2Cohort Default Rate What is a Cohort Default Rate (CDR)? A “cohort” is a group of Stafford Loan Borrowers who entered repayment within a given federal fiscal year (FY).A Cohort Default Rate (CDR) is the percentage of those borrowers in a school’s cohort who defaulted within that federal fiscal year or within the next two fiscal years (24 months) and the next three fiscal years (36 months).
3Cohort Default Rate Date Range Fiscal YearBorrowers EnterRepayment(Denominator)Borrowers in RepaymentWho Default(Numerator)Official CDR PublishedCDR Usedfor School Sanctions200910/1/ /30/20092-Year: 10/1/ /30/20103-Year: 10/1/ /30/20112-Year: Sept. 20113-Year: Sept. 20122-Year rate (25%)201010/1/ /30/20102-Year: 10/1/ /30/20113-Year: 10/1/ /30/20122-Year: Sept. 20123-Year: Sept. 2013201110/1/ /30/20112-Year: 10/1/ /30/20123-Year: 10/1/ /30/20132-Year: Sept. 20133-Year: Sept. 20143-Year rate (30%)201210/1/ /30/20123-Year: 10/1/ /30/20143-Year: Sept. 2015201310/1/ /30/20133-Year: 10/1/ /30/20153-Year: Sept. 2016201410/1/ /30/20143-Year: 10/1/ /30/20163-Year: Sept. 2017If a school’s default rate is above 30% for any single that a official calculation is provided a default management plan must be submitted to the Department of Education, beginning with the FY09 3-year rate. “Sanctions” apply when a school loses eligibility after 3 consecutive years above 30% which could not occur until the FY11 rate is released.The default management plan is created and approved at the school level by a school based default management task force.2011 is the first year a school can have 3 consecutive 3YR CDR rates.Note: Students entering repayment today will be part of the official 2013 CDR which will not be released until September 2016.
42-Year Cohort Default Rate Trends Source : Jordan Weissmann, The Atlantic, “Student-Loan Defaults are Still Soaring Thanks to Washington’s Neglect
5Public Institution Comparison Comparison of FY 2011 Official National 2-Year Rates to Prior Three YearsSchool ClassificationSource : U.S. Department of Education
6FY 2010 3-Year CDR By School Type Source : Jordan Weissmann, The Atlantic, “Student-Loan Defaults are Still Soaring Thanks to Washington’s Neglect”, 2013.
73-Year Cohort Default Rate History Source : U.S. Department of Education
83YR CDR Danger ZoneSchools with a single-year CDR of 30% or greater must:Establish a default prevention task forceDevelop a default prevention/reduction plan with measurable objectives for lowering the CDRSubmit the default reduction plan directly to DOESchools with two consecutive years of CDRs of 30% or greater must:Revise the default reduction planImplement additional measures to prevent and reduce defaultsMay be subject to provisional certification
93 YR CDR Danger ZoneSchools with three consecutive years of CDRs of 30% or greater would lose eligibility to participate:Pell GrantFederal Direct LoansSchool with a SINGLE year CDR of 40% or greater would lose eligibility to participate:
10Corrective Action and Sanctions Year CDR >30%, by SectorYear CDR >30%, by SectorSource : Stephen Burd, Higher Ed Watch, “The Real Story Behind Corinthian Colleges’ Plummeting Default Rates” 2012.
11Appeal Options Include Loan Servicing AppealWithin 15 days of notification of official rateFees may applyParticipation Rate Index# Borrowers & # Students enrolled at least half-timeEconomically Disadvantaged AppealLow Income & Placement RateLow Income & Completion Rate
12Student Loan Risk Management Why now?EconomySplit servicingLoans transitioned to different servicersGraduate underemploymentTransition to 3-Year Cohort Default Rate (CDR)Predatory practices – soliciting payments from students to counsel on default/delinquency resolutionReduction in free outreach initiatives
13% of Student Loan Balances 90+ Days Delinquent Source: FRBNY Consumer Credit Panel/Equifax; Data displayed in maps are as of December 31, 2012.
14Delinquency Rates for Community Colleges *Does not include borrowers with consolidation loans.Source: Delinquency: The Untold Story of Student Loan Borrowing. March Report by the Institute for Higher Education Policy
15The Biggest Risk Factor Students who do not graduate62% of borrowers who default did not complete their program of study!Risk factors affecting persistence and attainment:Delayed enrollmentPart-time enrollmentWorking full-time while enrolledSingle parent status
16Other Risk Factors Pell recipients Parent educational attainment Students have limited financial resources to use to repay loans if they do not graduate, if unemployed or if wages do not increase following program completion.Parent educational attainmentDefault is less likely if at least one parenthas a Bachelor’s degree.Larger household sizeStudents from larger households may be at higher risk of default.
17Challenges to Keeping CDR Low Colleges are open accessRetention and graduation rates are criticalDefault rates may be considered a “Financial Aid” issue by administrationStaffing and technological resource constraintsBorrowers who become delinquent are no longer your students
18Reducing Risk Option 1 Cease student loan program participation Negative impact on enrollment and accessCDR rates and defaults continue for several years
19Reducing RiskOption 2Develop default management plan and devote resources to manage riskDefault management task forceHolistic approach – school wideCreate plan/work the planKnow your RISKMake it an institutional priorityBest Practice
20Where to Start Student Success Retention Financial Literacy Early Intervention & Grace CounselingDefault Prevention / Repayment CounselingCDR Challenges / AppealsSchool-based products to help students understand financial products and services. Goal: to change student attitudes toward debt and reduce over-dependence on student loans.Only 10% of schools currently challenge draft CDR data. The DOE estimates that 40% of challenges submitted are accepted.College completion is the best default prevention tool in a school’s tool kit!RetentionOnline entrance and exit programs are not enough – in person counseling, budgeting and borrower education neededOutreach to delinquent borrowers to offer solutions- emphasizing affordable repayment options.
21Risk Management & Student Success Increase resources for financial aid counselingInstitutional control of loan processStaff training and technologyGather reference dataOutsource or Insource outreach initiativesPost enrollmentRepayment education and assistanceHelps borrowers be successful long termRe-enrollment counseling/collaboration with Retention Office
22California Community Colleges (CCC) 72 Districts, 112 Colleges2.35 million students ( )19 colleges no longer in federal loan program93 colleges still participating in federal loan program63,000 loan borrowers – 2.68%
23California Community Colleges (CCC) Three colleges had FY09 rates above 30%12 colleges had FY10 rates above 30%Three reached their 2nd year above 30%One school is at its 3rd year above 30%Several other colleges are trending to above 30% in future yearsAll colleges will be eligible for low participation rate appeals if they reach three years above 30%
24CCC Default Prevention Initiative Have retained consultant to assistTier 1 = over 30% for two yearsTier 2 = over 30% for one yearDefault prevention plansRisk analysisThird-party service contract negotiationTier 3 = between 20% and 30%Discuss need for third-party services
25CCC Default Prevention Initiative The System Office is considering purchasing financial literacy services for all colleges.The Chancellor’s Office is recommending that all schools be involved in the initiative including those no longer actively participating in the federal loan program.
26Future Regulatory Considerations Gainful EmploymentCollege support loan limit reductions for community collegesDOE may consider program level default ratesLegislator rhetoric regarding “risk share”