The U.S. Department of Education has released new guidance urging colleges and universities to take a more active role in supporting students with federal student loans, emphasizing their responsibility under Title IV of the Higher Education Act. The announcement follows earlier guidance from May 2025, which encouraged institutions to reach out to former students to help reduce loan delinquency and prevent defaults.
The Department is calling on all higher education institutions to proactively contact former students who are behind or have defaulted on their federal student loans. The latest guidance provides recommendations for improving default management and prevention plans, including using technology and existing communication channels. Suggestions include creating a borrower portal on institutional websites that offers financial literacy resources and information about loan repayment, as well as dedicating staff members to provide in-person financial literacy assistance for both current and former students. The Department also stresses that managing defaults should be an institutional priority beyond just the financial aid office.
Institutions are reminded that these efforts not only benefit borrowers but can also protect schools from losing access to federal student aid programs due to high cohort default rates (CDRs). If an institution’s CDR reaches 30 percent or more for three consecutive years, it risks losing eligibility for programs like Direct Loans and Pell Grants. Schools may also lose eligibility if their CDR hits 40 percent in the most recent year.
In addition, the Department published updated nonpayment rates by institution, offering early warning signs for schools at risk of failing CDR standards. Data show that over 1,800 institutions have nonpayment rates at or above 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.”
The guidance comes as President Trump's Working Families Tax Cuts Act introduces changes intended to simplify federal student loan programs and repayment options. As these reforms are set for implementation by July 1, the Department is encouraging schools to reassess their internal policies around responsible borrowing and loan repayment success.
Key actions recommended include helping at-risk borrowers enroll in a new Repayment Assistance Plan designed to lower monthly payments by waiving unpaid interest and matching payments that reduce balances; informing defaulted borrowers about opportunities for loan rehabilitation; using program-level earnings data during entrance counseling so borrowers can make informed choices about postsecondary education; and reviewing financial aid packaging practices given recent legislative changes allowing schools greater authority over borrowing limits.
According to Section 435(a)(7) of the Higher Education Act, any school with a single-year CDR of 30 percent or higher must submit a default prevention plan detailing steps such as forming a task force on defaults, identifying causes behind high default rates, and setting measurable goals for improvement.
