The U.S. Department of the Treasury and U.S. Department of Education have launched a new online portal designed to help borrowers with defaulted federal student loans understand their options and return to repayment.
The Defaulted Loans Support Center, available through StudentAid.gov, provides borrowers with a centralized way to address loans in default, including applying for loan rehabilitation or consolidation.
The agencies announced the portal on Wednesday, describing it as an early milestone of the Treasury-ED Federal Student Assistance Partnership.
New Portal Replaces Paper-Based Process
The new system replaces decades-old paper, mail, and fax processes with an online application system.
Through the portal, borrowers with defaulted federal student loans can:
- Review the consequences of loan default.
- Compare available options for leaving default.
- Apply online for loan rehabilitation or consolidation.
- Make payments on defaulted loans.
- Review repayment plans and loan-discharge options.
Borrowers applying for rehabilitation can upload documents, review an estimated payment, electronically sign agreements, and track their applications online.
Borrowers can also apply to consolidate defaulted loans and access a temporary 1% interest-rate reduction by enrolling in automatic payments, according to the departments.
Agencies Cite Early Results
Treasury and the Education Department said the partnership has produced increases in certain default-resolution activities during its first six months.
The agencies reported a 69% increase in approved loan rehabilitation applications and a 95% increase in consolidations out of default following the correction of a technical issue that had made consolidation more difficult.
The departments also cited early feedback from portal users. According to the agencies, 89% of respondents said the application was easy to complete, 86% said they understood what to do next, and 84% said the process took a reasonable amount of time.
Treasury Secretary Scott Bessent said the portal is intended to provide borrowers with a clearer route back to repayment while improving administration of the federal student loan portfolio.
Education Secretary Linda McMahon said the partnership is intended to combine the agencies’ technology and operational capabilities while changing how federal student aid programs are administered.
Treasury To Take On Default Collections
Under the interagency agreement, Treasury will assume operational responsibility for collecting defaulted federal student loan debt and will use private default-resolution agencies to help borrowers enter rehabilitation or otherwise return their loans to good standing.
Treasury will also assume operational responsibilities for the Federal Student Aid Default Resolution Group and the Default Management and Collections System.
The partnership is expected to expand in later phases to provide Treasury operational support for non-defaulted federal student loan debt, where practicable and permitted by law. Treasury and Education also said they will explore support for other Federal Student Aid functions.
The Education Department will retain statutory responsibilities, including policy development.
Federal Student Loan Portfolio Nears $1.7 Trillion
The agencies said the federal student loan portfolio is nearly $1.7 trillion, with fewer than half of borrowers in current repayment and nearly one-quarter in default.
According to the departments, more than 9 million borrowers in default could potentially enroll in a repayment plan or rehabilitation agreement to return their loans to good standing.
The partnership is being implemented through an interagency agreement authorized under the Economy Act. Treasury also has authority under federal debt-collection laws to collect delinquent and defaulted federal debts.
The agencies said existing federal student aid systems, including the FAFSA, Common Origination and Disbursement System and National Student Loan Data System, will remain in place.
Borrowers are expected to continue making payments and working with their assigned loan servicers for questions or assistance. The agencies said borrowers with defaulted loans should use the new Defaulted Loans Support Center for available options to leave default.
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