Student Loan Reforms and Institutional Responsibilities
The U.S. Department of Education is implementing significant reforms to federal student loan programs, placing increased emphasis on institutional responsibility for student loan repayment outcomes. These changes, driven in part by the One Big Beautiful Bill Act (OBBBA) and a renewed focus on accountability, require colleges and universities to proactively support borrowers and mitigate rising delinquency and default rates.
Resumption of Collections and Focus on Defaulted Loans
As of May 5, 2025, the Department of Education resumed collections on defaulted federal student loans, a practice paused since March 2020. This resumption puts millions of borrowers at risk of wage garnishment, tax refund seizure, and negative impacts to their credit scores. More than 5 million borrowers are currently in default, with projections estimating that number could reach 10 million in the coming months.
Institutional Accountability and Nonpayment Rates
The Department is increasingly focused on institutions with high nonpayment rates – the percentage of borrowers who are more than 90 days delinquent after entering repayment. Data released by the Department shows that over 1,800 institutions have nonpayment rates exceeding 25 percent. While distinct from the official Cohort Default Rate (CDR), nonpayment rates serve as an early indicator of potential future CDR issues and an institution’s effectiveness in counseling borrowers.
Institutions with CDRs of 30 percent or higher are already required to develop and submit default prevention plans. However, the Department is now strongly encouraging institutions with high nonpayment rates to update and actively implement these plans, even if their CDRs are currently acceptable.
Developing Effective Default Management and Prevention Plans
Effective default prevention plans should include:
- Establishing a dedicated default prevention task force.
- Identifying the root causes of high default rates.
- Setting measurable objectives and outlining specific steps to improve repayment rates.
The Department recommends leveraging existing resources, including financial literacy programs and the development of a borrower portal on institutional websites. This portal should provide students and alumni with clear information on repayment obligations, available plans, and contact information for assistance.
Leveraging Data and Targeted Outreach
Institutions are encouraged to utilize the National Student Loan Data System (NSLDS®) Delinquent Borrower Report to identify at-risk students and conduct targeted outreach. Analyzing delinquent borrower data can reveal common characteristics and inform more effective intervention strategies.
The Impact of the One Big Beautiful Bill Act
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces several key changes that institutions should incorporate into their default management strategies. These include:
- Encouraging borrowers to enroll in the modern Repayment Assistance Plan (RAP), offering reduced payments and potential loan balance reductions, available in Summer 2026.
- Informing borrowers in default about the expanded opportunity for loan rehabilitation, now allowing for two rehabilitations instead of one, beginning July 1, 2027.
- Utilizing program-level earnings data from the College Scorecard to improve entrance counseling and help students make informed decisions about their education.
- Reviewing financial aid packaging practices in light of new loan options and the authority to set lower borrowing limits.
Collaboration and Resources
The Department of Education emphasizes the importance of collaboration between financial aid offices, institutional leadership, and external partners. Institutions may benefit from partnering with third-party entities specializing in borrower outreach and counseling.
Institutions are encouraged to stay updated on OBBBA implementation through the StudentAid.gov updates page and the Department’s Dear Colleague Letter published on July 18, 2025.