Can (and should) the U.S. Treasury Department manage federal student loans?

The U.S. Department of the Treasury is a better match than the Small Business Administration (SBA) for collecting federal student loans, but not ideal.
The U.S. Treasury's pilot collection program for defaulted federal student loans underperformed private collection agencies due to leniency.
Using the wage withholding system for student loan payments to reduce defaults and collection costs is feasible but complex.
Solutions for wage withholding involve modifying repayment plans to be based solely on earned income.
The federal student loan portfolio is currently managed by Federal Student Aid (FSA) within the U.S. Department of Education. There are proposals to shift this responsibility to other agencies, such as the U.S. Department of the Treasury, as suggested by The Heritage Foundation's Project 2025 Proposal, or the Small Business Administration (SBA), which the Trump administration has championed.
Let's explore the feasibility of having the U.S. Department of the Treasury manage the federal student loan portfolio, perhaps by leveraging the U.S. tax system for direct loan collection.
The Small Business Administration (SBA) presents a significant mismatch for managing the federal student loan portfolio. The SBA's core expertise lies in facilitating business lending, primarily through a guaranteed loan program where private banks issue loans and the government offers protection against default. So, the SBA has minimal experience in managing a large-scale federal direct loan program.
The guaranteed loan model stands in stark contrast to the vast majority of the federal student loan portfolio, where all new loans are originated through the Direct Loan Program. Only about 10 percent of federal student loan dollars remain in the FFEL program, a guaranteed student loan program that ended in 2010.
Furthermore, the sheer scale and inherent complexity of the federal student loan portfolio — which involves extensive customer service demands for millions of borrowers — dwarf the operational scope of the SBA's existing loan programs.
Learn more: SBA loan statistics
In contrast, the U.S. Department of the Treasury has expertise in managing money and direct interactions with the public, particularly through its tax collection functions.
The U.S. Treasury already plays a role in federal debt recovery via the Treasury Offset Program (TOP), which collects defaulted federal student loans. Moreover, federal student loan interest rates are based on the 10-year Treasury Note, and the loans themselves are ultimately funded by the U.S. Treasury.
However, a 2014-2015 pilot project designed to test the Treasury's effectiveness in collecting defaulted federal student loans went poorly.
This randomized trial, influenced by proposed legislation, evaluated the 'efficiency and effectiveness' of Bureau of the Fiscal Service employees as potential debt collectors and used private collection agencies (PCAs) as a control group.
The trial revealed that the U.S. Treasury achieved a mere 4 percent success rate in collecting defaulted loans, significantly underperforming the control group's 5.5 percent success rate. Additionally, the cost incurred by the Treasury for these collections was greater than that of the PCAs.
Collecting federal student loans is more complicated than collecting other federal debts. Additionally, the Treasury was not as aggressive as the private collection agencies (PCAs) and they did not do enough to get the borrowers on the phone. Initially, the Treasury limited borrower contact to a maximum of one call per week, far fewer than the typical collection agency. The Treasury also did not threaten wage garnishment during the first 11 months of trying to collect a defaulted federal student loan.
After the Treasury sent out wage garnishment notices, call-in rates tripled and 22 percent of these borrowers engaged in discussions about repayment options.
This summer, 5.3 million defaulted borrowers will receive a notice from the Treasury that their earnings will be subject to administrative wage garnishment.
Learn more
The idea of integrating student loan collections into the wage withholding system, as some countries do, was explored in a 1995 feasibility study. Doing so would give the Treasury a powerful tool for collecting student loan payments. However, launching such a system in the U.S. would be complex:
Income-driven repayment (IDR) plans and AGI: Income-driven repayment plans are based on adjusted gross income (AGI) from a prior tax year, which includes both earned and unearned income. Employers, however, only have information about a borrower's current earned income, not unearned income. Withholding based on AGI would require a complicated and impractical annual reconciliation process due to the variability of unearned income.
Multiple jobs: Some taxpayers have multiple jobs, which could complicate withholding calculations if payments are based on total or discretionary income, as employers may not be aware of other employment or spousal income.
Family size and dependents: Some income-driven repayment plans, such as Income-Contingent Repayment, Income-Based Repayment and Pay As You Earn, factor in family size or the number of dependents. Employers typically do not have this information.
Despite these challenges, there are several solutions that could adapt the student loan repayment plans to better fit a withholding system.
Basing income-driven repayment on earned income: Basing income-driven repayment plans solely on earned income, rather than AGI, would simplify withholding. Analysis of 2022 IRS Statistics of Income shows that earned income represents a substantial portion of AGI for low- and moderate-income borrowers (e.g., 88 percent for AGI under $50,000 and 81 percent for AGI under $100,000), suggesting minimal impact on payments for these groups. Borrowers with very high AGI ($500,000 or more) who have a low percentage of earned income could potentially be limited to a standard repayment plan.
Borrower disclosure of family size: Borrowers could inform employers about their family size or the number of dependents, mirroring the current W-4 form process.
Self-reporting of level payment amounts: Borrowers on a level repayment plan, such as standard repayment, could provide their employers with their monthly payment amount. Employers would withhold the higher of this amount or a percentage of earned income.
Ending withholding: Borrowers could present their employers with a zero-balance statement from the federal government to halt withholdings.
There are several benefits of using the wage withholding system to collect student loan payments. It would avoid the cost of collections, which is over $1 billion a year, and significantly reduce default rates. Furthermore, this system would base payments on current income, as opposed to prior income, naturally adjusting to income fluctuations. It is conceptually similar to administrative wage garnishment (AWG), which is based on 15 percent of disposable income.
The current administration must weigh proposals to shift the oversight of the federal student loan portfolio to another federal agency, such as the U.S. Treasury or the Small Business Administration. The Treasury has more relevant experience and expertise than the SBA. It has an existing role in federal debt recovery and more experience in providing customer service to consumers.
Past studies indicate that transferring responsibility for collecting on federal student loans to the Treasury might not yield the same outcomes as the Education Department's current system. However, integrating student loan collections into the wage withholding system, while complex to implement, might reduce default rates and save on collection costs.
Current federal student loan borrowers should know that none of these proposed changes are set in stone and none will happen without warning. Shifting oversight over the federal student loan portfolio to another federal agency will require an act of Congress.

