2025 is an unprecedented year for federal student loans. We’re seeing the largest delinquency rates in history, creating a critical situation for institutions to avoid loss of Title IV due to high Cohort Default Rates.
To address the rising delinquency rates, the Department of Education released two critical Dear Colleague Letters (DCL). The first was on May 5th: (GEN-25-19) Request for Institutions to Provide Repayment Information to Former Students to Prevent Defaults urged colleges to contact student loan borrowers before June 30th, given that only 38% of borrowers were in repayment and current on their student loans.
In the May 5th DCL, the Department promised to release rates of non-payment rates by institution, which they did so in the July 23rd DCL: (GENERAL-25-34) Nonpayment Rates by Institution – Default Prevention Resource – NSLDS Delinquent Borrower Report.
The non-payment rates report has generated concern for colleges and caused many questions, which we’ll address:
1. Are these nonpayment rates the same as my Cohort Default Rate?
No, the reported Nonpayment Rate Report is not the same as the traditional Cohort Default Rate (CDR). Instead, it measures all borrowers who entered repayment starting January 1, 2020, and identifies those who were 90+ days delinquent as of May 1, 2025. This broader metric captures repayment struggles over a multi-year period, including the pandemic pause and return to repayment.
The official CDR for the 2024 cohort remains the next key accountability metric for the Department of Education. It will be calculated using data available as of October 1, 2026, with:
- Numerator: Borrowers who are 360+ days delinquent as of September 30, 2026
- Denominator: Borrowers who entered repayment between October 1, 2023 – September 30, 2024
2. Why should I be concerned about nonpayment rates if they’re not Cohort Default Rates?
The Department published institutional loan nonpayment rates, expanding public accountability beyond Cohort Default Rates (CDRs).
High nonpayment rates can signal poor institutional support and impact rankings, enrollment decisions, and access to federal aid. Institutions are urged to take ownership of borrower success post-enrollment.
3. Why is the Department concerned about student loan default?
The current rate of student loan delinquencies could result in record-high default rates, triggering the loss of Title IV eligibility. Institutions that have three consecutive years of a CDR over 30% or one year over 40% could lose their ability to provide federal student aid.
With the resumption of collection activities, the Department aims to mitigate defaults, protect borrowers from financial hardship, and ensure the integrity of federal student aid programs.
4. Is there any indication that the Department will offer automatic waivers for institutions with CDRs over 40% to prevent loss of Title IV eligibility?
This is unlikely, and no formal policies are in place for a waiver process. Since the Department is publishing nonpayment rates, this indicates the Department will follow through on its intention to hold colleges accountable.
5. What should institutions do to address delinquencies?
Institutions should step up their outreach efforts and consider partnering with third-party servicers. With the Department publicly tracking institutional nonpayment rates, your school should:
- Identify borrowers who remain delinquent or in default.
- Provide default aversion resources and individualized support.
- Track progress and report outcomes to ensure continuous improvement.
6. What information should institutions include in their outreach to borrowers?
Effective messages must include:
- A reminder that collections have resumed.
- Step-by-step instructions for logging into StudentAid.gov.
- A strong push toward Income-Driven Repayment (IDR) options.
- Notify borrowers in SAVE that interest has resumed as of August 1st, and that they should switch to another IDR plan option
- Encouragement to contact your school or servicer for personalized help.
Here’s a sample outreach message:
| Subject: It’s Not Too Late to Get Back on Track Dear [Borrower Name], The Department of Education has resumed collection activities on defaulted federal student loans—but there’s still time to avoid collections and restore your eligibility for federal aid. Here’s how: 1. Log in to StudentAid.gov and check your loan status. 2. Explore affordable repayment options—like Income-Based Repayment 3. Enroll or update your plan before further action is taken on your account. Need help? Contact us at [your contact info] or visit [your school’s loan support site]. Don’t let delinquency impact your credit or your future. We’re here to help. Sincerely, [Your Institution] |
7. How can an institution effectively manage this outreach when they have limited resources?
Consider leveraging existing communication channels and technology. Segment your outreach to prioritize delinquent borrowers. Explore partnerships or utilize specialized services like ION’s Student Loan Default Aversion service, which can automate and personalize outreach efforts, providing expertise and resources you might lack internally.
Best Practices to Manage Your Cohort Default Rate
To effectively mitigate potential risks, consider implementing the following best practices:
1. Data Identification and Segmentation:
- Identify the Target Audience: Accurately identify your cohorts and target borrowers by their CDR year. This way, you can accurately target the Cohort years with the highest delinquency rates.
- Segment Your Outreach: Prioritize outreach to borrowers who are currently delinquent. You can further segment based on loan type, repayment status, and time since leaving the institution.
2. Multi-Channel Communication Strategy:
- Utilize Various Channels: Employ a combination of email, phone calls, text messages, and potentially even direct mail to maximize reach.
- Personalize Your Messaging: Tailor messages based on the borrower’s situation when possible (e.g., those in delinquency receive a more urgent message).
- Ensure Mobile-Friendliness: Many former students may primarily use their mobile devices for communication.
3. Clear and Actionable Messaging:
- Use Clear and Concise Language: Avoid jargon and ensure the message is easy to understand.
- Provide Direct Links: Make it easy for borrowers to access StudentAid.gov and update their information.
- Include Clear Calls to Action: Encourage borrowers to review repayment options and update their contact information immediately.
- Emphasize Urgency: Given the resumption of collection activities, convey the importance of timely action.
4. Leverage Available Resources:
- StudentAid.gov: Familiarize yourself with the resources available on StudentAid.gov to effectively guide borrowers.
- Financial Aid Office: Equip your financial aid staff with updated information and talking points to address potential inquiries from former students.
- Partner with Experts: Consider partnering with organizations like ION that specialize in student loan default aversion to streamline the process and enhance effectiveness.
5. Track Results and Improve Over Time:
- Document Outreach: Keep records of your communication efforts, including dates, methods, and responses.
- Monitor Engagement: Track website clicks, email open rates, and other metrics to assess the effectiveness of your outreach.
- Analyze Impact: While directly measuring the impact on CDRs will take time, monitor changes in borrower engagement and reported repayment status.
- Review and Refine: Regularly assess the effectiveness of your outreach strategy and adjust as needed.
- Stay Informed: Keep abreast of any further guidance or resources provided by the Department of Education.
By implementing these best practices, your institution can safeguard your institution’s future.
Don’t delay – begin your outreach efforts today by partnering with ION.