Creating Consistency in Educational Finance: A Training Curriculum
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Module 3: Campus Administrators
Student loan cohort default rates and implications for the campus and students
A critical step in managing student loan defaults is to ensure that all campus administrators understand what a cohort default rate is and how it can affect the school and its students. Traditionally, campus administration outside the financial aid office has charged financial aid administrators with all matters regarding student aid. However, it is important that all campus administrators understand that relatively high cohort default rates can affect an institution's participation in the federal student loan programs. Because students are highly dependent on student loans to help pay for their educational expenses, institutions at risk of losing eligibility to participate in these programs may jeopardize their future student enrollments.
Institutions with excessive cohort default rates face sanctions when the rate exceeds 25 percent for three consecutive years. Additionally, institutions are subject to greater scrutiny when this occurs. For instance, a high default rate can trigger a program review from the guarantor and/or the U.S. Department of Education.
Summarized below is an explanation of how cohort default rates are calculated. Note: Although cohort default rates are based on a two-year assessment period, it is important to understand that default prevention efforts should not exclusively concentrate on this two-year assessment period, but expand beyond this timeframe.
Cohort period definition
| Cohort Year | Repayment Dates | Calculation Date |
|---|---|---|
| FY 2003 | 10/01/2002 - 09/30/2003 This includes borrowers who left school from 04/01/2002 - 03/31/2003. |
09/30/2004 |
| FY 2002 | 10/01/2001 - 09/30/2002 This includes borrowers who left school from 04/01/2001 - 03/31/2002. |
09/30/2003 |
| FY 2001 | 10/01/2000 - 09/30/2001 This includes borrowers who left school from 04/01/2000 - 03/31/2001. |
09/30/2002 |
| FY 2000 | 10/01/1999 - 09/30/2000 This includes borrowers who left school from 04/01/1999 - 03/31/2000. |
09/30/2001 |
As a general rule, the repayment date equals the out-of-school date plus 180 days (6 months' grace).
Calculating the cohort default rate
|
Numerator / Denominator = ________ percent Numerator — The number of borrowers entering repayment in the cohort fiscal year as defined above and who defaulted before the calculation date. Denominator — The number of borrowers who entered repayment in the cohort fiscal year as defined above. Example: ABC School had 120 borrowers entering repayment between 10/01/2000 and 09/30/2001. Of the 120 borrowers entering repayment, 20 borrowers defaulted between 10/01/2000 and 09/30/2002. FY 2001: 20/120 = 16.7 percent |