The Department of Education has issued new guidance urging colleges and universities to take more aggressive steps to reduce student loan delinquencies and defaults, as updated federal data show that more than 1,800 institutions now have nonpayment rates of 25% or higher. The Department is calling on schools to strengthen default management and prevention plans, expand outreach to former students who are delinquent or in default, and better prepare borrowers for repayment. The updated nonpayment data, released this week, is being positioned as an early warning sign for institutions that could later face high cohort default rates and potential loss of access to federal student aid programs.
The guidance reiterates that institutions share responsibility for supporting borrowers throughout the repayment lifecycle. Federal officials encouraged schools to proactively contact former students who are behind on their loans and to use available data to identify borrowers at risk of default. While nonpayment rates are not the same as cohort default rates, the Department stated they are indicative of future default risk and institutional performance in preparing borrowers for repayment.
The Department outlined several best practices institutions are encouraged to adopt, including:
- Leveraging existing communication channels and technology to provide clearer repayment information.
- Developing borrower portals that centralize financial literacy resources and repayment options.
- Dedicating staff to financial literacy services and in person counseling.
- Using delinquent borrower reports to conduct targeted outreach and analyze common risk factors.
Federal officials also emphasized that default management should extend beyond financial aid offices and be treated as an institution wide priority, with involvement from executive leadership and governing boards. Schools with cohort default rates at or above statutory thresholds are required to develop formal default prevention plans that include measurable objectives and corrective actions.
The guidance follows recent legislative changes affecting federal student loan programs and repayment options, which the Department says create an opportunity for institutions to reassess how they counsel borrowers, package financial aid, and guide students toward responsible borrowing and repayment behavior. Updated cohort default rate notifications are expected to be released in the coming weeks.
