Treasury Weighs Tougher Collection Steps Against Borrowers in Default on Student Loans

The Trump administration is reportedly considering a harder line on people who have fallen into default on federal student loans. Options under review at the Treasury Department include bringing in more professional debt collectors, garnishing wages and holding back certain federal benefits. According to Federal Student Aid, nearly 9.3 million borrowers are in default, and 400,000 more joined them in the quarter ending June 30. Their balances total $234 billion, roughly 14% of the $1.64 trillion federal loan portfolio as of June 2026.

How Student Loan Rehabilitation and Consolidation Work

Officials reportedly want to steer borrowers toward repayment plans first. Treasury opened a Defaulted Loans Support Center in September, where borrowers can learn what default means and apply online to rehabilitate or consolidate their loans.

What the Government Can Legally Take for Defaulted Loans

Debt relief expert Nick Avila notes that a defaulted federal student loan is the one debt that can be collected without a lawsuit. An employer can be ordered to withhold up to 15% of disposable pay, tax refunds can be seized through the Treasury Offset Program, and Social Security benefits can be reduced.

Social Security Offsets for Retirees

Hans Goldstein of the Retirement Literacy Foundation points out that taking money from retirees is more complicated. On a $1,400 monthly benefit, 15% is $210, leaving $1,190. For someone receiving $800, the government can take only about $50, which protects those with smaller incomes.