Administration Prepares Penalties for Nearly 10 Million Defaulted Student Loan Borrowers: Treasury Moves to Hire Private Debt Collectors, With an Announcement Unlikely Before the Midterms
The Trump administration is preparing to impose financial penalties on millions of Americans who are in default on their federal student loans next year, according to an investigation by The Washington Sun citing five sources familiar with the matter, with Rolling Stone and other outlets following the story on October 19 and 20. Three of the sources said the Treasury Department is moving forward with plans to hire private debt collectors, possibly as soon as November. The sources said the plans are unlikely to be announced before the midterm elections on November 3.
Nearly 10 million borrowers are in default on federal student loans, out of a federal portfolio of about $1.7 trillion. A federal student loan generally goes into default after about nine months of missed payments. Once that happens, the government can recover money without a court order in two main ways: by intercepting payments it would otherwise send the borrower, such as tax refunds, part of a Social Security check, or credits such as the Earned Income Tax Credit; and through administrative wage garnishment, ordering an employer to withhold a portion of a borrower's paycheck. Borrowers receive a window to object to garnishment on financial-hardship grounds.
The preparations mark a reversal from earlier this year: the Education Department postponed involuntary collections in January, saying the delay would give borrowers more time to review repayment options. Last year, the White House Office of Management and Budget began assisting the Education Department in preparing to seize federal benefits and wages from defaulted borrowers, but Treasury officials blocked that effort, expressing concern about the economic costs of taking punitive measures against workers. Since then, Treasury has unveiled a new online Defaulted Loans Support Center and portal intended to make it easier for borrowers to understand what they owe and how to pay; the administration's stated preference remains getting borrowers into voluntary repayment plans.
Timing remains unsettled. Some officials are pushing to apply garnishment and offsets for the current tax year, which would mean borrowers filing by the April 15, 2027 deadline could see refunds taken, but sources cautioned the start could be delayed again while officials make sure the Treasury support center is working. 'It would be politically insane to do this before the midterms, but 2027 probably makes a little more sense to give Treasury time to get contracts signed, up and running,' one source told The Washington Sun. The Treasury Department and the Office of Management and Budget did not comment in the reporting.
Source: GSM · USA (original Chinese edition)
Photo: 美国海军主办的大学毕业典礼资料图。照片：美国海军一级军士官 Drace Wilson 摄，公共领域，经维基共享资源。 / File photo of a college graduation ceremony hosted by the U.S. Navy. U.S. Navy photo by Petty Officer 1st Class Drace Wilson, public domain, via Wikimedia Commons.