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

Business Upturn

30 minutes ago

• Business Upturn

Trump's airstrike on Iran, crypto investors flock to Blockchain Cloud Mining for risk aversion This crypto market is shaken

London, UK, June 23, 2025 (GLOBE NEWSWIRE) — June 2025, US President Trump once again drew the world's attention back to the crosshairs of the Middle East war. As the US military precisely struck Iran's nuclear facilities, the entire international financial market has intensified, and the crypto market has also been caught in turmoil. In this chaotic situation, more and more investors are turning their attention to a more stable option: blockchain cloud mining. In particular, Blockchain Cloud Mining, a platform regulated by the UK, compliant and transparent, is rapidly becoming a new generation of digital safe-haven asset allocation tools. On the evening of June 21, 2025, the US Air Force dispatched stealth bombers and unmanned fighter jets to carry out air strikes on multiple Iranian nuclear-related targets, including the three core facilities of Natanz, Fordow and Isfahan. Although the White House claimed that it was 'necessary defense to prevent nuclear proliferation', Iran said that it 'has been regarded as a formal declaration of war' and threatened to block the Strait of Hormuz, causing panic in the global crude oil supply. The shadow of war once again looms over the world: oil prices soared, gold prices hit new highs, Nasdaq and Dow Jones plummeted, and U.S. bond yields plummeted. At the same time, the cryptocurrency market also experienced violent fluctuations, with Bitcoin falling to $103,000 at one point, and mainstream currencies such as DOGE and XRP fluctuating by more than 12% in a day. Data from mainstream trading platforms such as Robinhood and Coinbase show that a large number of users reduced their holdings within 48 hours and turned to stablecoins, fiat currencies or other low-risk configurations. It is in this atmosphere of spreading anxiety that an investment method that does not rely on the rise and fall of currency prices but can obtain sustainable crypto returns has quickly gained attention: BlockchainCloudMining. Why do crypto investors choose BlockchainCloudMining? ⦁ Register to get an instant reward of $12. ⦁ High profit levels and daily dividends. ⦁ No other service fees or management fees. ⦁The platform supports settlement of more than 9 cryptocurrencies such as DOGE, BTC, ETH, SOL, USDC, USDT, XRP, LTC, and BCH. ⦁The company's affiliate program allows you to refer friends and receive up to $50,000 in referral bonuses. ⦁McAfee® security. Cloudflare® security. 100% uptime guarantee and excellent 24/7 human online technical support. How to get started with BlockchainCloudMining Step 1: Register an account In this case, we chose BlockChainCloudMining as our cloud mining service provider. Go to the service provider of your choice to register and create a new account. BlockChainCloudMining offers a simple registration process, just enter your email address and create an account to participate. After registration, users can start mining Bitcoin and other cryptocurrencies immediately. Step 2: Purchase a mining contract Currently, BlockChainCloudMining offers a variety of mining contracts, each with a unique return on investment (ROI) and a specific contract period. After purchasing a contract, you can receive earnings the next day, and you can also choose to withdraw to your crypto wallet or continue to purchase other contracts. (The platform has launched a number of stable income contracts, for more contract details, please log in to the official website of Collective shift of Robinhood and Coinbase users In the past 72 hours, several crypto analysis bloggers have found that users from Robinhood and Coinbase are turning to cloud mining platforms on a large scale. Some popular KOLs said on the X platform: 'Instead of wandering anxiously in the exchange, it is better to use BTC for production.' This is exactly the concept emphasized by BlockchainCloudMining – let assets 'generate coins' instead of just 'store coins' When will the next impact come? Will Iran retaliate? Will the United States expand its military operations? Will OPEC intervene in the crude oil market? There are no answers to these. But what can be confirmed is that the logic of war is diffuse, and the sense of security of assets is scarce. At this moment when the smoke of gunpowder has not yet dissipated, the real winners are not speculators who sell high and buy low, but those long-termists who have a stable, continuous and transparent source of income. For more details, please visit the official website: Or contact the company email: [email protected] Disclaimer: The information provided in this press release is not a solicitation for investment, nor is it intended as investment advice, financial advice, or trading advice. Cryptocurrency mining and staking involve risk. There is potential for loss of funds. It is strongly recommended you practice due diligence, including consultation with a professional financial advisor, before investing in or trading cryptocurrency and securities. Disclaimer: The above press release comes to you under an arrangement with GlobeNewswire. Business Upturn takes no editorial responsibility for the same. Ahmedabad Plane Crash

