How To Calculate A Cohort Default Rate

Transcription

1 USA Funds University Cohort Default Rates June 18, 2015

2 Special Note These materials are for the benefit of financial aid professionals and other campus administrators. They are intended to provide current facts and information and are not intended to be legal advice. These materials contain information related to Federal Title IV student aid programs and have neither been reviewed nor approved by the U.S. Department of Education. You are encouraged to seek your own competent legal counsel in connection with the topics covered in these materials. USA Funds disclaims all responsibility for any claim arising from reliance on the information provided. Copyright 2015 United Student Aid Funds, Inc. All Rights Reserved. Questions regarding the content of this publication should be addressed to USA Funds University, P.O. Box 6028 Indianapolis, IN or by calling (317)

3 Cohort Default Rates Cohort default rates are a reflection of whether or not borrowers of some federal education loans are successfully repaying their loans. Each year, the U.S. Department of Education announces the publication of updated CDRs for certain Federal Family Education Loan and Direct Loan programs. Every school, lender and guarantor has access to the results of this annual analysis. ED maintains an online searchable cohort default rate database of all Title IV eligible schools, available to the public at: A CDR is more than a statistic about a school, lender or guarantor. Every defaulted borrower is a real person facing financial or other difficulties, and is likely to experience even greater hardship until the default is repaired. Borrowers in default face direct negative consequences, such as additional costs related to debt collection activities, potential litigation and the loss of future Title IV aid eligibility. They also may encounter indirect costs related to the resulting adverse credit, including: u Higher interest rates or inability to obtain: Private education loans. Car loans. Mortgages. Credit cards. u Higher costs for automobile insurance. u Inability to rent an apartment. u Difficulty getting a job. When even one borrower defaults on a federal student loan, the ripple effect extends beyond the individual borrower. Default affects the school and its current and future students, as well as lenders, guarantors and ultimately taxpayers. The success of each and every borrower in the repayment of education loans helps keep costs down and ensures the viability of this funding source for the benefit of future students. ED provides information and advice on understanding and preventing default at: Trainer s Tidbit ED transmits electronic CDR information through the Student Aid Internet Gateway to the destination point identified by each school. All U.S. schools must enroll in ecdr through the National Student Loan Data System at: 1

4 Publication of Rates The 1986 Reauthorization of the Higher Education Act of 1965, as amended, introduced the requirement that CDRs be calculated and published. ED first issued CDR information in The national rate has increased every year since 2007 and this trend is likely to continue due to the state of the economy and recent changes in the way in which CDRs are calculated. National Student Loan Default Rates From 1989 until 2011, ED calculated and published only two-year CDRs. After a transition period during which both twoyear CDRs and three-year CDRs were calculated, ED now calculates and publishes only three-year CDRs. Draft CDRs are shared with schools each spring, usually in February or March. Official CDRs are released to schools and made publicly available approximately six months after the draft rates are published, no later than Sept. 30. This sixmonth period gives schools time to review the data and work with lenders, guarantors and ED to make any necessary corrections. Draft and official rates are described according to the cohort of borrowers being evaluated. For example, three-year CDRs issued during 2015 are referred to as the FY Year Cohort Default Rates because they are based on students who entered repayment in FY Draft Rate 2012 Cohort Default Period Data Gathered Appeals Official Rate 2012 Cohort 10/1/2011 9/30/2012 9/30/2013 9/30/2014 3/25/2015 Sept The most recent official three-year rates were published Sept. 22, The national cohort default rate was 13.7 percent, which is lower than the previous national rate of 14.7 percent. The most recent three-year draft rates were distributed on Feb. 23, 2015, and the 45-day period for submitting challenges opened on March 3, The Data Manager had 30 days to respond to any challenges. NOTES 2

