A new Congressional Research Service report is raising questions about whether the Department of the Treasury is ready to take over servicing of the federal government’s defaulted student loan portfolio, a transfer that would more than quadruple the number of debtors handled by its Bureau of the Fiscal Service.
For collection professionals, the report is essential reading. The March 19 interagency agreement between Treasury and the Department of Education hands Fiscal Service’s Cross-Servicing Program responsibility for 7.8 million defaulted borrowers owing $179 billion, layered on top of the 1.9 million debtors and $119.1 billion it currently manages. Fiscal Service contracts with five private collection agencies, three of which previously held Education Department contracts, and published a request for information in March seeking industry input on a “default resolution agent” solicitation.
The report’s most pointed finding involves history. Between 2015 and 2017, Fiscal Service ran a pilot directly servicing a sample of 16,242 defaulted student loans. It resolved 4.14% of them. FSA-contracted private collection agencies resolved 5.46% of a comparable control group and outperformed Fiscal Service on every collection and recovery metric. Fiscal Service attributed the gap to slower deployment of administrative wage garnishment, less frequent borrower calls, and a lack of the customized rehabilitation-management systems and self-service portals the agencies had built. The pilot ended early, and no final report was ever published.
The stakes are amplified by the collapse of federal collections since 2020. Total dollars collected on defaulted federal student loans fell from $6.56 billion in fiscal 2019 to $560 million in fiscal 2025, a 91% drop. Wage garnishment, which generated $1.34 billion in 2019, produced just $510,000 last fiscal year. Meanwhile the default balance jumped from $117.3 billion in September to $179 billion by December as pandemic-era protections expired. Nearly one in five federal student loan borrowers is now in default, a figure with direct implications for the broader consumer credit picture and for agencies trying to collect other debts from the same households.
The CRS report notes mitigating factors. The agreement contemplates a graduated referral of loans, which could let Treasury build expertise before scaling, and regulatory changes taking effect in 2027 will allow borrowers to rehabilitate loans twice. But it also flags that Fiscal Service’s workforce shrank roughly 40% between September 2024 and February 2026, and that the agreement was executed without congressional action, including the planned administrative revocation of Education’s longstanding exemption from the Debt Collection Improvement Act.
The report stops short of predicting failure. It simply documents the distance between what Treasury has been asked to do and what it has demonstrated it can do.
