It was recently announced that the U.S. Department of the Treasury will take over servicing of certain student loans.
A press release on the U.S. Department of Education’s website notes that “ED’s student loan portfolio stands at nearly $1.7 trillion, with fewer than 40 percent of borrowers in repayment and almost 25 percent of borrowers in default.” Under a new agreement, the Treasury Department will assume responsibility for collecting loans for borrowers currently in default. It is anticipated that the Treasury Department will later assume responsibility for the entire student loan portfolio, unless this agreement is either rescinded or blocked by legal action. Secretary of Education Linda McMahon said the decision is intended to leverage “Treasury’s world-renowned expertise in finance and economic policy.” The stated goals of this change include reducing the number of borrowers in default and improving the overall student loan portfolio management.
In an accompanying fact sheet, it was noted that existing systems, such as the Free Application for Federal Student Aid (FAFSA), the Common Origination and Disbursement (COD) System and the National Student Loan Data System (NSLDS), will remain in place for the time being. The fact sheet also notes that, “In subsequent phases, Treasury will work to provide operational support over non-defaulted federal student loan debt, to the extent practicable and permitted by law, while also seeking opportunities to provide operational support to FSA’s other functions, including the administration of the FAFSA form and more.”
Institutions of higher education should continue to monitor these developments closely and stay alert for additional information about planned changes. To support timely identification of any changes, it will be helpful for financial aid teams to regularly review the U.S. Department of Education website, including Dear Colleague Letters and other press releases. In addition, for those who remember the operational challenges associated with the updated FAFSA rollout a few years ago, institutions may want to begin developing contingency plans as more is known these changes and about any planned FAFSA changes and how they could affect award timing – and potentially the receipt of funding, in future years.
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