5 Definition 34 CFR For Title IV purposes, the Cohort Default Rate Guide (2014) defines a CDR as the percentage of a school s borrowers who enter repayment on certain Federal Family Education Loans (FFELs) and/or William D. Ford Federal Direct Loans (Direct Loans) during that fiscal year and default... within the cohort default period (p ). Rather than counting the number and type of loans entering repayment, this rate is based on the number of borrowers who enter repayment during a single fiscal year. The formula for calculating a CDR incorporates the following terms: u Cohort. u Repayment. u Default. u Cohort fiscal year. u Cohort default period. Cohort A cohort is any group of people with a similar set of characteristics. For the purposes of calculating CDRs, borrowers are counted in cohorts based on having borrowed certain types of loans that enter repayment during a specific period of time. Relevant Loans Included: Not Included: u FFELP Stafford loans. u FFELP Supplemental Loans for Students. u FFELP Consolidation loans.* u Direct Loans (subsidized and unsubsidized). u Direct Consolidation loans.* u FFELP PLUS loans (parents and graduate students). u Direct PLUS loans (parents and graduate students) u Federal Perkins loans.** u Federally Insured Student Loans. u Health and Human Services loans. * If the borrower defaults on a FFELP or Direct Consolidation loan during the cohort default period and the underlying loans include FFELP Stafford or SLS loans or Direct Subsidized or Unsubsidized loans that entered repayment during the same cohort fiscal year. ** Separate cohort default rates are calculated for Federal Perkins loans. Repayment u Private education loans. For Federal Stafford loans, the official repayment date is the day after the last day of the six-month grace period. The grace period begins the day after the student no longer is enrolled at least half time. This official repayment date determines whether the borrower is counted in the cohort. In-school status ends Official repayment date Enrollment Grace Repayment 6 months Length of repayment varies based on repayment plan. Correct determination of the official repayment date depends on the school providing timely notification of any change in a student s enrollment status to NSLDS or the data manager. 3

6 Default When a borrower does not make payments according to the terms and conditions identified in the promissory note, the loan is considered delinquent. For the purposes of establishing student eligibility for federal aid, a borrower is considered to be in default when payment on any FFELP or Direct Loan is 270 days or more past due. In-school status ends Official repayment date Enrollment Grace Repayment Default 6 months No payment for 270 days Borrower loses eligibility for Title IV aid For the purposes of calculating CDRs, however, differences exist depending on the type of the loan. u For a Direct Loan or FFELP Put loan, a borrower who is more than 360 days delinquent on a monthly repayment schedule is considered to be in default and is included in the applicable CDR calculation. Federal Direct Loan In-school status ends Official repayment date Default date Enrollment Grace Repayment Default 6 months No payment for 360 days Borrower in CDR u For a commercially held FFELP loan, the holder of the loan can file a default claim with the guarantor when the borrower is more than 270 days delinquent on a monthly repayment schedule. The date the guarantor pays the default claim is the default date for CDR purposes and determines whether the borrower of the defaulted loan is included in the applicable CDR calculation. Federal Family Education Loan Program In-school status ends Official repayment date Default claim payment date Enrollment Grace Repayment Default 6 months No payment for 270 days Borrower in CDR NOTES 4

7 Cohort Fiscal Year Each cohort includes the number of borrowers entering repayment during a one-year period. The cohort fiscal year is aligned with the federal fiscal year, which begins Oct. 1 and ends the following Sept. 30. The year is described using the calendar year in which the fiscal year ends. For example, the FY 2012 cohort includes borrowers who entered repayment between Oct. 1, 2011, and Sept. 30, Cohort fiscal year Oct. 1 Sept. 30 (Y1) Cohort Default Period For the borrowers included in the cohort, ED examines the status of their loans during a specified period of time. As with the cohort fiscal year, the cohort default period is aligned with the federal fiscal year. For example, the FY Year CDR includes borrowers who defaulted on qualifying loans between Oct. 1, 2011, and Sept. 30, Cohort default period Cohort fiscal year Oct. 1 Sept. 30 (Y1) Oct. 1 Sept. 30 (Y2) Oct. 1 Sept. 30 (Y3) NOTES 5

8 Example David and Paul completed their degree programs at the same school in December 2011, at which point their loans entered a six-month grace period and no payments were expected. The official repayment date was July 1, 2012, the day after the grace period ended. This placed both borrowers in their school s FY 2012 cohort. David made no payments on his FFELP loans for 270 days after his first payment was due. In May 2013, his lender filed a default claim with the guarantor, which was subsequently paid. David is included in the school s CDR as a defaulted borrower because the default claim was paid within the three-year cohort default period. In-school status ends Official repayment date Default claim payment date Enrollment Grace Repayment Default (May 2013) 6 months Cohort default period for FY 2012 Cohort fiscal year 2012 No payment for 270 days Borrower included in CDR Oct. 1, 2011 Sept. 30, 2012 Oct. 1, 2012 Sept. 30, 2014 Paul made the first three payments due on his Direct Loan on time, but never made another payment. By Oct. 10, 2013, his loan had been delinquent for 360 days. Although his loan is considered to be in default after 270 days of delinquency, Paul is counted in his school's default rate when his loan is 360 days delinquent. Since the default occurred before the end of the three-year default window, Paul is included in the school s CDR as a defaulted borrower. In-school status ends Official repayment date Default date Enrollment Grace Repayment Default (Oct. 2013) Cohort fiscal year months Cohort default period for FY months No payment for 360 days Oct. 1, 2011 Sept. 30, 2012 Oct. 1, 2012 Sept. 30, 2014 NOTES 6

