By Matt Grossman and Douglas Belkin
Updated May 5, 2025 3:34 pm ET
Secretary of Education Linda McMahon at a White House cabinet meeting in April. Photo: Anna Moneymaker/Getty Images
The Trump administration’s latest threat to colleges and universities: Get your former students to pay back their loans or future students might not get any.
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 is expected to send out Monday and that was seen by The Wall Street Journal.
The government has long had the power to restrict federal student aid if too many students don’t pay it back—a check intended to make sure the government isn’t on the hook for degrees that don’t pay off for graduates. Losing eligibility for federal aid is a potentially devastating blow to a school’s ability to attract students.
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 says. Within a few months, roughly a quarter of borrowers nationwide could be in default, meaning they are at least nine months behind on payments.
For many borrowers, the urgency of repayment is a shock after the policies of the Biden administration, which tried to cancel swaths of student debt.
Monday’s notice is a plank in a broader strategy to accelerate repayments. Also on Monday, the Education Department began putting defaulted student loans in collections.
Long term, Republican lawmakers have been thinking about new ways to tighten the $1.6 trillion student-loan program.
“I do think that here’s some recognition, especially among Republicans, that maybe student loans are not an unalloyed good, and that we do need to have some rethinking of whether extensive borrowing is the right answer in every circumstance,” said Preston Cooper, a senior fellow at the conservative-leaning American Enterprise Institute.
The student-loan warning is the Trump administration’s latest in a series of broadsides against universities, a campaign that has focused on everything from allegations of antisemitism on campus to scrutinizing compensation for college athletes.
In many cases the Trump administration has moved to withhold research grants. Harvard University has sued the White House, alleging it has violated due process as well as the university’s right to free speech.
The Trump administration’s approach on student aid relies on well established precedent to keep schools accountable for the value of the education they provide.
The Education Department says 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. Before the pandemic, very few colleges had such high default rates. Most that did were technical or trade schools.
With student default rates nationally running at historic highs, it is likely that far more schools could see aid cut if default rates don’t improve quickly. It isn’t clear how many colleges and universities face that risk, because school-by-school data don’t yet reflect the millions of borrowers who have moved into default in recent months.
The Education Department is telling schools they should reach out to former students from the past five years and instruct them to make sure they haven’t fallen behind. Cooper thinks it unlikely schools would help students make the payments, but they could curb future tuition costs and student borrowing.
Getting loans back on track after the pandemic has become a quagmire for the government and for borrowers alike. Former President Joe Biden tried to make some pandemic loan relief permanent, but courts rebuffed some of his efforts. His administration extended a no-consequences period through the 2024 election.
The Trump administration’s move to put defaulted loans into collections could lead to garnished wages and withholding of federal income-tax refunds and benefits like Social Security checks. The Education Department says that collecting on student loans is required by law and fiscally prudent.
Many people with student loans, for their part, say that the end of the recent payments pause was handled poorly by the government and by the private companies that administer the loans on its behalf. Many borrowers say that they never got proper notice that forbearance was ending and only found out that they were behind after noticing a big drop in their credit scores this year.
Supporters of the Trump administration’s stricter approach to student-loan repayment, including many voters who didn’t attend college or who paid their way through, argue that people with unpaid student loans shouldn’t be singled out for extra help from the government.
Source (Archive)
Updated May 5, 2025 3:34 pm ET
Secretary of Education Linda McMahon at a White House cabinet meeting in April. Photo: Anna Moneymaker/Getty Images
The Trump administration’s latest threat to colleges and universities: Get your former students to pay back their loans or future students might not get any.
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 is expected to send out Monday and that was seen by The Wall Street Journal.
The government has long had the power to restrict federal student aid if too many students don’t pay it back—a check intended to make sure the government isn’t on the hook for degrees that don’t pay off for graduates. Losing eligibility for federal aid is a potentially devastating blow to a school’s ability to attract students.
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 says. Within a few months, roughly a quarter of borrowers nationwide could be in default, meaning they are at least nine months behind on payments.
For many borrowers, the urgency of repayment is a shock after the policies of the Biden administration, which tried to cancel swaths of student debt.
Monday’s notice is a plank in a broader strategy to accelerate repayments. Also on Monday, the Education Department began putting defaulted student loans in collections.
Long term, Republican lawmakers have been thinking about new ways to tighten the $1.6 trillion student-loan program.
“I do think that here’s some recognition, especially among Republicans, that maybe student loans are not an unalloyed good, and that we do need to have some rethinking of whether extensive borrowing is the right answer in every circumstance,” said Preston Cooper, a senior fellow at the conservative-leaning American Enterprise Institute.
The student-loan warning is the Trump administration’s latest in a series of broadsides against universities, a campaign that has focused on everything from allegations of antisemitism on campus to scrutinizing compensation for college athletes.
In many cases the Trump administration has moved to withhold research grants. Harvard University has sued the White House, alleging it has violated due process as well as the university’s right to free speech.
The Trump administration’s approach on student aid relies on well established precedent to keep schools accountable for the value of the education they provide.
The Education Department says 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. Before the pandemic, very few colleges had such high default rates. Most that did were technical or trade schools.
With student default rates nationally running at historic highs, it is likely that far more schools could see aid cut if default rates don’t improve quickly. It isn’t clear how many colleges and universities face that risk, because school-by-school data don’t yet reflect the millions of borrowers who have moved into default in recent months.
The Education Department is telling schools they should reach out to former students from the past five years and instruct them to make sure they haven’t fallen behind. Cooper thinks it unlikely schools would help students make the payments, but they could curb future tuition costs and student borrowing.
Getting loans back on track after the pandemic has become a quagmire for the government and for borrowers alike. Former President Joe Biden tried to make some pandemic loan relief permanent, but courts rebuffed some of his efforts. His administration extended a no-consequences period through the 2024 election.
The Trump administration’s move to put defaulted loans into collections could lead to garnished wages and withholding of federal income-tax refunds and benefits like Social Security checks. The Education Department says that collecting on student loans is required by law and fiscally prudent.
Many people with student loans, for their part, say that the end of the recent payments pause was handled poorly by the government and by the private companies that administer the loans on its behalf. Many borrowers say that they never got proper notice that forbearance was ending and only found out that they were behind after noticing a big drop in their credit scores this year.
Supporters of the Trump administration’s stricter approach to student-loan repayment, including many voters who didn’t attend college or who paid their way through, argue that people with unpaid student loans shouldn’t be singled out for extra help from the government.
Source (Archive)
