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Trends and Issues

Shoptalk Online 522, September 22, 2009

Trends and Issues

Cohort default rates: Back to basics

While some schools may regard cohort default rates (CDRs) with some trepidation or anxiety, understanding the basics of CDRs can go a long way toward empowering a school to take steps to manage and positively influence its CDR. This article will define the term cohort default rate, explain how it is calculated (including which loan types are included in the calculation), and compare and contrast draft and official CDRs.

What is a CDR and how is it calculated?
A school's CDR is the percentage of a school's federal student loan borrowers that enter repayment within the cohort fiscal year (denominator in the formula below) and default within the cohort default period (numerator). The cohort default period is the two-year period that begins on October 1 of the fiscal year when the borrower enters repayment and ends on September 30 of the following fiscal year. For example, for the fiscal year 2007 (FY07) official rates that were published earlier this month, the CDR calculation was performed as follows:

Number of borrowers who defaulted between
October 1, 2006, and September 30, 2008
Number of borrowers who entered into repayment
between October 1, 2006, and September 30, 2007

Keep in mind that the CDR formula will be calculated on a three-year basis beginning with the FY 2009 cohort. In other words, the calculation for the first three-year CDR, which will be issued in draft form in February 2012 and as official rates in September 2012, will be performed as follows:

Number of borrowers who defaulted between
October 1, 2008, and September 30, 2011
Number of borrowers who entered into repayment
between October 1, 2008, and September 30, 2009

What loans are included in the CDR?
The CDR formula only includes borrowers with certain types of loans. The following loan types are included in the calculation:

FFELP subsidized and unsubsidized Stafford loans and Supplemental Loans for Students (SLS)
Direct subsidized and unsubsidized Stafford Loans
Portions of FFELP or Direct Consolidation loans used to repay any Stafford loans or SLS loans, if the Consolidation loan defaults within the cohort default period that is applicable to the underlying loan(s)

The following loan types are not included in the CDR:

FFELP and Direct Grad PLUS and Parent PLUS loans
Perkins loans
TEACH grants that have been converted to unsubsidized Direct Stafford loans
Private or alternative education loans

Draft and official CDRs
Once the CDR is calculated, ED releases draft (unofficial) CDRs only to schools in February of each year. There are no sanctions or benefits associated with the draft CDRs, but they are important because they form the basis of a school's official CDR. It is important to review the data used to calculate the draft CDR. If it is incorrect, the school may submit a challenge to that data within the specified timeframe. This may be more beneficial to the school given that a school that fails to challenge the accuracy of its draft CDR is more limited in contesting the accuracy of the data when it receives its official cohort default rate.

Official cohort default rates are released to schools and made available to the general public each September. Opportunities for appeals and adjustments are limited at this time, as many potential errors in the data used to calculate the CDR should have been corrected after the draft rates were published the previous spring.

There are benefits for schools with low rates; for example, exemption from the multiple loan disbursement requirement and the requirement to delay delivery of funds to undergraduate, first-year, first-time borrowers. Conversely, schools with high rates may be subject to provisional certification and/or sanctions, such as loss of eligibility to participate in the FFELP, Direct Loan, and/or Pell programs.

What can a school do to manage its CDR?
Schools should take a proactive approach to managing their CDRs. Reviewing borrower information from NSLDS on a monthly basis enables the school to monitor and correct borrower information, such as enrollment status. Schools that monitor borrower repayment and default status can contact data managers as errors occur, instead of waiting until the release of the draft CDRs to correct the information. This makes the review effort more manageable and may result in a lower draft CDR.

More information
Plan to attend TG's "Managing Your Cohort Default Rate" webinar on October 5, 2009, from 2 p.m.-3 p.m. Central Time, for more information about

how a school's CDR is calculated,
the transition from a two-year to a three-year calculation,
as well as a discussion about TG's Integrated Default Aversion™ (IDA™) and how it can help schools to manage their CDRs.

Registration for this webinar is available online.

Please also visit TG's Default Prevention Internet Resources page to access a wealth of CDR and default prevention-related resources, including the Cohort Default Rate Guide Quick Reference and other ED publications, online student loan debt management resources for borrowers, personal finance organizations, research reports, fact sheets, and more.

Watch future editions of Shoptalk Online for additional CDR-related articles, and if you have questions, please contact TG customer assistance at (800) 845-6267, or send an email message to cust.assist@tgslc.org.

Mapping Your Future^® announces period of unavailability October 10-11

Mapping Your Future^® will make major enhancements to its website on October 10 and 11, making unavailable various products and services over that weekend.

Products and services that will be unavailable include:

Online Student Loan Counseling — Students will not be able to complete counseling sessions, nor will they be able to retrieve their counseling record for a previously completed session.
Integration of Loan Counseling — If an MPN is integrated with Online Student Loan Counseling, the system will not be able to query the database to verify if a student has completed loan counseling.
Financial Aid Office (FAO) Access Area — Schools will not be able to log into their accounts.
SchoolExpress — Schools will not get a response.
ExitExpress — Guarantors will not get a response.
ServicerExpress — Servicers will not get a response.

These enhancements are needed due to the increased volume of students completing counseling sessions and the increased number of counseling confirmation queries by schools and guarantors.

More information
For questions or more information, contact CariAnne Behr at (573) 634-8641, or send an email message to carianne@mappingyourfuture.org.