9 Equation 34 CFR The calculation of a CDR is defined by a specific formula: Borrowers in the cohort who default within cohort default period Cohort of federal student loan borrowers who enter repayment during cohort fiscal year X 100 = Cohort Default Rate Case Study Kline College wants to estimate the school s future CDR for three specific cohorts of borrowers. For each cohort, the school determined the total number of borrowers who entered repayment during the relevant cohort year, and how many of those borrowers defaulted on their loans during the relevant three-year cohort default period. Assuming no additional borrowers default on their loans, what is the school s estimated CDR for each cohort? Cohort 1: This cohort includes 1,000 borrowers. So far, 48 of those borrowers defaulted on their loans. CDR formula: X 100 = % Cohort 2: This cohort includes 1,200 borrowers. So far, 240 of those borrowers defaulted on their loans. CDR formula: X 100 = % Cohort 3: This cohort includes 1,800 borrowers. So far, 540 of those borrowers defaulted on their loans. CDR formula: X 100 = % 7

10 Trainer s Tidbit For a school with fewer than 30 borrowers in its cohort, a different formula is used. The Average Rate Formula expands the cohort to include borrowers entering repayment during the current fiscal year and the two preceding years. For these schools, draft CDRs are not accurate estimates of official CDRs because draft rates are calculated using only the non-average rate calculation. Additional Considerations 34 CFR (f). Transfer Students A borrower may be counted in more than one CDR calculation for the same cohort fiscal year. A student who transferred from one school to another and borrowed federal student loans at both schools is likely to enter repayment on those loans at the same time. The student would be counted in the denominator of the rate calculation for both schools. As long as the loans remained in good standing, the student would not appear in the numerator at either school. FFELP and Direct Consolidation Loans A borrower who defaults on a federal Consolidation loan within the cohort default period will count in the numerator and denominator of the school's calculation if any of the underlying loans were FFELP or Direct Stafford loans that entered repayment during the cohort fiscal year. A borrower who consolidates one or more defaulted loans counts in the cohort that relates to the date the underlying loans entered repayment and will appear in the numerator as a defaulted borrower. If a defaulted loan is included in a Consolidation loan, but the default did not occur during the relevant cohort default period, the borrower will not appear in the numerator. Rehabilitation If a borrower defaults on a loan, and is able to rehabilitate the loan before the cohort default period expires, then the borrower will not be counted in the numerator. In general, a borrower rehabilitates a defaulted federal student loan by making nine on-time payments within ten consecutive months under a signed rehabilitation agreement. Pre-Payment or Discharge Pre-payment of a federal student loan may change the cohort in which the borrower is counted. If the loan is paid in full before the end of the grace period, the student will be included in the appropriate cohort based on the paid-in-full date. This student would not appear in the numerator since the borrower did not default on the loan. The same would be true for loans discharged due to bankruptcy, disability or death, as long as the discharge is effective before the default claim is paid. Borrowers are not included in the default rate calculation if their loans were discharged as a result of school closure, false certification or identity theft. Deferment or Forbearance Obtaining deferment or forbearance on a federal education loan in repayment does not change the cohort in which a borrower is counted because the official repayment date is not affected. NOTES 8

11 Effects on Schools 34 CFR CFR CFR CFR CFR Schools are affected when previously-enrolled students default on their federal education loans during the cohort default period. While defaulting on a federal education loan is a direct result of borrower behavior, high CDRs can be perceived as a reflection on the school s ability to prepare its students or capably administer its Title IV financial aid programs. To emphasize its importance, certain benefits and sanctions are applied based on a school s official CDRs, as summarized in the chart on the next page. Benefits Schools with official CDRs that are below established thresholds may take advantage of certain waivers designed to ease administrative burden and simplify the delivery of aid to students. Schools can apply these benefits upon notification from ED of qualifying official rates or successful appeal. When a school's most recent official two-year or three-year CDRs are below 5 percent, for students participating in study abroad programs the school may choose to: u Disburse federal loans in a single installment, regardless of the length of the loan period, rather than make standard multiple disbursements. u Exempt first-year, first-time borrowers from the 30-day delayed disbursement requirement. When a school's three most recent official two-year or three-year CDRs are less than 15 percent, for all students schools may choose to: u Disburse a single-term loan in a single installment, rather than make multiple disbursements during the payment period. u Exempt first-year, first-time borrowers from the 30-day delayed disbursement requirement. ED allows schools to use a combination of two- and three-year rates when choosing to implement these waivers. This flexibility does not apply to sanctions for high CDRs, which are based solely on three-year CDRs. Since two-year rates were not calculated after FY 2011, the ability to use either published rate will phase out by the fall of The following chart describes which official CDRs may be considered, once they are available for each publication year, for schools with 30 or more borrowers. Transition Schedule to Qualify for Benefits Based on Low CDRs. Publication Year FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY yr 3 yr 2 yr 3 yr 2 yr 3 yr 2 yr 3 yr 2 yr 3 yr 2 yr 3 yr 2014 X X X X X X 2015 X X X X N/A X 2016 X X N/A X N/A X 2017 N/A X N/A X N/A X 9

