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Update on Default Management and Nonpayment Rates: Department of Education Releases New Data and Urges Institutions to Strengthen Prevention Efforts

February 26, 2026

Update on Default Management and Nonpayment Rates: Department of Education Releases New Data and Urges Institutions to Strengthen Prevention Efforts

February 26, 2026

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The announcement reflects a clear policy direction: Institutions are expected to be proactive and data-driven in managing student loan outcomes.

The U.S. Department of Education, through Federal Student Aid (FSA), has issued an electronic announcement emphasizing institutions’ obligations and opportunities to improve student loan repayment outcomes. The GEN-26-12 announcement on February 18, 2026, both releases updated institutional nonpayment rate data and reiterates the Department’s expectations regarding default management and prevention planning—particularly in light of recent legislative reforms under the “One Big Beautiful Bill Act” (OBBBA).

Institutional Takeaways

The announcement reflects a clear policy direction: Institutions are expected to be proactive and data-driven in managing student loan outcomes. In particular, institutions should:

  • Review their newly released nonpayment rates and evaluate their implications for future cohort default rates (CDRs) and Title IV eligibility risk.
  • Update and operationalize default management and prevention plans, especially where nonpayment rates are elevated.
  • Become familiar with the CDR challenge and appeal opportunities available in regulation after release of draft and final rates, respectively.
  • Invest in borrower-facing tools, financial literacy and coordinated institutional strategies.
  • Deploy National Student Loan Data System delinquent borrower data to focus interventions where they are most needed.
  • Consider third-party partnerships where internal capacity is limited.
  • Leverage new OBBBA repayment tools and flexibilities, including repayment assistance plans, expanded rehabilitation options, program-level outcomes data and the ability to set lower borrowing limits.

The Department reiterates its expectation that institutional partners will actively support borrowers in achieving successful repayment and, in doing so, help safeguard the integrity and financial health of the federal student loan portfolio.

Updated Nonpayment Rate Data and Relationship to CDRs

The Department has released updated nonpayment rate data for Direct Loan borrowers who entered repayment between January 2020 and May 2025. The data show that more than 1,800 institutions have nonpayment rates at or above 25 percent. Key points include:

Nonpayment Rate Definition and Scope

The nonpayment rate reflects the percentage of an institution’s Direct Loan borrowers whose federal student loans are more than 90 days delinquent for the specified cohort.

Indicator of Institutional Risk

Although distinct from the official CDR calculation, the Department views nonpayment rates as a meaningful indicator of:

  • The effectiveness of institutional counseling regarding student loan obligations and consequences of nonpayment; and
  • The extent to which institutions may be at risk of future high CDRs and potential loss of Title IV, Higher Education Act of 1965 (HEA), eligibility.

COVID-19-Related CDR Distortions

The Department notes that, due to pandemic-related flexibilities, many institutions’ CDRs may be “artificially low.” As a result, nonpayment rates may presently be a more reliable measure of repayment success among current borrowers.

Upcoming FY 2023 Draft CDR Notifications

FSA intends to release draft FY 2023 CDR notification packages in the coming weeks to all eligible domestic and foreign institutions.

Default Management and Prevention Plans: Legal Requirements and Department Expectations

Under Section 435(a)(7) of the HEA, any institution with a CDR of 30 percent or greater in a single year must develop and submit a default prevention plan to the Department. Such a plan must:

  • Establish a default prevention task force;
  • Identify the factors contributing to the elevated default rate; and
  • Set forth measurable objectives and specific steps the institution will take to improve repayment and reduce its default rate.

In this announcement, the Department reaffirms its concern that institutions with high nonpayment rates are at serious risk of later incurring high CDRs and losing eligibility for all federal student assistance. Additionally, it strongly encourages institutions with high nonpayment rates—regardless of current CDR levels—to update, maintain, and actively execute robust default management and prevention plans as soon as possible.

The Department indicates it is providing a list of best practices to assist institutions in developing or refining these plans. The Department has additional resources on its Federal Student Aid Training Center site including a slide deck for a webinar on these topics that was held on February 25 (a recording of which will be made available within a week of its airing date).

Leveraging Institutional Resources and Borrower Portals

The Department urges institutions to make full use of existing communication tools and technology to support borrowers and reduce delinquency and default, specifically recommending:

Borrower Portals

Institutions are encouraged to host or link to a borrower portal from their websites. Such a portal may include:

  • Information on when payments begin after separation from school;
  • The importance of timely and full payments;
  • Consequences of missed or late payments;
  • Descriptions of available repayment plans and options to manage student debt; and
  • Contact information for institutional financial aid offices and federal loan servicers.

Financial Literacy Integration

Institutions may dedicate staff specifically to financial literacy and loan counseling for current and former students and embed financial literacy content into orientation programs and first-year experience or student success courses.

These measures are intended to enhance students’ understanding of borrowing obligations before and after they enter repayment.

Using Data to Target Delinquent Borrowers

Building on a June 2025 announcement, the Department again highlights the use of the National Student Loan Data System Delinquent Borrower Report to support targeted intervention strategies.

Institutions are encouraged to:

  • Conduct routine analyses of delinquent borrower data to confirm and update borrower contact information and prioritize and tailor outreach efforts.
  • Assess the effectiveness of different outreach channels and strategies for various borrower populations.
  • Identify common characteristics among defaulters and apply those insights to develop early-warning indicators and provide enhanced counseling for students who have not yet entered repayment but exhibit risk factors associated with delinquency and default.

This data-driven approach is intended to enable institutions to intervene earlier and more effectively.

One Big Beautiful Bill Act: New Tools for Responsible Borrowing and Repayment

The announcement highlights key provisions of the OBBBA, signed into law on July 4, 2025, which significantly restructures federal student loan programs and repayment options. The Department frames these reforms as a catalyst for institutions to reassess their practices to encourage responsible borrowing and successful repayment.

Key elements relevant to institutional practices include:

Repayment Assistance Plan (RAP)

RAP will be available in early Summer 2026. Institutions are encouraged to promote RAP enrollment among delinquent and at-risk borrowers.

RAP benefits include reduced monthly payments, waiver of unpaid interest and matching payments by the government that directly reduce borrowers’ loan balances.

Enhanced Loan Rehabilitation Opportunities

Institutions should inform borrowers in default about the option of loan rehabilitation, which restores loans to good standing and removes the default notation from the borrower’s credit report.  

Effective July 1, 2027, OBBBA allows borrowers to rehabilitate a given loan twice (rather than only once), expanding opportunities to cure defaults.

Use of Program-Level Earnings Data

Institutions are encouraged to incorporate program-level earnings data from the College Scorecard into entrance counseling.

This is intended to help borrowers make more informed choices when comparing programs and borrowing levels, aligning debt with expected post-completion earnings.

Review of Financial Aid Packaging Practices

Institutions should reevaluate their overall financial aid packaging in light of revised loan options and availability, and whether to exercise new authority to set lower programmatic borrowing limits for federal student loans.

These steps may help reduce overborrowing and improve long-term repayment outcomes.

The Department directs institutions to monitor the OBBBA updates page on studentaid.gov for implementation details, and to review policies that became effective upon enactment as outlined in the Department’s July 18, 2025, Dear Colleague Letter, GEN-25-04.

For More Information

If you have any questions about this Alert, please contact any of the attorneys in our Education Industry Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.