Education Department Tightens Oversight of Student Loan Defaults and Proposes Tuition Reforms

The U.S. Department of Education is increasing its scrutiny of higher education institutions’ student loan default management practices and simultaneously advancing proposed rules aimed at reducing tuition costs and simplifying student loan repayment. These actions, stemming from the implementation of the Working Families Tax Cuts Act, signal a shift towards greater institutional accountability and a more streamlined federal student aid system.

Heightened Institutional Accountability for Default Rates

The Department of Education has reminded institutions of their shared responsibility under Title IV of the Higher Education Act. Schools face potential loss of eligibility for Direct Loan and Pell Grant programs if their cohort default rate (CDR) exceeds 30% for three consecutive years, or 40% in a single year . The guidance emphasizes that default management should be a priority for institutional leadership, not solely the responsibility of financial aid offices.

Recent data reveals that over 1,800 institutions currently have nonpayment rates at or exceeding 25%, a key indicator of potential risk under federal CDR measures .

Strategic Implementation of the Repayment Assistance Plan

As the Department prepares to implement reforms from the Working Families Tax Cuts Act by July 1, 2026, institutions are urged to transition delinquent borrowers into the new Repayment Assistance Plan. This plan aims to prevent increasing debt by:

• Providing reduced monthly payments.
• Waiving unpaid interest.
• Offering matching payments to reduce total loan balances.

Best Practices for Default Prevention

The Department is encouraging institutions to adopt proactive measures, including:

• Borrower Portals: Developing dedicated web interfaces with financial literacy tools and repayment resources.
• Specialized Staffing: Allocating personnel to provide in-person financial counseling to both current and former students.
• Data-Driven Counseling: Utilizing program-level earnings data to enhance entrance counseling, helping students produce informed decisions about their debt-to-income potential.

New Regulatory Flexibilities and Requirements for High-Risk Schools

Institutions now have new authority to set lower programmatic borrowing limits for federal student loans. Schools are being encouraged to review their financial aid packaging practices to promote responsible borrowing.

Institutions with a CDR of 30% or higher in a single year are now required to:

• Establish a formal default prevention task force.
• Conduct a root-cause analysis of factors driving high default rates.
• Submit a measurable default prevention plan to the Department.

Proposed Rulemaking: “Reimagining and Improving Student Education” (RISE)

The Department has issued a Notice of Proposed Rulemaking (NPRM) on “Reimagining and Improving Student Education” (RISE) as part of the Working Families Tax Cuts Act implementation . This rule focuses on tuition reduction and simplified repayment. Comments on the proposed rules are due on or before March 2, 2026, and can be submitted through the Federal eRulemaking Portal: https://www.regulations.gov/commenton/ED-2025-OPE-0944-0001 (Docket ID ED-2025-OPE-0944).

The Path Forward

The combination of increased institutional oversight and the proposed RISE rulemaking represents a move toward a “simplified but stricter” system for federal student aid. Financial services providers and consultants should prepare for institutions to seek enhanced financial literacy technology, data analytics for earnings tracking, and more robust outreach solutions to mitigate default risks and maintain federal funding eligibility. The next 18 months will be defined by technical system updates, a large-scale borrower migration project, and a temporary pause on aggressive collection tools in favor of rehabilitation and the new Repayment Assistance Plan.