12 Sanctions 34 CFR (m). According to the Common Manual (2014),...schools with an official cohort default rate of 25% or more in the three most recent fiscal years for which rates are available may be subject to provisional certification of the school's Title IV program participation. There are two ways for a school with high official CDRs to lose eligibility to participate in certain federal financial aid programs for the remainder of the current year and the next two federal fiscal years: u Official CDRs of 30 percent or more for each of the three most recent years the school loses eligibility to award both Direct Loans and Federal Pell Grants. u Official CDR greater than 40 percent in the most recent year the school loses eligibility to award Direct Loans is the first year in which the Department applied sanctions based soley on three years of the official three-year CDR calculation. Loss of eligibility is effective within 30 days of receipt of notification of official CDRs, unless the school successfully appeals. When a school loses its eligibility to participate, all current and potential students must be notified of the loss of eligibility. Trainer s Tidbit Cohort Default Rate Guide, page An official cohort default rate cannot be calculated for a school with 29 or fewer borrowers entering repayment during a cohort fiscal year if the school did not have an official or unofficial rate calculated for either or both of the 2 previous cohort fiscal years. Such a school will have an unofficial rate calculated using the non-average formula and current year data. Unofficial rates don t meet the statutory definition for cohort default rates and cannot be used to determine sanctions and benefits. NOTES 10

13 Official Cohort Default Rate Time Period Effect Citations For students studying abroad, school may choose: u Single-installment disbursement, regardless of loan period length. u Waive 30-day delayed disbursement for firstyear, first-time borrowers. Less than 5%. Most recent year CDR Guide, p Benefits Beginning with loans first disbursed on or after Oct. 1, 2011, school may choose: u Single-installment disbursement for single term loans. u Waive 30-day delayed disbursement for firstyear, first-time borrowers. Less than 15%. Each of three most recent years CDR Guide, p Sanctions 30% or greater.* Greater than 40%. Each of three most recent years. Most recent year. Loss of institutional eligibility to participate in Direct Loan and Federal Pell Grant programs for current year and next two federal fiscal years.** Loss of institutional eligibility to participate in the Direct Loan program for current year and next two federal fiscal years CDR Guide, p CDR Guide, p * 2014 is the first year in which the Department did not publish a two-year calculation. Benefits may be based on either two-year or three-year official rates, until two-year rates are no longer published. All sanctions are based solely on the official three-year CDR calculation. ** Loss of eligibility to participate in the Federal Pell Grant program only occurs if the school certified FFELP or Direct Loans on or after July 7, 1998, and still participates in the loan programs. Trainer s Tidbit Cohort Default Rate Guide, p A school that loses Direct Loan and/or Pell Grant program eligibility due to high CDRs may reapply for participation when the sanction period ends. Schools may apply online at: Default Prevention Plans Implemented for the first time with the release of official three-year CDRs in September 2012, any school with an official 3-year CDR of 30 percent or greater immediately must create a default prevention task force to develop and submit a plan to ED that includes: u Identification of the significant factors contributing to the high default rate. u Establishment of measurable objectives and steps the school will take to reduce its CDR. u Explanation of how the school will promote successful student loan repayment. If a school s three-year CDR is 30 percent or greater for two consecutive fiscal years, the school must submit a revised default management plan to ED via to defaultpreventionassistance@ed.gov. Once the revised plan is reviewed, the school may be required to take additional measurable steps. 11

