Treasury Opens Online Portal for 9.3 Million Federal Student Loan Borrowers in Default
The Treasury and Education departments on Wednesday launched an online portal for federal student loan borrowers in default, Business Insider first reported.
The Defaulted Loans Support Center, hosted at StudentAid.gov, lets borrowers apply online to rehabilitate or consolidate loans that previously required printed paperwork.
About 9.3 million federal student loan borrowers were in default as of June 30, CNBC reported, citing Education Department data released in September. The figure was around 6.2 million at the same point in 2016, a rise of roughly 50%.
What Borrowers Can Do on the Portal
According to Treasury's announcement, the portal replaces mail- and fax-based processes that had been in place for decades. Borrowers can compare ways to leave default, make a payment, and review repayment and loan-discharge options.
Borrowers who consolidate can receive a temporary 1% interest rate reduction by enrolling in auto pay, Quartz (qz.com) reported, citing the agency.
Why Defaults Have Climbed
CNBC attributed the rise partly to the end of the Covid-era payment pause and the termination of the Biden administration's SAVE plan, which had offered very low monthly bills.
Rising unemployment among recent college graduates has also contributed, according to the same report.
Treasury's release blamed the previous administration. It said more than 5 million borrowers have been in default for over six years, and another 5 million entered default in less than a year.
Early Results Reported by Treasury
Treasury said approved rehabilitation applications have risen 69% since the Treasury-Education partnership officially launched fewer than six months ago.
Consolidations out of default are up 95%, which the agency tied to correcting a technical issue from the prior administration.
In a beta test, 89% of borrowers said the application was easy to complete, 86% said they knew what to do next, and 84% said the time required was reasonable, Treasury said.
A senior Education Department official told Business Insider that 15,000 borrowers took part in testing and more than 5,000 of them made a payment online.
Transfer to Treasury Faces Opposition
The Education Department said in March that it would move management of defaulted loans to Treasury. Business Insider reported that the transfer will happen in phases, and that Treasury is expected to eventually oversee loans not in default.
The department official said work on the second phase is underway but gave no details.
Treasury Secretary Scott Bessent said the departments are restoring fiscal responsibility to the $1.7 trillion federal student loan portfolio.
Education Secretary Linda McMahon said her department was never meant to be the fifth-largest bank in the country, which she gave as the reason for the partnership.
Over 60 Democratic lawmakers asked the Education Department in June to halt the transfer, Business Insider reported. A Republican-led bill would codify the plan.
Sarah Bloom Raskin, a deputy treasury secretary under President Barack Obama, has said collecting on defaulted student loans is operationally difficult and requires experienced career staff.