Improving your For-profit Institutions’ Cohort Default Rate after Loan Forgiveness

Prior to President Biden’s student loan forgiveness and payment extension announcement, the Department of Education stated it would help eliminate the impact of past defaulted student loans and allow students to reenter repayment in “good standing.” In addition to loan forgiveness, the President’s announcement included a cap on student loan payments equivalent to 5% of borrowers’ monthly discretionary income (currently 10%) and changes to the Public Service Loan Forgiveness (PSLF) program. This relief and student loan forgiveness can offer educational institutions the chance to rehabilitate previously defaulted loans.

The recent release of the student loan forgiveness application has started the process. While legal challenges and other obstacles could be ahead, this can help institutions with improving their cohort default rate.

Loan Forgiveness

The outstanding student loan debt averages around $36,000, held by approximately 45 million people. The Department of Education estimates that loan forgiveness could fully eliminate loan balances for nearly 20 million borrowers, reducing the number of students included in an institution’s loan cohort.

The Fresh Start Program

Alluded to above, students who previously defaulted on their student loans can enroll in the Fresh Start Program to eliminate the impact of past defaulted student loans and allow them to reenter repayment in “good standing.” Students can contact their loan servicer to enroll, as the program is not automatic. Borrowers then have one year to make payment arrangements before defaulting on their student loans.

Further, students can include payments that weren’t required and count them toward the mandatory nine payments over 10 months. If a student doesn’t know who holds their loans, they can reach out to the Department of Education Debt Resolution Group here.

These initiatives combined will offer schools a chance to rehabilitate previously defaulted loans that are affecting your institution’s cohort default rate. It will also provide the ability to offer financial aid to previously defaulted borrowers and give students a chance to rehabilitate loans to have a clearer financial future.

To discuss the impact of these changes on your institution with a Title IV expert, please contact our team.

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