14 Challenges, Adjustments and Appeals 34 CFR CFR CFR Schools have opportunities to respond to the results of CDR calculations or the application of sanctions as summarized in the table on the next page. Soon after draft rates are released, institutions may challenge the rate based on incorrect data contained in the Loan Record Detail Report or having a very low number of borrowers. Once official CDRs are published, institutions may request an adjustment or file an appeal. Requests for reconsideration involve various agencies and individuals, depending on the nature of the request: Data Manager A representative of the loan holder, such as a guarantor or ED. Adjustments Once official CDRs are published, schools may qualify to request an adjustment that could result in a recalculation of the rate. u Uncorrected Data Adjustment is available to schools that submitted a successful Incorrect Data Challenge to their draft default rate, but the revised data was not included in the official draft rate. This adjustment request must be made within 30 days of the school receiving the loan record detail report along with the official cohort default rate. u New Data Adjustment is available to schools not subject to sanctions that believe new, incorrect data is included in their official cohort calculation. This adjustment request must be made within 15 days of the timeframe begin date, which is the sixth business day after the IFAP website officially announces the release of the official cohort default rates. Default Prevention and Management Independent Auditor Office within ED that works with schools and borrowers on issues related to delinquency and default. Third-party agency that reviews a school s data. Challenges Some schools may challenge draft CDRs within 45 days of the opening of the draft challenge period. For domestic schools, this draft challenge period begins on the sixth business day after ED officially releases the draft rates. For foreign schools, this period begins the day after the school s draft cohort default rate notification is received. Data Managers have 30 days to respond. u Incorrect Data Challenge is filed by a school, along with supporting documentation. One of the most common errors warranting a challenge is the student's separation date on record, which is used to determine the official repayment date. Timely and accurate enrollment reporting to NSLDS or to the Data Manager ensures each borrower is included in the appropriate cohort. u Participation Rate Index Challenge can be filed by schools with a very low number of borrowers and may result in exemption from anticipated sanctions once the final rates are published. ED will notify the school of the results of the appeal prior to publishing the official rate. 12

15 Appeals Schools may appeal official CDRs under certain circumstances. u Loan Servicing Appeal is filed within 30 days of receipt of servicing records if a school believes the lender or holder did not take appropriate action to perform required due diligence, or attempt to contact or locate the borrower. u Erroneous Data Appeal is filed within 15 days of notification of the sanction when official rates include new or previously-challenged data, but only if the recalculated rate is expected to remove the current sanction. u Economically Disadvantaged Appeal is filed with an independent auditor within 30 days of notification of the sanction by schools with a large population of low-income students. u Participation Rate Index Appeal is filed within 30 days of notification of the sanction by schools with a very small population of borrowers. ED also may notify certain sanctioned schools that they might be eligible to file an appeal, if they: u Could qualify for recalculation based on a comparison of non-average to average rates. u Have a cumulative total of 30 or fewer borrowers who entered repayment for the past three years. A successful appeal could result in the lifting of sanctions and/or the recalculation of CDRs. Trainer s Tidbit The ecdr Appeals process allows schools to submit certain challenges and adjustments online. Register for an ecdr Appeals account and access user guides at: NOTES 13

16 Responses to Cohort Default Rate Announcements Action Deadline School Data Manager ED Outcome Challenges Incorrect Data 45 days after the opening of the draft challenge period; DM responds within 30 days. Request to DM. Respond; update NSLDS. Review outcome. Recalculate prior to official CDR. Participation Rate Index 45 days after the opening of the draft challenge period; DM responds within 30 days. Request to ED. N/A Respond to request. Exemption from sanctions based on official CDR. Adjustments Uncorrected Data 30 days of official CDR. Request to ED. N/A Respond to request. Correction of data; recalculation. New Data 15 days of official CDR. Request data from DM; include data with request to ED. Respond to request for data. Review request and DM data; respond. Recalculation. Appeals Loan Servicing 30 days of receipt of servicing records. Request records from DM; include records with request to ED. Respond to request for records. Review request and DM records; respond. Removal of data; recalculation. Erroneous Data 15 days of notification of sanctions. Request data from DM; include data with request to ED. Respond and/or update NSLDS. Review request and DM data; respond. Removal of erroneous data; recalculation. Economically Disadvantaged Request auditor review within 30 days of notification of sanctions. Request auditor statement; include with request to ED. N/A Review request and auditor statement; respond. Exemption from sanctions. Participation Rate Index 15 days of notification of sanctions. Request to ED. N/A Respond to request. Exemption from sanctions. Appeals Initiated by ED Average Rate N/A Request to ED. N/A Respond to request. Recalculation/reconsideration of sanctions. 30 or Fewer Borrowers N/A Request to ED. N/A Respond to request. Exemption from sanctions. 14

