The U.S. Department of Education (the “Department”) on February 19 issued a new Electronic Announcement GEN-26-12 regarding student loan repayment issues and the significant concerns surrounding potential defaults stemming from the COVID-related repayment pause and resumption. The release also included updated data sets reporting student loan delinquency rates by institution as of this month. The Department notes that delinquency rates do not necessarily correlate directly with default rates. Nevertheless, these delinquency rates may be considered indicators of default rate trends and projections.
Draft cohort default rates (“CDRs”) for fiscal year 2023 will be released in the coming weeks, giving institutions an opportunity to review and challenge the Department’s data. These CDRs will report default rates for students who entered repayment between October 1, 2022, and September 30, 2023, and who defaulted between October 1, 2022, and September 30, 2025. Official CDRs for FY 2023 will be released in September 2026.
The Higher Education Act (“HEA”) and Department regulations provide sanctions for an institution with CDRs in excess of certain thresholds. The HEA mandates that an institution with official CDRs over 30% for three consecutive years loses all Title IV eligibility for the two subsequent years. Department regulations further specify that an institution with a single-year official CDR over 40% loses Direct Loan eligibility – but not access to Pell Grants – for the two subsequent years. Lesser sanctions apply to institutions with rates for one or two years over 30%, and institutions retain appeal rights regarding any loss of eligibility.
A significant number of institutions have delinquency rates that are uncomfortably or dangerously high. The Department’s Electronic Announcement encourages institutions to implement their default management plans and to engage with their student borrowers to take advantage of loan repayment and rehabilitation opportunities included in the One Big Beautiful Bill Act in order to reduce default risks in FY 2024 and beyond. The Department is hosting a webinar on February 25 to discuss repayment and CDR issues and best practices.
