By Sally Samuels, Director of Compliance, Fame
As federal student loan repayment continues to evolve, a proactive approach to default management can support borrowers before they fall behind while protecting institutional compliance.
Managing student loan default is an important part of protecting both borrowers and institutions participating in federal student aid programs.
Now is a good time for schools to review their Cohort Default Rates (CDRs) and consider their current default-prevention efforts, including their approach to borrower education, outreach, and monitoring.
Understanding Cohort Default Rates
A school’s CDR measures the percentage of its federal student loan borrowers who enter repayment during a federal fiscal year and default within the applicable three-year monitoring period.
Schools receive both draft and official CDRs. The draft rate gives institutions an opportunity to review the underlying data and identify potential errors before the official rate is released. The official rate is the final rate used for federal reporting and accountability purposes.
Because high CDRs can lead to additional federal requirements and, at certain thresholds, affect participation in federal student aid programs, schools should carefully review their Loan Record Detail Report (LRDR), which shows the loan data used to calculate the school’s CDR.
Reviewing the LRDR each cycle can help schools understand who is included in the calculation and whether the underlying information appears accurate.
Prevention Starts Before Repayment
One of the most important principles of default management is to start early, well before a borrower misses a payment.
Entrance and exit counseling are a starting point, but schools should continue reinforcing financial literacy and repayment responsibilities throughout a student’s enrollment. Regular reminders about borrowing, repayment, loan servicers, and available resources can help students better understand what to expect when they leave school.
Schools should also pay attention to students who may be at risk of leaving before completing their program. Academic challenges, attendance issues, and financial difficulties can all affect completion and, ultimately, a borrower’s ability to successfully transition into repayment.
Accurate Data Matters
Accurate enrollment reporting is another important piece of default management.
Schools should routinely review NSLDS information to ensure that withdrawals, graduations, leaves of absence, re-enrollments, program changes, and other enrollment updates are being reported accurately and on time.
Maintaining current borrower contact information matters, too.
Students move. Phone numbers and email addresses change. Staying connected with graduates and withdrawn students gives schools a better opportunity to reach borrowers when they may need repayment information or assistance.
Schools can also use the NSLDS Delinquent Borrower Report (DELQ01) to identify borrowers who have been reported as delinquent and may benefit from outreach before reaching default.
Default Management Is an Institutional Effort
Although financial aid often takes the lead, default prevention should not fall on one department alone. Several areas of the institution can contribute:
- Registrar staff help maintain accurate enrollment reporting.
- Student services and academic staff can identify students experiencing challenges that may affect completion.
- Business office staff may recognize financial concerns that put students at risk.
- Career services can help students successfully transition from school to employment.
- Institutional leadership can provide the resources and accountability needed to keep default prevention a priority.
Bringing these areas together helps schools identify risk earlier, coordinate outreach, and make default prevention part of the broader student-success strategy.
Finding the Right Approach
Schools do not have to manage default risk without support.
Federal Student Aid provides resources including NSLDS, the Cohort Default Rate Guide, eCDR Appeals, the FSA Assessments Module, Late-Stage Delinquency Assistance, and support from the Institution Oversight Division.
These resources can help schools understand their CDRs, review borrower information, identify potential issues, and strengthen their default-management practices.
Schools may also choose to work with a third-party default management provider, handle the work internally, or use a combination of both.
Whatever approach an institution chooses, oversight remains important. Schools should make sure information is shared accurately and promptly, responsibilities are clearly defined, and any outside provider is carefully vetted.
Keep Default Prevention Ongoing
Ultimately, default management is not something schools should only think about once or twice a year. Effective prevention happens throughout the student lifecycle.
Know your numbers. Educate borrowers early. Keep your data accurate. Stay connected with students after they leave. And make default prevention a shared institutional responsibility.
Taking a proactive approach can help schools better support borrowers while strengthening their own default-management and compliance efforts.
Fame is here to help schools understand their responsibilities and strengthen their processes.
The content provided on this page is for general informational purposes only and is not intended to be legal advice. You should consult a licensed attorney for advice regarding your specific situation.
About the Author:
Sally Samuels | Director of Compliance, Fame
Sally is one of the country’s leading authorities on Federal financial aid administration with 41 years of “in the trenches” experience. As a respected Industry leader, she is frequently called upon to speak at School, Accrediting, Regional and State conferences as well as to act as school liaison during program reviews and compliance audits. Having processed, reviewed, and taught financial aid for 41 years Sally’s experience includes representation at over 300 program reviews and certification visits for postsecondary institutions.