17 Case Study Local Community College s FY 2012 cohort includes 2,000 borrowers who entered repayment between Oct. 1, 2011, and Sept. 30, Between Oct. 1, 2011, and Sept. 30, 2014, 600 borrowers in that cohort defaulted on their loans. Fill in the blanks below to calculate the resulting three-year CDR: CDR formula: X 100 = % Describe the effect of the rate on Local Community College: Benefits: Sanctions: Based on your own experience and what you learned today, what advice would you have for Local Community College for steps they could take that might result in lower CDRs in the future? 15

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19 Putting It To Work The topics covered in this training session are conveyed in general terms to encompass learners from all types of postsecondary institutions. You should consider how the concepts covered in the training session apply to your school. Schools often are given flexibility in administering and applying guidelines to certain federal student aid programs. That s why it is essential that you discuss these items (shown below) with your supervisor. Your supervisor can give you institution-specific guidelines on how the material we discussed in this training session can be applied to your job. 1. What is our school s most recent official three-year CDR? 2. What actions could we take now that might influence our institution s future CDRs? 3. What options can we suggest to our borrowers to keep their loans in good standing if they encounter financial trouble? 4. What opportunities currently exist at our institution for discussing successful loan repayment with our borrowers? 5. List some new ways in which we could help students learn about avoiding student loan delinquency and default. 17

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21 Trainer s Toolkit The Trainer s Toolkit is a listing of web sites and reference material directly related to Cohort Default Rates. References, Resources and Websites Federal Legislation or Regulations Institutions and Lender Requirements Relating to Education Loans, Final Rule 34 CFR Parts 601, 668, 674, et al. Oct. 28, U.S. Department of Education Electronic Announcement Subject: FY Year Draft Cohort Default Rates Distributed February 23, Feb. 23, Electronic Announcement Subject: National Default Rate Briefing for FY Year Rates. Sept. 24, Electronic Announcement Subject: Default Rates for Cohort Years June 6, Electronic Announcement Subject: National Default Rate Briefings for FY Year Rates and FY Year Rates. Sept. 30, Electronic Announcement Subject: FY Year Official Cohort Default Rates Distributed September 23, Sept. 23, Electronic Announcement Subject: FY Year Official Cohort Default Rates Distributed September 16, Sept. 16, Electronic Announcement Subject: Definition of Default for Student Eligibility and Cohort Default Rate Calculations. Feb. 25, Dear Colleague Letter GEN-08-12/FP Subject: The Higher Education Opportunity Act. December NSLDS Newsletter Number 30. January

22 Federal Student Aid Handbook Volume 1: Student Eligibility Federal Student Aid Handbook Volume 2: School Eligibility and Operations. Publications Cohort Default Rate Guide. September Federal Student Aid Websites College Navigator Website. Institute of Education Sciences National Center for Education Statistics. ecdr Appeals System, including access to ecdr Appeals User Guides. Default Prevention Resource Information. Default Prevention Plan Submission Overview. Posted September Federal Student Aid Data Center. Gateway to data and information about federal student aid programs, participating schools and FFEL lender and Guaranty Agency reports. National Student Loan Default Rates. Official Cohort Default Rates for Schools, including access to searchable Default Rate Database. Operations Performance Division s Website (Default Prevention and Management). Student Aid Internet Gateway Enrollment. Other Resources Common Manual USA Funds USA Funds University Online Course Understanding the Cohort Default Rate. Course Fact Sheets Understanding Cohort Default Rates. 20

23 Cohort Appeals Resources Avoiding Default Rate Appeals Errors. Eight Steps to Appeal. Webcast Recording Archives 21

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25 Appendices Appendix A Special Circumstances Appendix B Case Study Answers 23

26 Appendix A Special Circumstances Involving Schools Situation How It Affects the Denominator How it Affects the Numerator A borrower separates from the school that disbursed the loans but enrolls at that school or a different school before the end of the grace period. The borrower is included in the cohort fiscal year when the borrower actually enters repayment. If the date a borrower enters repayment is delayed by the borrower re-enrolling in school, then the borrower s inclusion in a cohort default rate calculation will also be delayed. The borrower is included if the borrower defaulted or met the other specified condition during the cohort default period. A borrower obtained more than one loan to attend a school and the repayment dates for each of the loans fall into different cohort fiscal years. The borrower is included in the cohort fiscal years when the borrower entered repayment. The borrower will appear in two different cohort default rate calculations for the same school if the borrower has two loans that enter repayment in different cohort fiscal years. The borrower is included if the borrower defaulted or met the other specified condition during the relevant cohort default periods. The borrower will appear in different cohort default rate calculations for the same school if the borrower has multiple loans, enters repayment in separate cohort fiscal years, and defaults or meets the other specified condition during those cohort default periods. A borrower takes out loans at more than one school. The borrower is included in the cohort fiscal years when the borrower entered repayment for each school where the borrower obtained loans. The borrower is included for the schools at which the loans were obtained if the borrower defaulted or met the other specified condition during those cohort default periods. A school, its owner, its agent, contractor, employee, or another entity or individual associated with the school makes a payment on the borrower s loan in order to avoid default during the cohort default period. The borrower is included in the cohort fiscal year when the borrower entered repayment. The borrower is included because the loan meets the other specified condition during the cohort default period. Cohort Default Rate Guide (2014), page through

