Fewer colleges may be able to offer federal student aid in the coming years. This is because colleges can only have a certain percentage of former students with defaulted loans. Defaults could impact universities and especially community colleges in Michigan.
Over 42 million people in the United States hold student debt.
As of May 5th 2025, defaulted loans are back in collections. In June, 7% of borrowers were in default, and almost 35% delinquent. Those numbers are expected to go up.
For colleges and universities to offer federal student aid, their cohort default rate (the percentage of former students with defaulted loans) must remain under 30% in a 3-year period, or under 40% at any given time.
Community colleges are at more risk of losing aid funding than 4-year colleges, because their students having a higher default rate.
According to Mid-Michigan Community College's financial aid director Michelle McNier, colleges were told to expect their default rate to double from what it was before collections paused.
McNier says institutions have very little ability to deny federal loans to students.
"Even if we knew the student couldn't afford to borrow it, they had no ability to pay it back, we couldn't tell them no," McNier explained. "We still had to give them the loan. The other thing that feeds into that is the schools had no discretion over who and how much they lent out to a student."
MMCC only expects their rate to be in the 15-20% range, keeping them in the safe zone.
In Michigan, community college students now receive free tuition under two programs: The Community College Guarantee and the Reconnect program. The Community College Guarantee allows anyone from the class of 2023 and beyond to receive free community college within their district.
Reconnect offers students aged 25 and older without a college degree free in-district or discounted out-of-district tuition.
However, these students are still able to use federal grants and loans for books, housing, and other living expenses as needed.
Mid Michigan Community College no longer automatically applies loans to aid packages. Instead, they inform students of available loans and how to request them.
"We have noticed a definite decline in the amount of loans being taken since we pulled it back and had them request a loan. We have fewer students borrowing, that maybe didn't need to borrow," said McNier.
Loans go into default after a borrower has halted payments for a period of time, generally around the 8-month mark, according to the Federal Student Aid website.
Once the loan is referred to a debt collector, wages can be garnished, the borrower could be taken to court or left struggling to make major purchases such as cars and homes.
McNier said she encourages anyone who has borrowed loans to go to StudentAid.Gov to check their servicer and make sure all their information is current. She also says borrowers should check emails from their college or servicer in regard to payments.