Los Angeles Times

33 minutes ago

• Los Angeles Times

GOP tax bill would ease regulations on gun silencers and some rifles and shotguns

WASHINGTON — The massive tax and spending cuts package that President Trump wants on his desk by July 4 would loosen regulations on gun silencers and certain types of rifles and shotguns, advancing a longtime priority of the gun industry as Republican leaders in the House and Senate try to win enough votes to pass the bill. The guns provision was first requested in the House by Georgia Rep. Andrew Clyde, a Republican gun store owner who had initially opposed the larger tax package. The House bill would remove silencers — called 'suppressors' by the gun industry — from a 1930s law that regulates firearms that are considered the most dangerous, eliminating a $200 tax while removing a layer of background checks. The Senate kept the provision on silencers in its version of the bill and expanded upon it, adding short-barreled, or sawed-off, rifles and shotguns. Republicans who have long supported the changes, along with the gun industry, say the tax infringes on Second Amendment rights. They say silencers are mostly used by hunters and target shooters for sport. 'Burdensome regulations and unconstitutional taxes shouldn't stand in the way of protecting American gun owners' hearing,' said Clyde, who owns two gun stores in Georgia and often wears a pin shaped like an assault rifle on his suit lapel. Democrats are fighting to stop the provision, which was unveiled days after two Minnesota state legislators were shot in their homes, as the bill speeds through the Senate. They argue that loosening regulations on silencers could make it easier for criminals and active shooters to conceal their weapons. 'Parents don't want silencers on their streets, police don't want silencers on their streets,' said Senate Democratic leader Charles E. Schumer, D-N.Y. The gun language has broad support among Republicans and has received little attention as House Speaker Mike Johnson, R-La., and Senate Majority Leader John Thune, R-S.D., work to settle differences within the party on cuts to Medicaid and energy tax credits, among other issues. But it is just one of hundreds of policy and spending items included to entice members to vote for the legislation that could have broad implications if the bill is enacted within weeks, as Trump wants. Inclusion of the provision is also a sharp turn from the climate in Washington just three years ago when Democrats, like Republicans now, controlled Congress and the White House and pushed through bipartisan gun legislation. The bill increased background checks for some buyers under the age of 21, made it easier to take firearms from potentially dangerous people and sent millions of dollars to mental health services in schools. Passed in the summer of 2022, just weeks after the shooting of 19 children and two adults at a school in Uvalde, Texas, it was the most significant legislative response to gun violence in decades. Three years later, as they try to take advantage of their consolidated power in Washington, Republicans are packing as many of their longtime priorities as possible, including the gun legislation, into the massive, wide-ranging bill that Trump has called 'beautiful.' 'I'm glad the Senate is joining the House to stand up for the Second Amendment and our Constitution, and I will continue to fight for these priorities as the Senate works to pass President Trump's One Big Beautiful Bill,' said Texas Sen. John Cornyn, who was one of the lead negotiators on the bipartisan gun bill in 2022 but is now facing a primary challenge from the right in his bid for reelection next year. If the gun provisions remain in the larger legislation and it is passed, silencers and the short-barrel rifles and shotguns would lose an extra layer of regulation that they are subject to under the National Firearms Act, passed in the 1930s in response to concerns about mafia violence. They would still be subject to the same regulations that apply to most other guns — and that includes possible loopholes that allow some gun buyers to avoid background checks when guns are sold privately or online. Larry Keane of the National Shooting Sports Foundation, who supports the legislation, says changes are aimed at helping target shooters and hunters protect their hearing. He argues that the use of silencers in violent crimes is rare. 'All it's ever intended to do is to reduce the report of the firearm to hearing safe levels,' Keane says. Speaking on the floor before the bill passed the House, Rep. Clyde said the bill restores Second Amendment rights from 'over 90 years of draconian taxes.' Clyde said Johnson included his legislation in the larger bill 'with the purest of motive.' 'Who asked for it? I asked,' said Clyde, who ultimately voted for the bill after the gun silencer provision was added. Clyde was responding to Rep. Maxwell Frost, a 28-year-old Florida Democrat, who went to the floor and demanded to know who was responsible for the gun provision. Frost, who was a gun-control activist before being elected to Congress, called himself a member of the 'mass shooting generation' and said the bill would help 'gun manufacturers make more money off the death of children and our people.' Among other concerns, control advocates say less regulation for silencers could make it harder for law enforcement to stop an active shooter. 'There's a reason silencers have been regulated for nearly a century: They make it much harder for law enforcement and bystanders to react quickly to gunshots,' said John Feinblatt, president of Everytown for Gun Safety. Schumer and other Democrats are trying to convince the Senate parliamentarian to drop the language as she reviews the bill for policy provisions that aren't budget-related. 'Senate Democrats will fight this provision at the parliamentary level and every other level with everything we've got,' Schumer said earlier this month. Jalonick writes for the Associated Press.

