The Trump administration is reportedly preparing to go after defaulted student loans with private debt collectors, and nearly 10 million borrowers could lose their tax refunds and part of their paychecks as soon as next year.
According to a report from The Washington Sun, five sources familiar with the plans say administration officials are getting ready to impose financial penalties on Americans who are in default on their federal student loans. Three of those sources said the Treasury Department is moving forward with hiring private debt collectors, possibly as soon as November.
Sources said the plans are unlikely to be announced before the midterm elections on November 3. One source put it bluntly: “It would be politically insane to do this before the midterms.”
A federal student loan goes into default after about nine months of missed payments. Once that happens, the government has two main ways to take its money back without the borrower’s permission.
The first is called an offset. The government intercepts money it was already going to send you, like your tax refund, part of your Social Security check, or tax credits such as the Earned Income Tax Credit and the Child Tax Credit.
The second is wage garnishment. The government orders your employer to take a portion of your paycheck and send it straight to the government before you ever see it.
Some officials inside the administration are reportedly pushing to start both for the current tax year, which means borrowers filing by the April 15, 2027 deadline could see their refunds taken. Sources cautioned the start date could slip again, since officials want Treasury’s new Defaulted Loans Support Center fully running first.
Last year, the White House budget office began helping the Education Department prepare to seize benefits and wages from defaulted borrowers, according to the report. Treasury officials blocked it over concerns about the economic damage of going after workers’ money.
Treasury staff also reportedly warned senior officials that many of the borrowers who would get hit are Trump supporters, many of them already struggling to hold onto their jobs.
In April, the Education Department and Treasury signed an agreement making Treasury responsible for collecting on defaulted federal student loans as Trump works to shut down the Education Department. Treasury collects those debts through private collection agencies, the same kind of companies the Education Department stopped using in 2021 under Joe Biden.
The Consumer Financial Protection Bureau sued one of those collectors, Pioneer, in 2017 over deceptive and abusive practices, and a court ordered it to pay $100 million to borrowers in 2024. That same year, the bureau fined another collector, Transworld, $2.5 million for filing debt collection lawsuits without proof the debt was owed.
Treasury has rolled out an online portal meant to help borrowers see what they owe and how to pay, and the administration says it would rather get borrowers back into voluntary payment plans than take their money. Matt Chingos, a Treasury official and former Senate Republican staffer, is reportedly leading the effort to restart collections while limiting the fallout.
Marc Goldwein of the Committee for a Responsible Federal Budget estimated that Treasury’s delay on collections has already cost taxpayers about $5 billion, and that number keeps climbing.
Michael Pierce, executive director of Protect Borrowers, told the outlet that Treasury may not even have the data it legally needs to certify these debts before collecting on them. He accused the administration of waiting until after the election to avoid political consequences, and warned that families could face seized refunds, garnished wages and less money for food and rent.
The White House budget office and Treasury declined to comment. The Education Department dismissed the report.
If you are in default, you still have options before any of this kicks in. Borrowers can get out of default through loan rehabilitation, which usually means making nine affordable monthly payments over 10 months, or through consolidation into a new federal loan. Logging into StudentAid.gov will show your loan status, who holds your loan, and what you owe.
