Trump Officials Prepare Student Loan Collections After Midterms

Millions of Americans who have fallen behind on federal student loans could face renewed collection measures in 2027 as the Trump administration prepares to hire private debt collectors. According to the Washington Sun's October 19 report, Treasury Department officials are developing plans to recover outstanding debt while trying to limit financial harm to struggling borrowers.

The proposed measures could include withholding tax refunds and certain federal benefits or garnishing wages through employers. Five sources familiar with the administration's planning told the Washington Sun that contracts with private collectors could be pursued as early as November, although officials are unlikely to announce the initiative before the midterm elections.

The administration's plans follow an earlier internal dispute over whether to resume aggressive collection efforts against borrowers in default. The Washington Sun reported that nearly 10 million borrowers were affected, while a Center for American Progress report cited by Common Dreams put the figure at 9.5 million, or approximately one in five borrowers.

The Center for American Progress attributed the growing repayment burden partly to the One Big Beautiful Bill Act, which eliminated the Saving on a Valuable Education program and moved borrowers toward a different repayment structure. The organization estimated that the resulting average annual cost would reach $2,163 per borrower.

Treasury officials previously resisted efforts by the Education Department and the White House Office of Management and Budget to pursue wage garnishment and benefit seizures. According to sources cited by the Washington Sun, officials raised concerns that aggressive collections could disproportionately affect low-income households, including voters who supported President Donald Trump.

One administration source described the political considerations behind the earlier delay.

"This is not who you think it is. The demographics are not good for us," the source said.

Treasury has since launched its Defaulted Loans Support Center, an online service intended to help borrowers understand their debts and apply to rehabilitate or consolidate their loans. Officials have favored voluntary repayment arrangements, but some administration officials want collections to resume during the tax year ending April 15, 2027.

One source familiar with the planning explained why officials want the support system operational before collections restart.

"They wanted to make sure the infrastructure is in place to receive borrowers trying to get out of default — you can bet a lot of people will get calls from borrowers saying, ‘What’s going on? How do I make sure this won’t happen again?,’" the source said.

The source also indicated that the political calendar could influence implementation.

"It’s definitely something they’re thinking about. 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," the source said.

The potential financial consequences extend beyond unpaid loan balances. Federal collection programs can intercept tax refunds, Social Security payments and tax credits, including the earned income tax credit and child tax credit. Wage garnishment provides another mechanism for recovering outstanding balances directly from workers' earnings.

Persis Yu, deputy executive director and managing counsel at Protect Borrowers, warned Common Dreams that incomplete government records could create legal problems if collections proceed.

"They may be illegally collecting from large swaths of people," Yu said.

Yu said some borrowers' records contain substantial gaps, potentially making it difficult to establish accurate payment histories. She also noted that wage garnishment can reach 15% of a person's paycheck, while the seizure of earned income tax credits could deprive families of money used for rent, car repairs and child care.

Michael Pierce, executive director of Protect Borrowers, questioned the administration's decision to delay action until after the elections.

"Restarting debt collection the moment any political accountability has passed just shows how little interest Trump has in helping working families stay afloat," Pierce said.

Pierce also warned about the consequences for households already struggling with rising living costs.

"What comes next will be a catastrophe for families across the country — seized tax refunds, garnished wages, and even less money to put food on the table or make rent," he said.

Protect Borrowers, the Project on Predatory Student Lending and Princeton University's Debt Collection Lab wrote to Treasury Secretary Scott Bessent, raising concerns that the Education Department might lack the records required to certify some debts for collection. Such certification is a legal prerequisite for pursuing the debts.

Economic policy experts also disagreed over how the government should handle borrowers in default. Marc Goldwein, senior vice president of the Committee for a Responsible Federal Budget, estimated that delaying collections had cost taxpayers approximately $5 billion.

"They’ve done the same thing they criticized Biden for — we shouldn’t be canceling student debt for people who just don’t want to pay," Goldwein said.

Preston Cooper, a student debt expert at the American Enterprise Institute, argued that restarting collections should accompany a broader effort to prevent defaults and help borrowers return to affordable repayment plans.

"We should allow them to do the right thing and not hit them with excessive fees and allow them to rehabilitate and get on an affordable repayment plan," Cooper said.

Cooper added that a balanced approach could address repayment obligations without treating every struggling borrower as unwilling to pay or eliminating all outstanding debt.

Democratic strategist Michelle Kinney urged Democratic candidates to make the reported collection plans a prominent campaign issue, while Marshall Steinbaum, an economics associate professor at the University of Utah, argued that many borrowers in default would have benefited from the student debt cancellation plan pursued by the Biden administration before courts blocked it.

The Treasury Department and the White House Office of Management and Budget declined to comment to the Washington Sun. The Education Department responded that it does not comment on what it characterized as speculative inquiries.