Education Department Urges Colleges To Combat Rising Student Loan Default Rates

The Education Department has issued new guidance telling colleges and universities they must take a more active role in preventing student loan delinquency and default as nonpayment rates climb at thousands of institutions.​

What the Department Announced

• The Department reminded institutions of their shared responsibility under Title IV of the Higher Education Act to support borrowers through the repayment lifecycle, not just while they are enrolled.​

• New data released by the Department show that more than 1,800 institutions now have student loan nonpayment rates at or above 25 percent, signaling elevated default risk.​

• Officials warned that with nonpayment rising “at hundreds of colleges and universities,” institutions that fail to support repayment outcomes could ultimately lose access to federal student aid.​

Why Colleges Are Being Pressed

• Under existing law, schools can lose eligibility for key federal aid programs (including Direct Loans and Pell Grants) if their cohort default rate (CDR) is 30 percent or higher for three consecutive years, or 40 percent or higher in a single year.​

• The Department is positioning nonpayment rates as an early indicator of potential CDR failures and is signaling that institutions should not wait for formal sanctions before acting.​

Specific Steps the Department Urges

The guidance lays out a set of “best practices” schools are urged to adopt or strengthen:​

• Proactive outreach

  • Conduct sustained outreach to former students who are already delinquent or in default on their federal loans to connect them with repayment options and default resolution pathways.​

• Borrower portals and financial literacy

  • Build or enhance borrower-facing portals linked from institutional websites that centralize loan repayment information, financial literacy materials, and servicer contact details.

  • Dedicate staff to financial literacy services and one‑on‑one repayment assistance for both current and former students.

• Institutional default management plans

  • Update and maintain default management and prevention plans, including using existing communication channels and technology to reach at‑risk borrowers.

  • For institutions with higher CDRs, establish a default prevention task force, identify drivers of default, and set measurable objectives and action steps, as required by Section 435(a)(7) of the HEA.​

Link to New Repayment Policies and Risk

• The guidance ties directly into implementation of the Working Families Tax Cuts Act, which overhauls federal student loan repayment, including a new Repayment Assistance Plan slated for launch by July 1, 2026.​

• Institutions are urged to encourage delinquent and at‑risk borrowers to prepare for and enroll in this new plan, which will offer reduced monthly payments, waive unpaid interest, and provide matching payments that reduce principal for eligible borrowers.​

• By pushing colleges to steer borrowers into more sustainable repayment options and loan rehabilitation, the Department aims both to reduce borrower harm and to protect schools from sanctions linked to high default rates.​

Implications for Institutions

• Default management is explicitly framed as an institution‑wide priority, not something confined to the financial aid office.​

• Schools with high or rising nonpayment rates face heightened scrutiny and a clearer roadmap: ramp up borrower outreach, enhance counseling and literacy efforts, modernize repayment support infrastructure, and rigorously manage CDR risk.