The U.S. Department of Education is calling on colleges and universities to strengthen their efforts to help student borrowers successfully repay their federal loans and avoid default. As repayment has fully resumed following pandemic relief measures, borrower delinquency is increasing and institutions are being reminded of their shared responsibility to support students throughout the repayment process.
In a recent press release and Electronic Announcement, Federal Student Aid emphasized that proactive default management is essential to protecting students and maintaining institutional eligibility for federal aid programs.
Why This Matters Now
The Department recently published updated institutional nonpayment rates. These rates measure the percentage of borrowers who entered repayment since 2020 and are at least 90 days delinquent. While nonpayment rates are not official Cohort Default Rates, they are considered a strong early indicator of potential default risk.
According to the Department, more than 1,800 institutions show elevated levels of borrower delinquency. Schools with high Cohort Default Rates face serious consequences. An institution may lose eligibility to participate in the federal student aid programs, such as the Direct Loan and Pell Grant programs, if its CDR is 30 percent or higher for each of its three most recent cohort fiscal years. It may also lose eligibility to participate in the Direct Loan program if its CDR is 40 percent or higher for its most recent cohort fiscal year.
The message is clear. Institutions should not wait for official Cohort Default Rates to reflect problems before taking action.
“With nonpayment rates rising at hundreds of colleges and universities across the country, institutions must do more to support successful loan repayment outcomes,” said Nicholas Kent, Under Secretary of Education. “Student borrowers have an obligation to repay their loans, but institutions also share a responsibility to ensure their students are prepared to enter repayment and understand the consequences of nonpayment. Institutions cannot benefit from taxpayer dollars while ignoring the fact that a significant share of their students are not well-prepared to repay their loans. It’s time for institutions to step up or risk losing access to federal student aid.”
Key Expectations for Institutions
The Department is strongly encouraging schools to review, update, and actively maintain their Default Management and Prevention Plans. Even for institutions that are not currently at sanction thresholds, this is a critical time to reassess strategy and outreach.
Recommended actions include:
Update and Strengthen Default Management Plans
- Institutions should evaluate the root causes of delinquency among their borrowers, set measurable goals for improvement, and identify specific action steps. Establishing a cross campus default prevention task force can help ensure leadership engagement and accountability.
Use Data to Drive Outreach
- Schools are encouraged to regularly review borrower level data, including delinquency reports available through NSLDS. Early identification of at risk borrowers allows institutions to provide targeted communication and support before delinquency progresses to default.
Enhance Borrower Communication
- Effective default prevention requires consistent and personalized outreach. Institutions should ensure that borrowers understand their repayment options, including income driven repayment plans and loan rehabilitation opportunities. Enhanced entrance and exit counseling can also better prepare students for repayment responsibilities.
Engage Campus Leadership and Partners
- Default prevention should not sit solely within the financial aid office. Senior leadership, enrollment teams, student success departments, and even external partners can play an important role in supporting borrowers and reducing risk.
The Bottom Line
As more borrowers enter repayment and delinquency rates rise, the Department of Education is making it clear that institutions must take an active role in repayment success. Updated nonpayment data provides an early warning system. Schools that respond now by strengthening outreach, improving data analysis, and maintaining comprehensive default prevention plans will be better positioned to protect both their students and their institutional eligibility for federal aid programs.
If your institution has questions about reviewing or strengthening your Default Management and Prevention Plan, now is the time to start the conversation.