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Treasury Department Struggles to Collect Defaulted Student Loans

Treasury Department Struggles to Collect Defaulted Student Loans

Alexander Holt

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In , the United States Treasury Department proudly announced they would start a pilot program to collect defaulted federal student loans. Treasury thought they could save the government money by collecting debts themselves (instead of contracting with private companies) while not mistreating borrowers.

Ben Barrett

Two weeks ago Treasury quietly released initial results from the random control trial in a blog post. The government collected at lower rates than the private control group. They are abandoning their gentler approach. And they do not mention whether they save money compared to contracting with private companies. Students loans, apparently, are different and uniquely difficult to collect.

The U.S. Treasury knows how to collect debts. Since 1996, Treasury’s Bureau of Fiscal Service (Treasury) has served as the government’s chief debt collector for everything other than taxes. But for the last 15 years, the Department of Education’s Office of Federal Student Aid (ED) has been contracting with private debt collection agencies to chase down student loan borrowers who are at least 270 days late on repayment.