WASHINGTON, D.C. — The U.S. Department of Education (DOE) has issued a directive to colleges and universities, emphasizing their shared responsibility in supporting former students with federal loan repayment. Released through a “Dear Colleague Letter” (DCL), the guidance comes as the Department resumes involuntary collection efforts on defaulted student loans after a multi-year pause during the pandemic.
While borrowers are ultimately accountable for repaying their loans, the Department underscored that institutions of higher education play an instrumental role in improving repayment outcomes. This is particularly salient as rising tuition costs, set by colleges and universities, have left many students with substantial debt burdens.
“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,” said U.S. Secretary of Education Linda McMahon.
The DCL specifically calls on federally funded colleges and universities to proactively contact former students to remind them of their repayment obligations, particularly those whose loans are no longer in deferment or forbearance. Institutions are encouraged to inform graduates on how to access their StudentAid.gov accounts and must complete these outreach efforts by June 30, 2025.
Transparency and Accountability
According to the DOE, data on repayment statistics for federal student loan borrowers will be published later this month in the Federal Aid Data Center. This information, combined with borrower repayment status on the College Scorecard, will provide increased transparency on institutional repayment outcomes.
Additionally, the Department highlighted that institutions are required under Section 435 of the Higher Education Act of 1965 (HEA) to maintain low cohort default rates (CDRs). High default rates could result in institutions losing their eligibility to receive federal funds, including Pell Grants and student loans. To avoid potential risks, the DOE is urging schools to conduct sustained outreach to delinquent or defaulted former students.
Resumption of Collections
Starting today, approximately 195,000 borrowers in default will receive 30-day notices from the U.S. Department of Treasury, warning that their federal benefits may be garnished under the Treasury Offset Program. This includes Social Security checks and other government benefits. Beginning in June, these offsets will be reflected in issued benefits.
Later in the summer, the collection process will expand. Notices will be sent to all 5.3 million borrowers in default, informing them that their wages could also face garnishment. Guaranty agencies have been authorized to resume collections on loans disbursed under the Federal Family Education Loan Program.
The Department emphasized that borrowers in default have several options to restore their loans to good standing. These include making a payment, enrolling in an income-driven repayment (IDR) plan, or signing up for a loan rehabilitation program. The Federal Student Aid (FSA) office has boosted its customer service capacity and extended operating hours to assist borrowers with inquiries and solutions.
Implications
With this guidance, the DOE is signaling its intent to enforce accountability among colleges and universities while ensuring borrowers have access to the resources needed for repayment. However, the resumption of involuntary collections will likely pose challenges to borrowers already facing financial strain, while schools must now take active steps to prevent repercussions tied to high default rates.
With both the institutions and borrowers under closer scrutiny, the Department’s commitment to transparency and accountability seeks to address systemic issues in the student loan repayment process and reshape interactions between schools, borrowers, and lenders.
For the latest news on everything happening in Chester County and the surrounding area, be sure to follow MyChesCo on Google News and MSN.