Pioneer and – As the Trump administration moves defaulted federal student loans to the Treasury for collection through private contractors, more than 10 million borrowers are in default or delinquency—and two collection companies previously penalized by federal watchdogs co
For millions of borrowers already struggling to stay afloat, the next months may feel less like a fresh start and more like a handoff to people the system has already punished before.
More than 10 million student-loan borrowers are in default or delinquency, Department of Education data shows. Starting with defaulted loans. President Donald Trump is transferring federal student loans from the Department of Education to the Treasury Department. Those defaulted borrowers will be routed through the Treasury’s “Cross-Servicing program,” which uses private contractors to collect federal debts.
Two of those contractors—Pioneer Credit Recovery and Transworld Systems—were previously sued or fined by federal watchdogs for “misleading” or “abusive” practices.
The timing is especially tense because involuntary collections—such as wage garnishment and seizure of federal benefits—have been paused since January while the Department of Education prepares for major repayment changes. The department has not specified when the pause will lift. and it did not comment in time for publication on how much Pioneer and Transworld would be involved once collections resume.
Bonnie Latreille. a former official in the Education Department’s Federal Student Aid office. described what borrowers may be walking into once the collections pause ends. “No reasonable person would expect that these companies are going to be doing what they’re supposed to be doing and going to be effectuating borrowers’ rights.”.
The administration argues the opposite—that bringing collections under the Treasury will mean tighter control. The Treasury Department says it is best positioned to manage the work. Treasury Secretary Scott Bessent said in a March press release that his agency has “the unique experience. the operational capability. and the financial expertise to bring long overdue financial discipline to the program and be better stewards of taxpayer dollars.”.
That defense is built on the idea that the mechanics are familiar to Treasury. Colleen Campbell. former executive director of Federal Student Aid’s loan portfolio management office under Biden. said that because the Treasury already uses these companies to collect other payments. like taxes. using them is “the most straightforward way” to resume collections on defaulted student loans.
Yet even supporters of simplifying the process warned that clarity for borrowers can get lost as more entities move the file.
“It just gets a little bit more complicated when there are more entities and agencies involved in what happens with the borrower,” Campbell said.
Campaigns to end private collection contracts—then a reversal
In earlier years, lawmakers and administration officials pushed to terminate contracts with private collectors over high costs and accusations of predatory behavior. Former President Joe Biden ended their contracts in 2021.
Now, with student-loan defaults at a record high, education policy experts say bringing private collectors back could raise the odds of higher collection fees, confusion for borrowers, and more risk of slipping back into default.
Federal watchdog actions have fueled those fears.
The Consumer Financial Protection Bureau began supervising private collectors in 2013 and found that they made misrepresentations to defaulted borrowers—such as implying they’d be sued when that wasn’t certain—and pushed borrowers toward more expensive repayment pathways.
Lawmakers later said private collection agencies “receive more than ten times as much” money for steering borrowers into their preferred repayment option. despite high redefault rates. They argued that “the Department is rewarding these agencies for behaviors that work in opposition to the prospect of student borrower success.”.
In 2017, the CFPB sued Pioneer Credit Recovery for engaging in “deceptive” and “abusive” practices and violating consumer protection laws. The lawsuit included an allegation that Pioneer steered borrowers into costly forbearances instead of more favorable income-driven repayment plans. The court ordered the company in 2024 to pay $100 million to affected borrowers.
That same year the CFPB fined Transworld Systems $2.5 million for filing debt collection lawsuits without proof that the debt was owed. Transworld said at the time that it settled with the CFPB to avoid costly litigation. Navient, which oversaw Pioneer, denied any wrongdoing.
In the middle of that history, the new move raises a practical question: if previous punishments were tied to how collectors handled borrowers, what changes—if any—once the same contractors return through Treasury’s program?
A major issue is coordination: who does what, and when
Collecting on defaulted student loans requires specific knowledge of student-loan borrowers and policy. said Sara Partridge. associate director of higher education at the left-leaning think tank the Center for American Progress. Partridge said there is no evidence the Treasury has the necessary expertise to oversee these agencies.
If private collectors return, Partridge and other education policy experts said borrowers could face high collection fees, a harder time getting complaints resolved, and potential redefault.
Campbell also pointed to concerns about variable fee structures in the past. She cited criticism noted by the conservative think tank American Enterprise Institute in a 2018 report. which said: “harsher penalties are imposed on borrowers who quickly repay their loans in full after defaulting than on those who engage in a lengthy. bureaucratic ‘rehabilitation’ process but make no progress in paying down their debts.”.
Another concern is how smoothly accounts would transition as the transfer happens. Campbell said what’s at risk is not just the collection itself, but the steps borrowers must take to get out of default.
“What you don’t want is for somebody to go through all of the steps of getting out of default, only to have them feeling like they’re lost in the process yet again because of the handoffs that have to happen between vendors,” Campbell said.
Partridge added that the shift could make it harder for borrowers to get repayment help because two agencies would be responsible for managing accounts.
Where the policy stands now
The Department of Education has not specified a timeline for the transfer to the Treasury. The move is described as beginning with defaulted borrowers before expanding to the broader federal loan portfolio.
During a fireside chat in April. Education Undersecretary Nicholas Kent said it was “undeniable” that the Treasury is well-equipped to manage federal student loans. Kent said. “We want to make sure that we’re developing best practices. along with our Treasury colleagues. to be able to service that debt in a much more effective way than we ever have.”.
For borrowers in default or delinquency—waiting through an involuntary collections pause since January—the dispute isn’t theoretical. It’s about what happens next. who handles the call when the clock runs out. and whether the system’s most vulnerable moment—when debts have already become unmanageable—will be met with renewed oversight or with the same contractors whose histories include federal findings of misleading and abusive conduct.
student loans debt collectors Pioneer Credit Recovery Transworld Systems Consumer Financial Protection Bureau Cross-Servicing program Department of Education Treasury Department Scott Bessent Nicholas Kent involuntary collections pause wage garnishment federal benefits seizure