National Student Loan Cohort Default Rate Declines Steadily
National Student Loan Cohort Default Rate Declines Steadily
The U.S. Department of Education today announced that the three-year federal student loan cohort default rate dropped from 11.8 percent to 11.3 percent for students who entered repayment between fiscal years 2012 and 2013. The trend has moved downward since FY 2010, when the cohort default rate stood at 14.7 percent. It's the third straight year that the overall rate has fallen.
From FY 2012 to FY 2013, cohort default rates fell for public and proprietary institutions while rising slightly among borrowers who attended private and foreign schools.
"The Obama Administration has taken unprecedented measures to provide borrowers more options to avoid default, manage their student debt and stay on track to repayment, and to hold institutions accountable for improving student outcomes," said U.S. Secretary of Education John B. King Jr. "Even with progress, however, we know considerable work remains ahead."
During the tracking period for the FY 2013 borrower cohort (Oct. 1, 2012-Sept. 30, 2015), more than 5.2 million borrowers entered repayment, and 593,182 of them, or 11.3 percent, defaulted on their loans. Those borrowers attended 6,155 postsecondary institutions across the nation.
For public and proprietary institutions, the newly released three-year rates decreased from last year's rates. For public institutions, the FY 2013 rate fell from 11.7 percent in FY 2012 to 11.3 percent. Public institutions made up 27.2 percent, or 1,675, of the total number of schools and represent nearly 51.6 percent of borrowers who entered repayment that year. The rate dropped among proprietary schools from 15.8 percent in FY 2012 to 15.0 percent in FY 2013. Proprietary schools comprise 37.8 percent, or 2,326, of the total number of institutions.
Among private and foreign schools, there were slight increases. For America's 1,734 private institutions, the cohort default rate edged higher – from 6.8 percent for FY 2012 to 7.0 percent for FY 2013. Private schools accounted for 28.2 percent of the total. Additionally, 418 foreign schools saw their rate grow from 3.3 percent for FY 2012 to 3.6 percent for FY 2013. Foreign institutions make up 6.8 percent of all postsecondary schools.
Helping Borrowers Manage Repayment and Make Informed Decisions
Easing the burden of student debt has been a significant priority of the Obama Administration, which is why the President unveiled the Student Aid Bill of Rights in 2015 to ensure strong consumer protections for borrowers.
Enrollment in income-driven repayment (IDR) options such as Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment continues to increase. PAYE allows millions of borrowers to cap their monthly loan payments at 10 percent of their income. As of December 2015, nearly 4.6 million Direct Loan borrowers were enrolled in IDR plans, a 48 percent increase from December 2014 and a 140 percent growth from December 2013.
In the past seven years, the Administration has made historic investments in college affordability by increasing the maximum Pell Grant by more than $1,000 and tying the grant to inflation for the first time. Other measures included creating the American Opportunity Tax Credit, worth up to $10,000 over four years of college; cutting student loan interest rates; and simplifying the process for applying for federal financial aid.
The Department has also created tools like the College Scorecard and Financial Aid Shopping Sheet to increase transparency around higher education costs and outcomes to help students and families make informed decisions before enrolling in college. And beginning this year, the Department will make the Free Application for Federal Student Aid (FAFSA) available earlier – beginning Oct. 1 – so that students can apply for aid sooner and have their financial aid eligibility in hand while they are making their decisions about where to go to college.
Schools with high default rates may lose their eligibility to participate in or expand their federal student aid programs. This year, nine for-profit schools and one private nonprofit institution are subject to loss of eligibility for default rates that either were 30 percent or greater for three consecutive years, or were more than 40 percent for the latest year, or both.
Those schools include:
- CA – Garden Grove – Cr'u Institute of Cosmetology and Barbering.
- CA – Pasadena – Capstone College.
- FL – Plantation – Florida Barber Academy.
- IA – Cresco – Total Look School of Cosmetology and Massage Therapy.
- IL – Chicago – Larry's Barber College.
- LA – New Orleans – Crescent City School of Gaming & Bartending.
- MD – Waldorf – Aaron's Academy of Beauty.
- ND – Bismarck – United Tribes Technical College.
- NY – Jamaica – New Life Business Institute.
- TX – Houston – Jay's Technical Institute.
The Higher Education Opportunity Act of 2008 amended the law to require that, starting in 2014, sanctions against institutions with high cohort default rates would be based on the three-year cohort default rates.
All institutions with a default rate that is equal to or greater than 30 percent must establish a default prevention task force that prepares a plan to identify the factors causing the school's cohort default rate to exceed 30 percent and submit the plan to the Department.
The Department's Federal Student Aid (FSA) office provides extensive assistance to higher education institutions, including webinars and online training; state, regional and national association training forums, and face-to-face training events.
In addition, the Department is taking steps to reinvent customer service for federal student loan borrowers to ensure that every borrower has the right to an affordable repayment plan like Pay As You Earn, quality customer service, reliable information, and fair treatment as they repay their loans – objectives the President put forward in his Student Aid Bill of Rights.
And in August, the Department launched a project to rigorously test the effectiveness of more flexible loan counseling policies on federal student loan borrowers. The experiment will allow colleges to require, as a condition to receiving Direct Loan funds, loan counseling to students beyond the statutorily required one-time entrance and one-time exit counseling.
The results will help determine whether requiring additional loan counseling is effective in boosting academic outcomes and helping students manage their debt.
EDITOR'S NOTE: Information on the national student loan default rate, as well as rates for individual schools, states, types of postsecondary institutions and other details, are available here.