The Context
Millions of people had their collections on their defaulted student loans paused. But that’s soon coming to an end. Even worse, the Department of Education reported in April that 9.16 million people defaulted on their student loans after the Department ended a four-year pause on collections that had been implemented during the COVID pandemic. That means 20% of the 43 million Americans with federal student debt are more than 1 year behind on their student loan payments. And now the Treasury has taken over the student loan debt portfolio, with defaults clearly soaring.
What Could Happen
Forced collections, as stated by the Trump administration, on defaulted loans will most likely restart, as indicated by the One Big Beautiful Bill Act (OBBBA) effective July 1, 2026. As just mentioned, on March 20, 2025, the Department of Education and the Treasury Department announced a new partnership that transferred the entire student loan debt portfolio to the Treasury.
The Treasury had agreed to take on $1.7 trillion in outstanding student loan debt, much of which, as studies have shown, includes penalties and interest. (Total outstanding student loan debt, including private student loan debt, stands at a whopping $1.833 trillion.) Many of the Treasury’s servicers, such as Pioneer Recovery, a Navient subsidiary, have a troubling history of engaging in abusive and unfair practices against borrowers, according to the Consumer Financial Protection Bureau. On top of that, in 2022, Navient had to settle a $1.85 billion case with 39 state Attorneys General after being accused of extensive unfair and deceptive student loan servicing practices and abuses related to predatory student loans. Now, as just mentioned, their subsidiary is a servicer of the Treasury, which means that handing this student loan debt over to them and other servicers like them could put millions and millions of student loan borrowers at risk of abuse, harassment, wage garnishment, Social Security and disability benefits being taken, and the withholding of tax refunds. Until now, there has been a pause on collections, but when July 1st passes, that could all end, and collectors could soon be knocking at the doors of millions and millions of defaulted student loan debtors, demanding repayment, something that will be difficult given the current state of the economy. (If it doesn’t begin on July 1st, it will begin at some point. It’s not a matter of if, it’s just a matter of when. The Department of Education, after all, transferred the debt to the Department of the Treasury for a reason and hired servicers like Pioneer Recovery and others to begin the work to collect on defaulted student loans.)
The Numbers and Who’s At Risk
According to a recent Federal Student Aid (FSA) report, 42.8 million federal student loan debtors have a total outstanding debt of $1.7 trillion. The Direct Loan portfolio carries the most debt, with 90% of outstanding loans. Then there are Perkins Loans with one-fifth of one percent. As the FSA notes, prior to the Treasury taking on the $1.7 trillion, Federal Family Education Loans (FFEL), Perkins Program Loans (the program ended in 2017), and Direct Loans account for 95% of the total portfolio. And according to Protect Borrowers.org, every 9 seconds, a new student loan borrower defaults under the Trump administration, which means 3.6 million student loan borrowers have defaulted since he took office.
In December of 2025, 7.7 million Department of Education-held recipients with $180 billion in outstanding federal loans were in default. That figure represented 11% of the total $1.61 trillion at the time. Furthermore, over 18 million student loan debtors, around 45%, have one loan in repayment or delinquency status. These loans totaled around $647 billion, or 40% of the previous $1.61 trillion. In addition, according to the FSA, more borrowers are at risk of defaulting on their student loan debt. Even worse, there is no relief for them in sight, especially with the outstanding $1.7 trillion being handed off to the Treasury Department for collections and, again, being managed by servicers like Pioneer Recovery.
The Race Divide
When it comes to the race divide, Black and Hispanic student loan debt borrowers are at an extreme disadvantage when it comes to defaulting on their federal student loans. Default occurs after a loan has not been repaid for 270 days. Black and Hispanic borrowers struggle more than white borrowers to repay their loans, according to a 2024 Pew Charitable Trusts study, putting them at a disadvantage when buying automobiles, purchasing homes, and starting families. Furthermore, my previous work and studies indicated that Black and Hispanic borrowers also struggled to finish degrees, saddling them with student loan debt and no degree to show for the studies they had done, making it even harder for them to succeed in the workforce (The Pew Charitable Trusts study also confirmed what I had previously found a decade ago in the book I wrote titled Solving the Student Loan Crisis: Dreams, Diplomas & A Lifetime of Debt). This result leads to further inequities in society, putting both groups at yet another disadvantage compared to their white peers.
As previously mentioned, much of the accrued student loan debt is penalties and interest. One study carried out by the National Center for Educational Statistics indicated that Black people who earned bachelor’s degrees in 2015-16 had higher rates of accumulated loan interest than all other races or ethnic groups (it was lowest for those who were Asian), and after four years, in 2020, on average, they owed more 4 years later than the amount they had originally borrowed. The study went on to state that borrowers oftentimes owe 100 percent more than what they had originally borrowed, but Black borrowers suffered the most from this penalty than all other groups.
These inequities hurt the overall economy, too. With total outstanding student loan debt hovering around $1.833 trillion, economists have shown that this sets back the overall economy, as people do not purchase “big items,” such as cars and homes, and they do not start families or launch new businesses. That also means that Black and Hispanic people are at a disadvantage when it comes to homeownership and launching new businesses, since they are burdened with student loan debt compared to their white or Asian peers.
The bottom line: Instead of punishing people for the student loan industry, which was designed to keep borrowers in debt in perpetuity, and that includes the U.S. government itself, it’s time for a new path forward, one that offers ways out of this collective, punishing system, one that is also hurting all of us. With these forced collections around the corner by the Treasury and the servicers they have hired, that is not the answer. Profiting from the misery of struggling borrowers, who in many cases have already repaid the principal, is not the solution. And as mentioned, economists have shown that if these people received relief, it would benefit the entire economy, so all of us would gain. In my 2016 book, I proposed a debt jubilee. I stand by that solution today. It’s the way forward. It’s the only way forward, and I have a plan I intend to share with all of you soon on how to do it.
Stay tuned.
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