BIRMINGHAM, Ala. – With the pandemic-era pause on student loan payments lifted and debt levels at a record $1.7 trillion nationwide, attention is now turning to the growing number of delinquent loans – and the impact on colleges as well as borrowers.
Missed payments don’t just hurt borrowers. Colleges with large numbers of students who default on their loans could lose access to federal loans and Pell grants – and the students who use them. New federal data show some Alabama institutions are edging uncomfortably close to those sanction thresholds for the first time.
In May, the U.S. Department of Education notified colleges that the long pause was over, loan repayment was resuming and schools would again be held accountable alongside their former students.
The department urged colleges to reach out to borrowers, warning them that delinquent loans would soon be reported to credit bureaus and that the risk of default – where wages can be garnished and tax refunds seized – was just around the corner.
“The Department believes that greater transparency is needed regarding institutional success in counseling borrowers and helping them get into good standing on their loans,” the notice stated.
That call for transparency became tangible in July, when the department published each institution’s nonpayment rate – the percentage of borrowers who are more than 90 days past due on their loans. Though the nonpayment rate isn’t the same as the official cohort default rate used to impose federal sanctions on colleges, it’s a signal of trouble ahead.
The official CDR is calculated by dividing the number of borrowers who defaulted on their student loans within three years by the total number of borrowers who entered repayment during that same time frame.
A school with a CDR of 40% or more in a single year loses access to federal financial aid for up to three years. If the CDR is 30% or higher for three consecutive years, the same sanction applies.
The sanctions aren’t new, having been put in place in the 1990s.
“This was very successful at weeding out a lot of the really low quality colleges back in the 90s,” said Preston Cooper, a senior fellow whose work focuses on student loans at the conservative think tank American Enterprise Institute.
Over time, the sanctions were used less as colleges learned how to “game” the measure by advising students to move their loans into forbearance, meaning the loan wouldn’t show up in the default rate, he said. And CDRs were mostly negligible since 2020 due to the payment pause.
“So it was not really something that was a big factor for a while, but it’s about to come back with a vengeance,” Cooper said.
“… For some colleges, it’s going to push their cohort default rate above those thresholds in the law, which would trigger sanctions, and could eventually, if those high cohort default rates are sustained, trigger a loss of federal aid, including Pell grants and student loans.”
In Alabama, 21 colleges have nonpayment rates of 30% or higher, placing them at risk of federal sanctions in coming years. Ten of those schools – five private nonprofit and five private for-profit – have rates above 40%.
Another 11 fall between 30% and 39%, including six private for-profit colleges, two four-year public universities, and three community colleges.
Statewide, nonpayment rates range from as low as 0.5% to as high as 58%. Eleven of the 21 colleges with high delinquency rates are private, for-profit institutions, which historically have had the highest student loan default rates.
“Colleges do have a bit of an obligation to make sure that the students who borrowed loans at their institution, because the colleges benefitted from those loans,” Cooper said.
“They have an obligation to make sure borrowers understand the obligation that they’ve taken on, to help guide them through the process of getting back into repayment.”
Alabama colleges’ nonpayment rates
Two private, nonprofit institutions top the state’s list of nonpayment rates.
Selma University has a reported rate of 58%, the highest in Alabama. President Stanford Angion told Alabama Daily News the school has not participated in federal student aid programs since 2019, but is doing outreach to help former students repay their loans.
Talladega College has a reported 48% nonpayment rate. President Willie Todd noted that this figure reflects a five-year window – unlike the official CDR’s three-year frame – and said the college has stepped up outreach and hired a third-party firm to support student borrowers.
“Our team remains committed to supporting our graduates through this transition and ensuring they have the resources and guidance necessary to resume repayment successfully,” Todd said.
An official with the Alabama Community College System said the system has also taken steps to reduce nonpayment.
“Our colleges can face stiff penalties for non-repayment that may include the loss of federal student aid,” the official said. “To assist in helping reduce the non-repayment rate, ACCS colleges that participate in the federal student loan program have contracted the services of third-party default management and student counseling firms.”
Officials with Alabama A&M University and Alabama State University were unable to be reached for comment before publication.
“Campuses are concerned about high student loan default rates and play an important role in encouraging students to successfully repay their loans,” said Alabama Commission on Higher Education Executive Director Jim Purcell.
But there are community factors that can impact a college’s default rate based on who attends.
“Generally, institutions that serve a higher proportion of low-income students and have less selective admissions criteria tend to experience higher default rates,” he said.
Complicating matters, colleges have no leverage over former students.
“They cannot withhold transcripts due to federal loan debt,” Purcell said.
Still, schools have time to act – and they need to do so.
“A lot of colleges, if they don’t get on top of the situation, could be in danger of losing federal funding,” Cooper said. He noted that sanctions haven’t been automatic because colleges have multiple avenues to appeal.
The next official CDR, reflecting borrowers who started paying back loans in 2022 and defaulted before 2024, will be released some time in September, Cooper said. The CDR likely won’t reflect the swath of defaults until next year, when the 2026 CDR is released.
“That’s the first moment that we could potentially have some colleges triggering the high cohort default rates.”
Delinquency rates are up across the country, according to economists at the Federal Reserve Bank of New York, which broke down delinquency rates by state. Nationwide, the rate is 31%, up sharply from the historical average of 9%.
The stakes are especially high in Alabama, which now has the second-highest delinquency rate in the nation – 34% – more than three times the state’s 11% annual average from 2003 to 2020.
Only Mississippi has a higher delinquency rate than Alabama, at 45%.
The consequences for borrowers are significant. Delinquency can devastate credit scores and make it difficult to qualify for car loans, mortgages or even rental housing. The damage can remain on a borrower’s credit report for seven years.
About the data
The Department of Education’s July 23 report includes a sortable list of colleges nationwide and their nonpayment rates. While this measure is not used to determine sanctions, it provides a more current snapshot of borrower struggles after the pandemic-era pause ended and collections resumed in May.
The table below shows the nonpayment rates for Alabama institutions as published by the Department of Education along with the school’s “FY17 cohort default rate,” which Alabama Daily News added for comparison purposes. The FY17 cohort default rate shows the percentage of borrowers who entered repayment in 2017 and defaulted on their loan in 2017, 2018 or 2019. That cohort is presented for comparison because it is the last cohort that was not impacted by the student loan pause in March 2020.