What Happens to Your Student Loans Now That Treasury Is Taking Over Default Collections

The Department of Education and the Treasury Department signed an agreement in March 2026 handing Treasury the job of collecting on defaulted federal student loans. Your loan terms did not change, your servicer did not change, and your forgiveness counts did not reset. What is moving is who runs collections on accounts already in default — a different agency doing the same job under the same rules.

On March 19, 2026, the two departments signed an interagency agreement called the Federal Student Assistance Partnership. It is the reason headlines said student loans were “moving to Treasury.”

The agreement is narrower than those headlines suggested, and slower.

It covers collections on defaulted loans first. That is the first of three phases. It reaches accounts already in default — about 7.8 million borrowers, roughly 18% of all federal student loan borrowers, owing around $179 billion.

No phase has a published start date. The agreement takes effect on signature and runs until the parties end it, but it sets no timeline for when any phase, including the first one, actually gets implemented. As of August 2026, no public schedule has been released. The agreement also says Treasury will not begin or continue work without appropriate funding, which is one reason the timing is open.

Later phases are conditional. The second phase has Treasury taking on administrative operations for non-defaulted loans “to the extent practicable,” and only after Treasury assesses the portfolio. The third has Treasury reviewing the policy requirements governing student aid eligibility, including the aid application. Neither is scheduled.

The Department of Education kept its statutory authority. The agreement is explicit that the department retains all statutory responsibilities, including writing the rules. The existing systems — the aid application, the origination and disbursement system, and the National Student Loan Data System — stay where they are.

The legal mechanism is ordinary. Agencies routinely contract with each other to have one perform services for another, and Treasury already had authority to collect delinquent federal debts. Most agencies must hand delinquent debt to Treasury for collection. Since 2001 the Education Department has held an exemption letting it collect its own. The agreement says that exemption will be revoked.

The agreement says the rest of this in its own text, too. Referrals to Treasury, it states, are “for collection purposes only and do not transfer ownership of the debt from Education to Treasury.”

So the answer to what happens to student loans without the Department of Education running them is narrower than it sounds: operational responsibility is moving. Ownership, legal authority, and the terms of your loan are not.

For most borrowers, nothing.

Your loan terms are the same. Interest rate, balance, repayment plan, and forgiveness rules all come from statute and from your promissory note. An agreement between two agencies about who performs a task does not rewrite either one. Congress did change the repayment plans themselves in the 2025 budget law — that is a separate change, and it is not what this agreement did.

Your servicer is the same. If you are in repayment, you continue paying whoever you were already paying. The agreement’s own borrower guidance says borrowers will not have to take any additional action and should keep working with their assigned servicer.

Your forgiveness counts did not reset. Statute sets what counts toward public service loan forgiveness and toward income-driven repayment forgiveness. Nothing in this agreement changes those requirements or wipes what you have accumulated.

No new kind of charge was created. The authority to charge collection costs on defaulted federal loans comes from the Higher Education Act and predates this agreement entirely. So do the other collection tools — offset of tax refunds and federal payments, and wage garnishment of up to 15% of disposable pay. Treasury already ran the offset program long before any of this.

Those tools are on hold at the moment. The Education Department delayed involuntary collections — both wage garnishment and tax refund offset — in January 2026 and has not announced a restart. That pause is separate from the Treasury agreement, and it does not make the underlying authority go away. It can end whenever the department decides it ends.

What the agreement does is route Treasury’s own servicing charges through that existing authority, so that reasonable amounts Treasury charges the Education Department can be assessed on referred borrowers. The department can instruct Treasury to limit what gets passed through and cover the rest itself. Whether the amounts a given borrower sees end up different is not yet knowable.

If you are in default, the honest framing is that you have a different collector doing the same job.

One piece is worth watching. The agreement contemplates using private agencies to help defaulted borrowers get back into good standing. The Education Department cancelled its private collection contracts in 2021 and never replaced them, so this would restore a layer that has been missing for years. It has not visibly reached borrowers yet, and it is the part most likely to change how collection contact feels.

A zero balance almost always means the loan moved to a different servicer or the federal database has not caught up — not that anything happened to the debt.

Two ordinary things explain nearly all of these, and often both are happening at once.

A transfer between servicers. When a loan moves, the old servicer’s record drops to zero and the balance appears under the new one. Mid-transfer, it can look like the loan disappeared. This happens routinely and has nothing to do with the Treasury agreement.

A lag in the National Student Loan Data System. The federal database does not update in real time. A balance that looks wrong today may simply be a record that has not caught up.

Consolidation produces the same picture — the original loans close out at zero and a single new loan replaces them.

A zero balance is not forgiveness, and it is not evidence a loan moved to Treasury. In nearly every case, the balance turns up elsewhere under the same account, or the federal database catches up over the following weeks.

The practical answer depends only on whether the loans are in default — not on which agency is running collections.

Loans in good standing need nothing. Payments and income recertification continue on the same schedule. Keeping an independent record costs a few minutes and matters if paperwork goes sideways during a transition: a letter or screenshot showing the qualifying payment count, saved statements, and payment history. The government’s own detailed file on a borrower’s loans can also be requested directly.

For loans in default, the exposure comes from the default itself. Offset, garnishment, and collection costs attach to defaulted status. They are paused right now, with no announced end date, but the authority behind them is intact and the pause is not a resolution. They stop for good when the default ends, and which agency collects in the meantime does not change that. Two routes out are open, and each carries different consequences. The full mechanics of each route go deeper than this page does.

Rehabilitation clears the default from the credit report after nine payments made over ten months. The payment is set at an amount treated as reasonable and affordable given the borrower’s finances, which for most people tracks income. Federal law currently allows this once per loan. A second rehabilitation opportunity becomes available on July 1, 2027 — not before — so a prior rehabilitation does not permanently close the door, but it is not available again yet either.

Consolidation combines defaulted loans into a new loan in good standing, often in a matter of months rather than most of a year. A prior rehabilitation does not block it, which matters for borrowers who used their one rehabilitation and then re-defaulted. The original default stays on the credit report.

A court judgment complicates both, in different ways. A loan with a judgment against it cannot be rehabilitated at all. Consolidation remains possible, but only after the judgment is vacated or the wage garnishment order is lifted. Missing judgment paperwork in the government’s own records is a common reason consolidations get denied, and many of these older judgments were never renewed.

Whether the shift to Treasury turns out to be an improvement, a disruption, or neither is not knowable yet, and it does not change any of the above. Default is the expensive condition under every version of what happens next.