WASHINGTON– The Trump administration said it plans to hold colleges and universities responsible when students and graduates fail to pay back federal student loans. The threat to the schools: Get repayment rates up or risk future students being denied federal loans.
“The administration is invoking rules that allow the government to shut off the federal student-loan spigot for specific schools if too many of their former students have lapsed on payments, according to a notice the Education Department sent Monday,” the Wall Street Journal reported.
The report noted that losing eligibility for federal aid is a potentially devastating blow to a school’s ability to attract students.
The Education Department said schools can be dropped from federal student aid if more than 30% of recent students have defaulted over the past three years, or if 40% have defaulted in the most recent year.
More Schools at Risk
According to the Journal, a far bigger group of schools is now at risk because so many students never resumed paying back their loans after a pandemic pause. Nearly 10 million borrowers are either already in default or on the cusp, the Education Department stated.
“Within a few months, roughly a quarter of borrowers nationwide could be in default, meaning they are at least nine months behind on payments,” the Journal reported.
The report added that the new threat is a plank in a broader strategy to accelerate repayments.
Loans Go into Collections
Also on Monday, the Education Department began putting defaulted student loans in collections. Almost 200,000 defaulted student-loan borrowers have begun getting notices that tax refunds and federal benefits could be withheld to pay back their debt as soon as a month from now, according to the Journal.
“As we begin to help defaulted borrowers back into repayment, we must also fix a broken higher education finance system that has put upward pressure on tuition rates without ensuring that colleges and universities are delivering a high-value degree to students,” Education Secretary Linda McMahon said in a statement.
The report added that Republican lawmakers have been thinking about new ways to tighten the $1.6 trillion student-loan program.
What TransUnion Data Show
As the CU Daily reported here, federal student loan collections have began again on May 5, with TransUnion offering an analysis of who is most at risk.