Student Loan Defaults Put Colleges at Risk of Losing Federal Funding

Your college might be on President Donald Trump’s watch list.

Last week, the Department of Education released new data on student-loan borrowers’ nonpayment rates, or the percentage of borrowers who have entered repayment since January 2020 with student loans that were more than 90 days past due when the data was collected in May 2025.

The data was a warning sign for for-profit schools: It found that 30% of borrowers who attended for-profit institutions were behind on their payments, compared to 16% of borrowers at public schools and 14% of borrowers at private schools. If nonpayment rates do not improve by next year, schools on that list risk losing federal student aid, including student loans and Pell Grants.

Cosmetology and barber schools were high on the nonpayment list: Networks Barber College in Illinois and Washington Barber College in Arkansas had 67% nonpayment rates, and Foster’s Cosmetology and Barber College in Mississippi had a 64% rate.

It’s not just for-profit colleges: Independence Community College, a public Kansas school, has a 49% nonpayment rate, and Carolina Christian College, a private North Carolina school, has a 61% rate.

Have a story to share about college or student debt? Reach out to this reporter at asheffey@businessinsider.com.

Since 2020, the department has not been collecting data on the number of graduates who are in delinquency or default on their student loans because of an ongoing pandemic pause on collections. It also meant that the department was not penalizing colleges for high default rates by cutting off their access to federal student aid, a practice that was in place prior to the pandemic.

However, Trump’s administration restarted collections on defaulted student loans in May, meaning that the tracking is back on. Colleges could lose aid if they exceed 30% of the cohort default rate — the percentage of borrowers who default on their debt — for three consecutive years, or 40% for one year.

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Preston Cooper, a senior fellow at the conservative think tank American Enterprise Institute, said that with collections having resumed on defaulted student loans, he said that the rate will likely continue to surge.

“The cohort default rate has been essentially a non-factor for the last five years,” Cooper said. “But now it’s entirely possible that it’s going to come back with a vengeance.”

Cooper said it could take at least a year for schools on the list to actually lose federal student aid because it takes time for defaults to reflect in the data the department collects, and schools can also attempt to appeal. However, that time can go by quickly, and he said that it’s in schools’ best interests to start helping borrowers with repayment before it’s too late.

“Schools do have quite a bit of runway here,” Cooper said. “I do think that they cannot plead ignorance. They have plenty of lead time to come up with a plan to avoid the worst consequences of triggering the cohort default rates. And if they don’t, I would say that’s on them.”

An incoming default wave

Before the latest nonpayment data was released, the Department of Education in May urged all colleges that receive federal aid to remind students of their options to repay their student loans.

“For too long, insufficient transparency and accountability structures have allowed U.S. universities to saddle students with enormous debt loads without paying enough attention to whether their own graduates are truly prepared to succeed in the labor market,” Linda McMahon, Trump’s education secretary, said in a statement.

Carolyn Fast, director of higher education policy at the progressive think tank The Century Foundation, told BI that enforcing accountability will be difficult. The Department of Education estimated that 10 million borrowers could default this summer after the collections restart, and ongoing efforts to dismantle the department and fire staff mean that borrowers will have limited resources to get help determining their repayment options.

Gutting the department also means that oversight over for-profit schools, many of which have shut down or faced litigation over the past years over accusations of predatory behavior that loaded students up with unaffordable debt, will be minimal.

“There are a lot of programs out there that are getting a lot of federal money, that are just not doing a good job for students,” Fast said.

The nonpayment data doesn’t mean that every school on the list will lose federal aid. Fast said that schools will likely bolster outreach to students to mitigate the problem by reestablishing contact with graduates and informing them of existing repayment plans.

Trump’s latest spending law eliminated existing income-driven repayment plans and replaced them with two, less generous options that will go into effect in July 2026. This means that borrowers will have to navigate a changing repayment system while working to avoid default.

“It’s just a flag that these are institutions who have very, very high rates of student loan delinquencies, and that is an indicator that they could have a serious problem down the road,” Fast said.