The U.S. Education Department (ED) on Monday officially resumed collections on defaulted federal student loans, as recent reports indicate delinquency rates are higher than ever. Those who don’t resume payments risk withholdings from Social Security benefits, tax refunds and garnished wages.
The federal government has not collected on defaulted student loans since March 2020, when the first Trump administration paused repayments as a temporary relief measure during the Covid pandemic.
ED estimates that only 38% of Direct Loan and Federal Family Education Loan Program borrowers are in repayment and current on their student loans. It says that almost one-quarter of the entire portfolio is either in default or a late stage of delinquency.
A new TransUnion analysis released Monday found that 20.5% of federal student loan borrowers with a payment due are 90 days or more past due. This compares to 11.5% in February 2020, near the beginning of the pandemic and the subsequent student loan pause, according to the report.
Reminder to colleges
On Monday, the department issued a “Dear Colleague” letter reminding colleges and universities of their “shared responsibility” to support student loan borrowers.
“Although borrowers have the primary responsibility for repaying their student loans, institutions play a key role in the Department’s ongoing efforts to improve loan repayment outcomes, especially as the cost of college set solely by colleges and universities continues to skyrocket,” ED said in the letter. “Universities can ensure that their former students understand their responsibility to repay their student loans and that they know how to access their StudentAid.gov accounts.”
ED said that it has started to notify roughly 195,000 borrowers in default that their federal benefits will be subject to reductions, starting in early June. Later this summer, all 5.3 million defaulted borrowers will receive a notice that their earnings will face administrative wage garnishment, ED said.
In its guidance, ED advised colleges to remind borrowers to repay any federal student loan that is not in deferment or forbearance before June 30. The department said institutions are responsible for “providing clear and accurate information about repayment” to borrowers through entrance and exit counseling and by outlining repayment options.
The department noted that it provides information on its College Scorecard about the status of each institution’s borrowers after they enter repayment. ED added that it plans to use the data to calculate rates of nonrepayment by institution and will publish the information on the Federal Aid Data Center later this month.
Cohort default rates
ED also reminded higher education institutions about cohort default rate (CDR) parameters. Colleges with high rates risk losing their eligibility to participate in federal student aid programs, including Pell grants. The CDR threshold is 40% for a single year or 30% for three consecutive years.
A significantly smaller number of community college students take out loans than at four-year institutions, mainly due to low tuition and fees at public two-year colleges. In fiscal year 2018, the number of borrowers entering repayment was 577,591 at public two-year colleges, according to federal data. The number of community college students in default was 66,638.