27 Special Circumstances Involving Repayment Situation The borrower enters repayment and subsequently obtains a deferment or forbearance on the loan. How It Affects the Denominator The borrower is included in the cohort fiscal year when the borrower entered repayment. Deferments or forbearances do not alter the date the borrower entered repayment. How it Affects the Numerator The borrower is included if the borrower defaulted or met the other specified condition during the cohort default period. A borrower consolidates one or more defaulted loans. The borrower is included in the cohort fiscal years when the borrower entered repayment on the underlying loans (the loans that the borrower consolidated), not based on the date that the consolidation loan entered repayment. Even though the borrower has regained eligibility for Title IV funds by consolidating, the borrower is still considered to be in default for the purpose of calculating the school s cohort default rate. A borrower requested and was granted a revised repayment schedule that started before the date the borrower was originally scheduled to enter repayment. The borrower is included in the cohort fiscal year when the early repayment schedule begins. The early repayment date becomes the repayment date. The borrower is included if the borrower defaulted or met the other specified condition during the cohort default period. A borrower paid the loan in full before the date the loan was scheduled to enter repayment. The borrower is included in the cohort fiscal year that the borrower paid the loan in full. The paid-in-full date becomes the new repayment date. The borrower is not included because the borrower did not default, unless the loan was paid in full through a consolidation loan and the consolidation loan defaults during the cohort default period. A borrower paid the loan in full after defaulting or meeting the other specified condition during the cohort default period but without rehabilitating the loan within the cohort default period. The borrower is included in the cohort fiscal year when the borrower entered repayment. The borrower is included because the loan was not successfully rehabilitated for cohort default rate purposes within the cohort default period. Cohort Default Rate Guide (2014). Pages through

28 Special Circumstances Involving Loans That Were Discharged, Canceled, or Refunded Situation The borrower s loan was discharged due to bankruptcy, disability, or other type of loan discharge (not including closed school, false certification, or identity theft) before the borrower entered repayment. How It Affects the Denominator The borrower is included in the cohort fiscal year based on the date the loan was discharged. The date of discharge becomes the date entered repayment. How it Affects the Numerator The borrower is not included because the borrower did not default. The borrower s loan was discharged due to bankruptcy, disability, or other type of loan discharge (not including closed school, false certification, or identity theft) after the borrower enters repayment but before the end of the cohort default period and before the borrower defaults or meets the other specified condition. The borrower is included in the cohort fiscal year when the borrower entered repayment. The borrower is not included because the borrower did not default. The borrower enters repayment and defaults or meets the other specified condition during the cohort period. Subsequently, the loan is discharged due to bankruptcy, disability or other type of loan discharge. The borrower is included in the cohort fiscal year when the borrower entered repayment. The borrower is included because the borrower defaulted or met the other specified condition during the cohort default period. The borrower s loan was discharged due to school closure, false certification, and/or identity theft. The borrower is not included because loans discharged due to school closure, false certification, and/or identity thefts are not included in the cohort default rate calculation. The borrower is not included because loans discharged due to school closure, false certification, and/or identity thefts are not included in the cohort default rate calculation. A loan was fully refunded or canceled, within 120 days of loan disbursement. The borrower is not included because canceled loans are not included in the cohort default rate calculation. The borrower is not included because canceled loans are not included in the cohort default rate calculation. The loan was partially refunded within 120 days of loan disbursement. The borrower is included in the cohort fiscal year when the borrower entered repayment on the portion of the loan that was not refunded. The borrower is included if the borrower defaulted or met the other specified condition during the cohort default period. The borrower dies after the borrower s loans enter repayment before the end of the cohort default period and before the borrower defaults or meets other specified condition. The borrower is included in the cohort fiscal year when the borrower entered repayment. The borrower is not included because the borrower died before going into default. Cohort Default Rate Guide (2014). Pages through

