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Home » Blog » Could Trade Schools Lose Federal Funding
  • Contents
  • What is Delinquency and Default
  • Schools With the Highest Default Rates
  • What Happens if Your School Loses Federal Funding

Could Trade Schools Lose Federal Funding?

Penny Redlin
By Penny Redlin
August 7, 2025
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The Department of Education recently shared a report that identifies federal student loan non-payment rates by institution.  This report is meant to give transparency into the levels of delinquency by school and to both inform potential students of this fact and to encourage those institutions to take greater measures to reduce these rates. 

The department shared in an electronic announcement that the federal student loan portfolio suffers from nearly 25% of borrowers in default or late stage delinquency.  High delinquency levels could indicate failure on the part of the institution to properly educate and prepare students for success and may ultimately result in the loss federal financial aid.  

What is Delinquency and Default

Federal student loans are considered delinquent after the first day you miss a payment. The report published by the Department of Ed measured delinquency rates at the time of the data-pull.  After 90 days of non-payment loan servicers will report a delinquency to the credit bureaus which could negatively impact the borrower’s credit.  The consequences of negative credit could include but are not limited to higher interest rates, difficultly obtaining loans or credit cards and even challenges getting approved to rent a place to live.  

If a Federal Direct or FELP loan continues in non-payment for longer than 270-days they are deemed in default. Federal Perkins loans may be in default if you don’t make your scheduled payment by the due date. Default is much more serious and the consequences reflect that. 

Loans in default become immediately due in full for any unpaid principal amounts plus interest.  Tax refunds may be withheld and wages can be garnished.  Furthermore, eligibility to federal student loan benefits such as deferment, forbearance and repayment plans is lost.  

Needless to say, it’s important to ensure payments are made on-time and in full.  The Department of Ed offers repayment plans to attempt to work with borrowers as well as other benefits depending on an individual circumstances. However, it’s important to discuss needs as early as possible and certainly before a loan is moved into default.  

Schools With the Highest Default Rates

The non-payment report showed schools of all types have students in delinquency from private to public to proprietary schools.  However, trade schools appear to have a higher percentage overall of students experiencing delinquency when compared other types of educational institutions.  More than 100 of the about 5700 total schools listed had delinquency rates of 50% or higher.  Of these 100 schools, only 10 were non-profit private schools with the rest being proprietary trade schools, with the single largest trade school type being barber/cosmetology schools.  

More About Trade Schools

Trade schools have been in the news a lot lately as the new go-to choice for students looking to avoid the increasingly high costs of attending a 4-year university.  These programs are typically 1-2 years vs 4-5 at traditional colleges making them appealing to students anxious to get their careers started.  The most popular trades student pursue are electrician, HVAC tech, medical assistant and welding.  

The average cost of attending a trade school can be as low as few thousand to study to be a barber, to tens of thousands of dollars for students pursuing careers as automotive, electrician or aviation technicians.  Salaries following trade schools can range widely and are determined by type of trade, experience, union membership and location.  Some of the highest paid trades include electrician, plumbing and HVAC technicians.  

Careers in the trades can be quite rewarding and lucrative.  Many people even start their own businesses based on their trade in their local communities allowing for more flexibility and greater income potential.  

What Happens if Your School Loses Federal Funding

If the delinquency rates continue, it’s entirely possible that schools with rates that exceed the Department of Educations acceptable level (whatever they determine that to be) could lose their federal funding.  That would mean that students at those schools would not be able to access Pell Grants or other federal grants, and they would also not be able to receive federal student loans.  Without these funding sources, it’s conceivable that many students would no longer be able to attend, and enrollment levels could drop significantly.  

Given proprietary schools are have the highest number of federal delinquencies they appear to be most at risk of losing federal funding. Trade schools rely on students’ tuition payments as a source of revenue.  This could translate into reduced resources being made available to help students (such as career services) and increased class sizes as staff would likely be reduced, with the result of these and other changes ultimately impacting student learning and achievement.  The outcome in a situation like this will surely make it more difficult for students who managed to pay without the benefit of federal financial aid, to thrive post education.  It’s a lose-lose scenario.  

The Department of Education's recent report on federal student loan non-payment rates sheds light on a critical issue, particularly among trade schools, where delinquency rates are disproportionately high. This transparency aims to inform prospective students and push institutions to take meaningful action to reduce these rates. The stakes are here are high, not just for students, but for the schools themselves, which risk losing federal funding if they fail to address the problem.

Hopefully this report will serve as a catalyst for positive change, inspiring trade schools to rise to the challenge and better serve their students. By improving outcomes and fostering financial responsibility, these institutions now have the opportunity to not only secure their own futures but also empower their students to thrive.

 

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Penny Redlin

Penny is the Director of Content Marketing for Edvisors.  She is tasked with optimizing website content and improving SEO performance.  A seasoned marketer with a diverse background in brand management, e-commerce and digital marketing, Penny brings an array of experience with her. An MBA from the University of Chicago, entrepreneur and author, Penny's experience offers a unique view to content creation and curating.

Find Penny Redlin on LinkedIn.

If you would like to schedule an interview with Penny, please reach out to us at [email protected]

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