The U.S. Department of Education announced in a March 19 press release that it will transfer the management of loans in default to the U.S. Department of the Treasury.
According to the press release, the Department of Education manages $1.7 trillion in student loan debt, with only 40% of borrowers in repayment and 25% in default. The press release did not outline a timeline for the transfer of the management of loans in default.
For most federal student loans that fall under the Department of Education, loans enter default when the borrower fails to make payments for more than 270 days, or about nine months. Doing so makes the entire unpaid balance immediately due, and students lose eligibility for future federal aid, according to the Consumer Financial Protection Bureau.
“Throughout each phase of the partnership, [the Department of Education], in conjunction with Treasury, will communicate directly with stakeholders, including students, parents, borrowers, institutions and vendors, to outline anticipated plans and timelines and address any questions,” the Department of Education wrote in its release.
Under the agreement, the Treasury Department will also assist the Department of Education in “returning borrowers to repayment.” In later phases of the partnership, the Treasury Department will also provide support for loans not in default “to the extent practicable and permitted by law,” while seeking other ways for Federal Student Aid.
Nalani Pennick, a Texas State alumna, said every semester she had to take out both subsidized and unsubsidized student loans. She now owes the government $22,000 and Texas State almost $7,000 for her degree.
Pennick said she wants to come back to Texas State for graduate school, but it’s hard without access to Texas State’s resources and aid.
“It’s definitely a burden, I would like to get a further education, but it’s looming knowing I owe $22,000, but also [the fact] that I owe the school money too,” Pennick said.
Pennick said everything she needed to live made it harder for her to pay for her education.
“My classes were really expensive, I still had to have somewhere to live, stuff to eat, and still had to brush my teeth, wash my clothes and have everything for my bathroom,” Pennick said.
Pennick said she was on the Bobcat Promise and used Bobcat Bounty while at Texas State, but it didn’t make a dent in her bills.
“Paying off your loans is already a [tedious thing]. If I’m being honest, I feel like this is just going to make it more difficult,” Pennick said. “I owe my loans to the Department of Education and not anybody else, so I’m not sure how they’re going to say ‘well now you owe your loans to these other people’ because loans are a contract and that is not who I was contracted to pay back.”
In an email to The Star, a Texas State spokesperson stated the university is aware of the changes to loans, but would continue to assist students with financial aid issues.
“This change applies only to loans that are already in default and does not impact current or prospective students who have federal loans or plan to apply for them,” the university spokesperson wrote.
Borrowers in default are encouraged by the Department of Education to check myeddebt.ed.gov for updates as the partnership moves forward.
“Importantly, borrowers’ legal obligations, interest rates, and the definition of default remain unchanged under federal law,” the university spokesperson wrote. “Students and borrowers are not required to take any immediate action as a result of this transition and should continue working with their current loan servicer unless they receive official guidance from a federal agency.”
According to a fact sheet released by the Department of Education and the Department of the Treasury, the Treasury will take over administration of the Free Application for Federal Student Aid (FAFSA) form.
“As the Federal student aid portfolio soars to nearly $1.7 trillion and with nearly a quarter of student loan borrowers in default, Americans know that the Department of Education has failed to effectively manage and deliver these critical programs,” U.S. Secretary of Education Linda McMahon stated in the press release. “By leveraging Treasury’s world-renowned expertise in finance and economic policy, we are confident that American students, borrowers, and taxpayers will finally have functioning programs after decades of mismanagement.”
According to the fact sheet, the partnership for loans in default was created because the two departments already work together to disperse student aid and verify financial information on FAFSA applications.
“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,” U.S. Secretary of the Treasury Scott Bessent stated in the press release.
The two departments wrote in the fact sheet that there is no expected change to how communication about financial aid is structured with colleges and universities.
“TXST remains committed to supporting students with financial aid guidance and encourages borrowers with concerns about loan repayment or default to seek assistance through official federal resources or TXST One Stop,” the spokesperson wrote.
