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The Cohort Default Rate is identified as the percent of borrowers at a given school who default on their loan repayment on Federal Family Education Loans (FFEL) or Direct Loans during a fiscal year. This plan was set up to force institutions to look at student debt more seriously and to identify those institutions with abnormally high default rates. Schools being issued this classification would subsequently lose access to federal grants and loans for a period of time. The rate of potentially punishable default is defined by exceeding the national average of either 25 percent for three years or 40 percent for one year. The US Department of Education released a publication, the Cohort Default Rate Guide, to help those schools understand their default rates and the involved processes.
Background Information of How the Cohort Default RateWas Instituted
The cohort default rate was instituted in 1980 to emphasize the institutions that were allowing low-income students to take loans, knowing they might have difficulty repaying them. Because the cohort default rate tracks only those who are in default in the first two years of repayment, the United States Congress extended the time from 180 to 270 days before the loans would be considered in default.
The term “cohort default period” refers to a two-year period, beginning on October 1st of the fiscal year when the borrower begins their repayment period and ends on September 30 of the following fiscal year. Each individual borrower’s default status affects the school’s cohort default rate during this outlined period. Each federal fiscal year refers to the calendar year in which it ends. Cohort default rates are based on federal fiscal years that begin October 1st and end on September 30th of the next calendar year.
Loans That are Included in the Cohort Default Rate Calculation
The Federal loans included in the cohort default rate calculation are the unsubsidized, subsidized and Federal Stafford Loans (usually referred to as Ford Loans). Also included are the Federal Direct Unsubsidized Stafford/Ford Loans and Federal Direct Subsidized Stafford/Direct Loans (usually referred to as Direct Stafford/Ford Loans).
Loans Not Included in the Cohort Default Rate Calculations
The loans not included in the Cohort Default Rate calculations are the Federal PLUS Loans, the Federal Direct Graduate/Professional PLUS Loans, the Federal Graduate/Professional PLUS Loans, the Federal Insured Student Loans (FISLs), and the Federal Perkins Loans.
Current Trends in the Cohort Default Rate Suggest Rates are Rising Nationally
According to US News and World Report, the amount of borrowers who have defaulted on their student loans two and three years after entering into repayment has increased significantly in the last several years. The two-year cohort default rate has risen on a national level from 9 percent in fiscal year 2010 to over 10 percent in the fiscal year 2011. The three-year cohort default rate rose from 13 percent in 2009 to 14 percent in 2010. For the last six years in a row, the number of borrowers that are defaulting two years into repayment has increased, causing the rise in the cohort default rate.
While examining a school’s cohort default rate should not be the only determinant of the value of the education received, it is something that should be considered when performing a college search.
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