29 Special Circumstances Involving Loans That Were Repurchased Situation A lender repurchased a defaulted loan because the guaranty agency determined that the lender did not meet the insurance requirements and, as a result, the loan lost insurance and became an uninsured loan. How It Affects the Denominator The borrower is not included because uninsured loans are not included in the cohort default rate calculation. How it Affects the Numerator The borrower is not included because uninsured loans are not included in the cohort default rate calculation. A lender immediately repurchased a loan because the lender incorrectly submitted the default claim to the guaranty agency and does not submit another default claim within the cohort default period. The borrower is included in the cohort fiscal year when the borrower entered repayment. The borrower is not included because the borrower is not in default. A lender immediately repurchased a loan because the lender incorrectly submitted the default claim to the guaranty agency and later submits another default claim that is paid within the cohort default period. The borrower is included in the cohort fiscal year when the borrower entered repayment. The borrower is included because the subsequent default claim was paid within the cohort default period. A lender made a courtesy repurchase of a defaulted loan because the borrower established a new repayment plan or for other reasons. The borrower is included in the cohort fiscal year when the borrower entered repayment. The borrower is included because the original valid default claim was paid during the cohort default period. Cohort Default Rate Guide (2014). Pages through

30 Appendix B Case Study Answers Kline College wants to estimate the school s future CDR for three specific cohorts of borrowers. For each cohort, the school determined the total number of borrowers who entered repayment during the relevant cohort year, and how many of those borrowers defaulted on their loans during the relevant three-year cohort default period. Assuming no additional borrowers default on their loans, what is the school s estimated CDR for each cohort? Cohort 1: This cohort includes 1,000 borrowers. So far, 48 of those borrowers defaulted on their loans. CDR formula: CDR formula: 48 X 100 = 4.8% 1, CDR formula: X 100 = 4.8% 1,000 Cohort 2: CDR 48 formula: This cohort includes 1,200 X borrowers. 100 = 4.8 So % far, 240 of those borrowers defaulted on their loans. 1,000 CDR formula: 240 X 100 = 20 % 1, CDR formula: X 100 = 20 % 1,200 CDR 240 formula: X 100 = 20 % 1,200 Cohort 3: CDR formula: 540 X 100 = 30 % This cohort includes 1,800 borrowers. So far, 540 of those borrowers defaulted on their loans. 1, CDR formula: X 100 = 30 % 1, X 100 = 30 % 1,800 28

31 Local Community College s FY 2012 cohort includes 2,000 borrowers who entered repayment between Oct. 1, 2011, and Sept. 30, Between Oct. 1, 2011, and Sept. 30, 2014, 600 borrowers in that cohort defaulted on their loans. Fill in the blanks below to calculate the resulting three-year CDR: CDR formula: 600 2,000 X 100 = 30% Describe the effect of the rate on Local Community College: Benefits: Within 30 days of receipt of notification by ED of the school's official three-year CDR, unless the school successfully appeals this rate and it drops below 30 percent, the school must stop applying any benefits previously offered to any students. Sanctions: 1. If this is the first year in which the school's three-year CDR is 30 percent or higher, the school is required to establish a default prevention task force to develop and submit a plan to ED that: u Identifies the significant factors contributing to the high default rate. u Establishes measurable objectives for reducing its CDR. u Explains how the school will promote successful student loan repayment. 2. If this is the second consecutive FY in which the school's three-year CDR is 30 percent or higher, then a revised default management plan must be developed and delivered to ED. Once the revised plan is reviewed, the school may be required to take additional measurable steps. 3. If all three of the school s most-recent official three-year CDRs are 30 percent or more, within 30 days of receipt of notification by ED the school will lose Direct Loan and Federal Pell Grant program eligibility for the remainder of the current year and for two subsequent years. 29

32 Based on your own experience and what you learned today, what advice would you have for Local Community College for steps they could take that might result in lower CDRs in the future? Actions might include: u Review draft CDR data for accuracy and completeness and challenge any incorrect data. u Check official CDR data to ensure any data corrections filed were actually made and any new data is correct. u Work with responsible school officials to ensure timely and accurate notification of enrollment status. u Clearly communicate to student borrowers what happens to the status of their loans when they no longer are enrolled at least half time. u Ensure all students are informed about and following official procedures for withdrawing from all classes. u Institute a workshop, lecture series or course designed to help students learn to manage money and make smart decisions about taking on and managing debt. u Even if not required, develop a default prevention task force that includes representation from offices and departments with a stake in student retention and success. 30