WASHINGTON, D.C. — More than 1,800 colleges and universities could face heightened federal scrutiny — and potentially lose access to federal student aid — as rising student loan nonpayment rates trigger new guidance and enforcement actions from the U.S. Department of Education.
What This Means for You
- Colleges with high student loan default rates risk losing eligibility for federal aid programs.
- Schools are being urged to step up outreach to struggling borrowers and strengthen default prevention plans.
- Thirty-one universities agreed to cut ties with an outside group after a federal civil rights investigation.
Loan Default Warning to Colleges
The Department of Education issued new guidance February 18 reminding institutions of higher education of their responsibilities under Title IV of the Higher Education Act, the section of federal law that governs student financial aid programs.
Title IV requires colleges that participate in federal student aid programs — including Direct Loans and Pell Grants — to help borrowers successfully repay their loans.
The department urged schools to increase outreach to former students who are delinquent or in default and to strengthen their “default management and prevention plans,” which are institutional strategies aimed at reducing student loan defaults.
A school can lose eligibility to participate in federal student aid programs if its cohort default rate, or CDR, reaches 30 percent or higher for each of its three most recent fiscal years. The CDR measures the percentage of borrowers who default on federal student loans within a specified period. A school can also lose access to the Direct Loan program if its CDR hits 40 percent in a single fiscal year.
The department also released updated nonpayment rate data showing more than 1,800 institutions have rates at or above 25 percent, which officials described as a potential early warning sign of default risk.
“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.”
Best Practices and Reform Efforts
The guidance recommends that institutions encourage at-risk borrowers to enroll in the new Repayment Assistance Plan, which can lower monthly payments, waive unpaid interest, and match payments that reduce loan balances.
Schools are also encouraged to inform borrowers about loan rehabilitation options, use program-level earnings data during entrance counseling to help students make informed decisions, and review financial aid packaging practices in light of new legislative changes.
Under federal law, institutions with a CDR of 30 percent or higher in a single year must establish a default prevention task force, identify the causes of high default rates, and create measurable objectives to improve repayment outcomes.
Civil Rights Enforcement Action
On February 19, the Department’s Office for Civil Rights announced it secured 31 resolution agreements with universities to end partnerships with The Ph.D. Project, an organization that provides doctoral students with guidance but limits eligibility based on race.
OCR determined that institutions collaborating with the organization violated Title VI of the Civil Rights Act of 1964, which prohibits race, color, or national origin discrimination in federally funded education programs.
The 31 institutions either had already terminated their partnerships or agreed to do so and committed to reviewing other external partnerships for potential Title VI violations. Fourteen additional schools remain in negotiations with OCR.
“This is the Trump effect in action: institutions of higher education are agreeing to cut ties with discriminatory organizations, recommitting themselves to abiding by federal law, and restoring equality of opportunity on campuses across the nation,” said U.S. Secretary of Education Linda McMahon. “We are hopeful that other institutions with similarly discriminatory practices will follow suit, paving the way for a future where we reject judging individuals by the color of their skin and once again embrace the principles of merit, excellence, and opportunity.”
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