The department released updated nonpayment data showing that more than 1,800 institutions have nonpayment rates at or exceeding 25 percent — a figure officials describe as an early warning sign of deeper default risk.
"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," said Nicholas Kent, the department's Under Secretary of Education. "It's time for institutions to step up or risk losing access to federal student aid."
Under federal law, an institution can lose eligibility to participate in the Direct Loan and Pell Grant programs if its cohort default rate reaches 30 percent or higher for each of its three most recent cohort fiscal years. A school can also lose access to the Direct Loan program if its default rate hits 40 percent or higher in a single year.
The department's guidance urges institutions to take concrete steps, including developing borrower portals with financial literacy resources, dedicating staff to loan repayment assistance, and conducting direct outreach to former students who are already delinquent or in default. Officials also emphasized that default management should not fall solely on financial aid offices but should be treated as an institutional leadership priority.
The announcement is tied to the Trump administration's Working Families Tax Cuts Act, which the department says simplifies federal student loan programs and repayment options. Schools are being encouraged to help at-risk borrowers enroll in a new Repayment Assistance Plan, which the department says can lower monthly payments and prevent ballooning debt by waiving unpaid interest.
The guidance follows a May 5 notice in which the department first highlighted the role institutions play in improving loan repayment outcomes.