USA Today

34 minutes ago

• USA Today

What does TACO mean in reference to Trump? Why the phrase is resurfacing

A four-letter acronym that started as a way to describe President Donald Trump's tariff policies has morphed into a viral social media phrase, much to his ire. Financial Times columnist Robert Armstrong coined the term "TACO trade" in May to describe how many investors responded to Trump's whiplash tariff policies. "TACO," an acronym that stands for "Trump always chickens out," has since become a sweeping term criticizing Trump. Social media users have taken to creating memes and artificial intelligence-generated images depicting the phrase. Trump himself hit back at a reporter who asked about the term on May 28, calling it "a nasty question." Here's what to know about the phrase and how it has been reignited in political discourse after the U.S. carried out strikes in Iran. Live updates: What is Iran's next move? World awaits response to U.S. bombing What does TACO mean? Where the phrase comes from TACO stands for "Trump always chickens out." Armstrong coined the term after the Trump administration issued tariffs on imports from worldwide trade partners in early April before reversing course on the policies a week later. "The US administration does not have a very high tolerance for market and economic pressure, and will be quick to back off when tariffs cause pain," Armstrong said in a May 2 article. "This is the Taco theory: Trump Always Chickens Out." In an interview with NPR, Armstrong said he came up with the phrase as a shorthand "so I didn't have to reexplain it every time that it came up." "I just tried to think of a catchy acronym, and TACO happened to be the most kind of amusing one that I could think of," he said. What does Trump think of the TACO acronym? Trump fired back at a reporter asking about the TACO phrase in a White House press conference on May 28. "Oh, I chicken out. Isn't that nice? I've never heard that," Trump said during the exchange, before defending his decisions on tariffs. "Six months ago, this country was stone cold dead. We had a dead country. We had a country that people didn't think it was going survive," Trump said. "And you ask a nasty question like that. It's called negotiation." TACO chatter reignites amid US strikes on Iran After the U.S. military bombed three Iranian nuclear sites on June 21, some supporters have taken to social media to assert that the attack is evidence against the "TACO" theory. Some Trump backers say his follow-through on the attack, which came after he issued warnings to the country, disproves the belief that he "always chickens out." Others have suggested the bombings were in spite of the "TACO" nickname. "Have to wonder, did we bomb Iran because someone called Trump TACO?" one person wrote on X. Actor John Cusack opined on social media that the Iran attack "was a bombing for ego − to get back at people calling him weak." Contributing: Joey Garrison, USA TODAY Melina Khan is a national trending reporter for USA TODAY. She can be reached at