Trump administration officials are considering financial penalties next year for Americans in default on federal student loans, a potential change affecting millions of borrowers, The Washington Sun reported Monday.
Federal Student Aid, part of the U.S. Department of Education, counted more than 9.3 million recipients in default as of June 30. Loans held by recipients in default totaled $234 billion. The full federal student loan portfolio exceeded $1.7 trillion, while the federally managed portion was above $1.64 trillion.
The Sun cited five people familiar with the discussions. It reported that the U.S. Department of the Treasury plans to hire private debt collectors, with three sources saying it could do so as soon as November. One source considered 2027 more plausible for collections because arranging contracts would take time; no start date has been set.
A public announcement is unlikely before November’s midterm elections, the Sun reported. The account also said officials favor encouraging voluntary repayment and may assess whether a new online portal helps borrowers before pursuing stronger collection measures.
Treasury and the Education Department launched the portal Sept. 30. Borrowers with defaulted loans can use it to review their options and apply to rehabilitate or consolidate their loans.
The Sun reported that Treasury blocked a collection proposal the Education Department prepared last year with assistance from the White House Office of Management and Budget. The proposal would have collected money from borrowers’ federal benefits and wages. Treasury officials were concerned about the effect on working borrowers, the report said.
In comments carried by the Sun, Marc Goldwein, senior vice president of the Committee for a Responsible Federal Budget, estimated that Treasury’s decision last year to postpone collections had cost taxpayers about $5 billion so far. Protect Borrowers Executive Director Michael Pierce warned that renewed collections could take money from households through seized tax refunds and garnished wages. Preston Cooper, a student debt expert at the American Enterprise Institute, called for collection efforts that also let borrowers rehabilitate loans and enter affordable repayment plans without excessive fees.
The Sun identified the April 15, 2027, tax deadline as another possible point for action. The administration has announced no timetable for penalties.
