The Trump administration is getting ready to hit millions of Americans in default on their federal student loans with financial penalties, and the machinery is already moving into place.

The penalties are expected to begin next year, and the Treasury Department is moving to hire private debt collectors, according to five sources familiar with the matter, the Washington Sun reported on Monday.

Debt Collectors and a Delayed Announcement

Three of the sources said Treasury could hire the collectors as soon as November, the report said. They said the plans are unlikely to be announced before the midterm elections. The report said the plans had not been previously disclosed and that more than 9.3 million borrowers are in default on a roughly $1.7 trillion federal student loan portfolio.

According to the report, the government has two main collection tools: seizing expected payments that follow taxes, such as tax refunds, Social Security payments and the earned income and child tax credits, and garnishing wages through employers. Some officials want to garnish for the current tax year, but sources cautioned it may be delayed again while Treasury confirms its Defaulted Loans Support Center is working, the report said.

The Education and Treasury departments launched that online portal in late September so borrowers can apply to rehabilitate or consolidate defaulted loans, make payments and review discharge options. The departments said rehabilitation approvals have risen 69% and consolidations out of default 95% since their partnership launched less than six months ago.

Last year, the White House Office of Management and Budget began helping the Education Department prepare to seize benefits and wages, but Treasury officials blocked the effort over economic costs, according to the sources. The report said Treasury official Matt Chingos is leading the push to restart collections while limiting the fallout.

The Office of Management and Budget, the U.S. Treasury Department and the Department of Education did not immediately respond to MarketDash's requests for comment.

Costs and Concerns Over Collections

Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, estimated the postponement has cost taxpayers about $5 billion so far, according to the report.

While the delay has carried a cost, Preston Cooper of the American Enterprise Institute argued that restarting collections should include a broad government effort to keep borrowers from defaulting in the first place, the report noted.

Michael Pierce, executive director of Protect Borrowers, raised a separate concern, saying Treasury may lack the data needed to certify debts for collection, a legal prerequisite, the report said.

Murray Pushes Back

Sen. Patty Murray (D-Wash.) responded in a post on X on Tuesday. "Trump wants to squeeze families who are already struggling with their student debt, after already raising their prices on everything from gas to health care," she wrote. "Absolutely not. I'll be pushing back."

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by MarketDash editors.