The U.S. Department of Education has issued a 'Dear Colleague Letter' to higher education institutions, emphasizing their responsibilities under Title IV of the Higher Education Act of 1965. This guidance coincides with the resumption of involuntary collections on student loans, which had been paused since the onset of the Covid-19 pandemic.
While borrowers are primarily responsible for repaying their loans, colleges and universities have a significant role in improving loan repayment outcomes. The rising cost of college underscores this responsibility. Institutions are encouraged to ensure former students understand their repayment obligations and how to access their StudentAid.gov accounts.
U.S. Secretary of Education Linda McMahon stated, "As we begin to help defaulted borrowers back into repayment, we must also fix a broken higher education finance system that has put upward pressure on tuition rates without ensuring that colleges and universities are delivering a high-value degree to students." She criticized insufficient transparency and accountability in universities that leave graduates unprepared for the labor market despite significant debt.
The letter urges federally funded institutions to contact former students about repaying federal student loans not in deferment or forbearance by June 30, 2025. The Department maintains data on borrower repayment status and plans to publish nonrepayment rates by institution later this month.
Institutions must keep cohort default rates (CDR) low under Section 435 of the HEA or risk losing eligibility for federal student assistance like Pell Grants and loans. Proactive outreach is advised to prevent high CDRs and maintain access to federal aid.
Involuntary collection efforts resume today as approximately 195,000 defaulted borrowers receive notices from the U.S. Department of Treasury regarding benefit offsets starting in June. Later this summer, all 5.3 million defaulted borrowers will be informed about potential wage garnishment.
Defaulted borrowers will continue receiving communications from FSA about repayment options, including income-driven plans or loan rehabilitation. FSA has increased customer service capacity to support borrowers resuming payments or rehabilitating loans.
Guaranty agencies are authorized to begin involuntary collections on Federal Family Education Loan Program loans following sufficient notice and opportunity for repayment as required by law.
Borrowers can find detailed information on getting out of default at StudentAid.gov/end-default.
