts. They warn the department lacks experience in offering flexible repayment solutions that help borrowers recover financially and repair their credit.
This could potentially increase financial strain on borrowers already struggling with default, which significantly impacts credit scores.
Lack of experience in loan rehabilitation
A key concern is Treasury’s limited experience with “account rehabilitation,” a process that allows borrowers to gradually return to good standing through manageable repayment plans.
Education Undersecretary Nicholas Kent acknowledged the challenge, as stated in Politico report: “We want to make sure that we’re giving students the tools to be able to rehabilitate their loans,” Kent said at an event.
He reportedly added that while Treasury is skilled in enforcement tools like wage garnishment, the goal is not to rely on those measures as a first step.
“While we have tools like administrative wage garnishment and Treasury offset — which the Treasury Department is very good at using — we want to make sure that we don’t start with those tools,” he said.
Kent also noted that officials are exploring automation and artificial intelligence to improve the borrower experience, though no timeline has been provided.
“The Trump Administration is committed to getting it in better shape by entrusting the experts at Treasury to provide better oversight,” Education Department spokesperson Ellen Keast said, as per the news outlet.
She added that reforms under Trump’s policy agenda aim to simplify repayment and provide greater clarity for borrowers.
Past pilot highlights potential challenges
The news report said concerns about the transition are underscored by a previous pilot programme launched in 2015 between the Treasury and Education departments.
During the trial, Treasury successfully rehabilitated just eight borrowers out of more than 5,700 cases in its first year—highlighting the complexity of managing student loan defaults.
Officials noted at the time that defaulted student loans differ significantly from other federal debts and are particularly difficult to resolve.
