The United States Department of Education has transferred its student loan portfolio to the U.S. Treasury Department as part of the Donald Trump administration’s move to dismantle the federal education agency, according to an AP report.
In a deal announced March 19, the U.S. Treasury Department said it would take over the administration of student loans that are delinquent in the first phase. That includes about 11%, or $180 billion, of the U.S. government’s $1.7 trillion student loan portfolio, she added.
Over time, the Treasury Department will take over the administration of all student loans. The second phase will include “operational responsibility” for non-standard student loans “to the extent practicable,” according to the 17-page agreement.
Is anything changing for borrowers?
The government said borrowers need not do anything because they will continue to work with the same lenders to pay off their debts, the AP report added.
According to a CNBC report citing experts, federal student loans cannot change terms even if the agency that oversees them changes. This is because the borrowers rights are guaranteed when they sign their master promissory note.
However, for borrowers concerned about possible data loss during a transfer between departments, you can download your files from the National Student Loan Data System, Landon Warmund, a certified student loan officer with Reliant Financial Services, told CNBC.
If you are aware that your student loan is in arrears, you can contact the government’s default resolution group for information about loans, a repayment plan or a loan recovery program, the release added.
Created 40 years ago, the U.S. Department of Education has overseen student loans since its inception. However, the Trump administration has taken steps to abolish the agency. Education Secretary Linda McMahon said in a statement that the latest move “will dramatically improve the administration of federal student aid programs,” the AP report added.
What is classified as a standard student loan?
Borrowers who are approximately 8-9 months – more than 270 days – behind on their repayment schedule are considered borrowers in default on their student loan. About 9.2 million Americans are in default on their student loans, and about 12 million are in some way behind on their federal student loan payments, according to data from the U.S. Department of Education in March.
Notably, failure can have consequences. It affects your credit score, and the government can withhold your paycheck and Social Security benefits until you clear the debt, the AP report added.
The industry is bracing for a potentially historic surge in loan defaults as pandemic-era protections expire, a report says. He added that Trump had previously delayed involuntary debt collection (revenue withholding) due to the upcoming midterm elections in November of this year.
