Defaulted Federal Student Loans Now Managed by US Treasury, Education Department
The total student loan portfolio is nearly $1.7 trillion and almost one-quarter of borrowers have defaulted.
Plan sponsors are evaluating how they can help their employees get on track with their student loan obligations, as the U.S. Departments of Education and the Treasury have entered an interagency agreement to manage federal student loans and place defaulted borrowers back onto a repayment plan.
According to a fact sheet issued by the DOE and Treasury earlier this month, Treasury will assume operational responsibility for collecting defaulted federal student loan debt, leveraging private default resolution agencies to help defaulted borrowers enroll in a debt rehabilitation program or otherwise return to good standing. Treasury will also operate the Federal Student Assistance Partnership’s Default Resolution Group—which provides support for borrowers who have defaulted on their student loans—and operate the Default Management and Collections System.
Why Treasury?
The DOE’s student loan portfolio stands at nearly $1.7 trillion, with fewer than half of borrowers in repayment and almost one-quarter of borrowers in default, according to the DOE’s partnership announcement. According to the fact sheet, the DOE demonstrated for decades that it is “ill-equipped to manage a portfolio of [that] size and complexity,” leading the agency to select Treasury for the role.
“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,” said Secretary of the Treasury Scott Bessent in a statement.
Will Sealy, co-founder and CEO of Summer PBC, a student loan and education assistance platform, says the partnership is a “wake-up call” for plan sponsors who have been in a “wait-and-see posture” on adding student loan benefits for their employees.
“For the first time since the COVID-19 payment pause ended in 2023, federal student loan borrowers must pay their student loans or face financially crippling consequences,” Sealy wrote in response to emailed questions. “For workers already stretched thin, this isn’t a background stressor; it’s a crisis that lands on [human resources’] desk.”
What Can Employers Do?
Sealy says he has sensed urgency about the default collections from employers across many sectors, as collections announcements accelerate ongoing conversations about student loan support. The most proactive employers, he says, have been those that recognize that college costs and student loans affect all generations in their workforces.
In the first quarter of 2025, 26% of all outstanding student debt was held by people age 50 and older, according to the DOE’s Federal Student Aid Office
While the SECURE 2.0 Act of 2022 allows employers to match employees’ student loan payments with retirement plan contributions, matches cannot be made on payments for defaulted loans. However, human resources teams and benefits platforms remain on the front lines.
“Forward-thinking employers are responding by moving beyond wellness brochures,” Sealy wrote. “They are deploying automated tools to catch payment problems before they escalate and providing professional [one-on-one] consultations to stabilize their employees’ financial futures.”
How Can Their Actions Help?
For employers, offering student loan benefits means serving as a source of accurate information on student loan developments, according to Sealy.
“If those resources can’t provide accurate, personalized guidance, the stress compounds,” Sealy wrote. “The employers who invested in robust student loan benefits before this moment are in a far better position to absorb the wave.”
Greg Ward, director of Financial Finesse’s financial wellness think tank, says plan sponsors should demonstrate to their employees that they are aware of the default loan collection news and want to help them address the financial stress they are facing. They should also ensure participants that they will disseminate additional information about collections as soon as it becomes available, he says.
“The sooner you can do that, the more likely you’ll nip any kind of uncertainty that’s going to manifest,” Ward says.