By Sue Downing, Senior Vice President & Officer, Inceptia
As of April 2025, the U.S. Department of Education has resumed aggressive collection efforts on defaulted federal student loans, including administrative wage garnishment (AWG). This policy change threatens millions of borrowers and poses significant challenges for higher education institutions. Financial aid administrators and institutional leaders must proactively support at-risk borrowers to mitigate these risks and uphold institutional integrity.
The Escalating Risk of Default
Following the expiration of pandemic-era protections, borrowers who are 270 days delinquent on federal student loans now face severe consequences, such as wage garnishment of up to 15% of disposable income and seizure of tax refunds through the Treasury Offset Program. These measures can lead to financial instability for borrowers and tarnish institutional reputations.
Institutional Accountability and Cohort Default Rates
The U.S. Department of Education monitors institutions' cohort default rates (CDRs), which reflect the percentage of borrowers defaulting within three years of entering repayment. High CDRs can result in sanctions, including loss of eligibility for federal student aid programs. Therefore, supporting borrowers in repayment is not only ethical but also essential for institutional sustainability.
Strategies for Supporting At-Risk Borrowers
- Enhanced Financial Education Programs: Implement comprehensive financial education initiatives to equip students with budgeting skills and loan repayment strategies. Explore platforms such as Financial Avenue to bring online financial education programs to your student body.
- Proactive Communication: Utilize tools like Repayment Counseling Outreach to identify and engage with borrowers at risk of default, providing personalized support and information on repayment options.
- Collaboration with External Partners: Partner with organizations such as Inceptia, which specialize in default prevention, to offer tailored counseling and resources, enhancing the support network for borrowers.
- Institutional Policy Reforms: Establish campus-wide committees involving faculty and staff to develop and implement strategies aimed at reducing default rates and promoting student success.
Conclusion
In the current landscape, where federal enforcement of student loan repayments has intensified, institutions must take decisive action to support borrowers. By implementing targeted strategies and fostering a culture of financial responsibility, financial aid administrators and institutional leaders can protect their students and uphold the institution's commitment to educational excellence.