On Monday (May 5th), the US Department of Education issued guidance reminding colleges to fulfill their obligations to support student loan borrowers, highlighting that universities with high default rates on student loans will be restricted from qualifying for federal student loans.
The Department of Education issued a “Dear Colleague Letter” on May 5th, providing guidance for higher education institutions to resume compulsory student loan collection.
In the letter, the Department reminded colleges of their responsibility to support student loan borrowers under the provisions of Chapter 4 of the Higher Education Act of 1965 (HEA).
While borrowers bear primary responsibility for repaying student loans, colleges play a key role in the Department of Education’s ongoing efforts to improve loan repayment, especially amid rising tuition fees that universities autonomously set.
Colleges should ensure that their graduates understand the obligation to repay student loans and know how to access their accounts on the StudentAid.gov student aid website.
This letter was released on the same day as the Trump administration reinstated compulsory student loan collection. Since the early days of the COVID-19 pandemic, the US had suspended compulsory student loan collection.
Starting from May 5th, approximately 195,000 defaulting student loan borrowers will receive formal notifications from the US Department of Treasury informing them that their federal benefits will be offset by the Treasury Department. The first batch affected will be those scheduled to receive monthly benefits in early June.
It is expected that later this summer, all 5.3 million defaulting borrowers will be notified by the Treasury Department that their debts will be withheld from their incomes.
All defaulting borrowers will continue to receive email notifications from the Federal Student Aid office to stay informed of the latest developments. FSA will urge them to contact the “Default Resolution Group” to arrange monthly repayments, apply for Income-Driven Repayment Plans (IDR), or request loan consolidation.
FSA has enhanced customer service capabilities and extended the operating hours of call centers to ensure borrowers can access the necessary information and support.
The Department of Education has also authorized guarantors to initiate compulsory collection procedures on loans under the Federal Family Education Loan Program.
All FSA collection activities must comply with the Higher Education Act regulations, and loan collections can only proceed after providing borrowers with sufficient repayment notices and opportunities.
Education Secretary Linda McMahon stated, “While helping defaulting borrowers restart repayments, we must repair a malfunctioning higher education financing system that continues to raise tuition without ensuring universities provide high-value degrees to students.”
“For too long, a lack of transparency and accountability has led US colleges to burden students with massive debts without adequately considering if their graduates truly have the capability to succeed in the labor market,” McMahon added.
In this letter, the Education Department urged all higher education institutions receiving federal funding to contact all their graduates, reminding them of their obligation to repay all non-deferred federal student loans and requiring them to complete this task by June 30, 2025.
The Department of Education also noted that it has access to repayment status data of federal student loan borrowers and will provide information on borrowers’ statuses after entering the repayment phase in the “College Scorecard” publication. The department plans to use this data to calculate repayment rates for various universities and will publish relevant information later this month in the Federal Aid Data Center.
The letter also pointed out that under Section 435 of the Higher Education Act, educational institutions must maintain a low cohort default rate (CDR), or they may lose eligibility for federal student aid, including Pell Grants and federal student loans.
The Education Department urged all educational institutions to proactively reach out to graduates with outstanding loans or defaults to ensure these universities do not lose eligibility for federal student aid next year due to high default rates.