The U.S. Department of Education (the Department) today issued additional guidance reminding institutions of higher education of their shared responsibility under Title IV of the Higher Education Act (HEA) to support borrowers throughout their federal student loan repayment journey and outlining best practices to strengthen institutional default management and prevention plans. Today’s announcement follows the Department’s May 5, 2025 guidance that highlighted the important role institutions play in improving loan repayment outcomes and urged them to conduct outreach to former students to help reduce delinquency and prevent defaults.
The Department again calls on all institutions to be proactive in outreach to their former students who are delinquent or in default on their federal student loans. The guidance also outlines best practices for institutions to consider when developing and strengthening their default management and prevention plans, such as leveraging existing communication channels and technology. For example, institutions could consider developing a new borrower portal linked on their website with financial literacy resources and loan repayment information or dedicate staff to financial literacy services to offer in-person assistance to current and former students. Furthermore, the guidance emphasizes that default management is not solely the responsibility of the financial aid office; it should be a priority for institutional leadership.
These efforts are not only intended to support borrowers, but to help institutions avoid losing eligibility to participate in the federal student aid programs due to high cohort default rates (CDRs). 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 Department also released updated nonpayment rates by institution, which may serve as an early indicator of whether a college or university may be at risk of failing the CDR measure. The new data show that over 1,800 institutions have nonpayment rates at or exceeding 25 percent.
“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.”
President Trump's Working Families Tax Cuts Act delivers historic victories for students and families by simplifying federal student loan programs and repayment options. As the Department works to implement these reforms by July 1, today’s guidance urges institutions to take the opportunity to reevaluate their internal practices to promote responsible borrowing and successful repayment by:
- Encouraging delinquent and at-risk borrowers to prepare for and enroll in the new Repayment Assistance Plan, which can provide reduced monthly payments and prevent ballooning debt by waiving unpaid interest and matching payments that reduce borrowers’ loan balances;
- Informing defaulted student borrowers about the opportunity to rehabilitate their loans;
- Using program-level earnings data to enhance entrance counseling and ensure borrowers make informed decisions about their postsecondary education experience; and
- Reviewing financial aid packaging practices in light of legislative changes to loan options and availability, as well as the new authority for institutions to set lower programmatic borrowing limits for Federal student loans.
Background:
Under Section 435(a)(7) of the HEA, institutions with a CDR greater than or equal to 30 percent in a single year are required to develop and submit a default prevention plan to the Department. In doing so, applicable institutions are required to:
- Establish a default prevention task force;
- Identify the factors causing the default rate to exceed the threshold; and
- Establish measurable objectives and steps a school will take to improve student loan repayment and reduce its default rate.