The United States Education Department has its transferred student loan portfolio to the US Treasury Department as part of the Donald Trump administration's move to dismantle the federal education agency, as per an AP report.
In an agreement announced on 19 March, the US Treasury Department said it will take over management of student loans that are in default in the first phase. This comprises around 11% or $180 billion of the US government's $1.7 trillion student loan portfolio, it added.
In time, the Treasury will take over management of all student loans. The second phase will include “operational responsibility” over non-default student loans “to the extent practicable”, as per the 17-page agreement.
Does anything change for borrowers? The government said that borrowers do not need to do anything as they will continue to work with the same loan providers to repay their debts, the AP report added.
According to a CNBC report citing experts, federal student loans cannot change terms and conditions even if the agency overseeing them does shift. This is because the borrowers' rights are guaranteed when they sign their master promissory note.
However, for borrowers worried about a possible loss of data during the transfer between departments, you can download your files from the National Student Loan Data System, Landon Warmund, acertified student loan professional at Reliant Financial Services told CNBC.
If you are aware that your student loan is in default, you can contact the government's Default Resolution Group for information on loans, repayment plan or loan rehabilitation programme, the report added.
The US Education Department, created 40 years back, has overseen student loans since it was created. However, the Trump administration has made moves to dismantle the agency. Education Secretary Linda McMahon in a statement said the latest move will “dramatically improve the administration of Federal student aid programs”, the AP report added.
What is categorised as a default student loan? Borrowers who are around 8-9 months — more than 270 days — behind on their payment schedule are considered to be in default of their student loan. According to March data from the US Education Department, some 9.2 million Americans are in default on student loans and around 12 million are behind on federal student loan payments in some way.
Notably, being in default can have consequences. It impacts your credit score and the government can withhold pay and Social Security benefits till you clear the debt, the AP report added.
The industry is bracing for a potentially historic surge in loan defaults as pandemic-era protections come to an end, the report noted. It added that Trump earlier postponed involuntary collections on defaulted loans (withholding earnings), due to the coming midterm elections in November this year.