STUDENT LOAN DEFAULT RATES RISING

FROM:  U.S. DEPARTMENT OF EDUCATION 
Default Rates Continue to Rise for Federal Student Loans
SEPTEMBER 30, 2013


The U.S. Department of Education today announced the official FY 2011 two-year and official FY 2010 three-year federal student loan cohort default rates (CDR). The national two-year cohort default rate rose from 9.1 percent for FY 2010 to 10 percent for FY 2011. The three-year cohort default rate rose from 13.4 percent for FY 2009 to 14.7 percent for FY 2010.

The Department is replacing its CDR calculations from two-year to three-year calculations as required by the Higher Education Opportunity Act of 2008. Congress included this provision in the law because more borrowers default after the two-year monitoring period; thus, the three-year CDR better reflects the percentage of borrowers who ultimately default on their federal student loans.

The FY 2010 three-year cohort default rate is the second that the Department has issued, following the release of last year’s FY 2009 three-year cohort default rate. Under the law, only three-year rates will be calculated starting next year. At that time, three 3-year rates will have been calculated (FY 2009 published in 2012, FY 2010 published in 2013, and FY 2011 published in 2014).

“The growing number of students who have defaulted on their federal student loans is troubling,” U.S. Secretary of Education Arne Duncan said. “The Department will continue to work with institutions and borrowers to ensure that student debt is affordable. We remain committed to building a shared partnership with states, local governments, institutions, and students—as well as the business, labor, and philanthropic leaders—to improve college affordability for millions of students and families.”

To ensure that students are aware of the flexible income-driven loan repayment options available through Federal Student Aid (FSA), this fall the Department will expand its outreach efforts to struggling borrowers to inform them about the different plans. The Department has also released new loan counseling tools to help students and families make more informed decisions about planning for college. Students and families can visit www.studentaid.gov for more information.

Calculation and breakdown of the rates

For-profit institutions continue to have the highest average two- and three-year cohort default rates at 13.6 percent and 21.8 percent, respectively. Public institutions followed at 9.6 percent for the two-year rate and 13 percent for the three-year rate. Private non-profit institutions had the lowest rates at 5.2 percent for the two-year rate and 8.2 percent for the three-year rate.

The two-year CDR increased over last year’s two-year rates for both the public and for-profit sectors, rising from 8.3 percent to 9.6 percent for public institutions, and from 12.9 percent to 13.6 percent for for-profit institutions. CDRs held steady for private non-profit institutions at 5.2 percent. The three-year CDR increased over last year’s three-year rates for both the public and private non-profit sectors, rising from 11 percent to 13 percent for public institutions, and from 7.5 percent to 8.2 percent for private non-profit institutions. CDRs decreased for for-profit institutions, slipping from 22.7 percent to 21.8 percent.

The two-year default rates announced today were calculated based on a cohort of borrowers whose first loan repayments were due in FY 2011 (between Oct. 1, 2010 and Sept. 30, 2011), and who defaulted before Sept. 30, 2012. More than 4.7 million borrowers from nearly 6,000 postsecondary institutions entered repayment during this window of time, and more than 475,000 defaulted on their loans, for an average of 10 percent.

The three-year rates announced today were calculated based on the cohort of borrowers whose loans entered repayment during FY 2010 (between Oct. 1, 2009, and Sept. 30, 2010), and who defaulted before Sept. 30, 2012. More than 4 million borrowers from over 5,900 postsecondary institutions entered repayment during this window of time, and approximately 600,000 of them defaulted, for an average of 14.7 percent.

Sanctions

No sanctions will be applied to schools based on the three-year rates until the CDRs have been calculated for three fiscal years, which will be with the release of the FY 2012 rates next year. Until then, sanctions will continue to be based on the two-year CDR only.

Certain schools are subject to sanctions for having two-year default rates of 25 percent or more for three consecutive years, or over 40 percent for one year. As a result, these schools will face the loss of eligibility in federal student aid programs unless they bring successful appeals. Please click here for more information about possible sanctions: http://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr2yr.html

The Department provides extensive assistance to schools to help minimize institutional cohort default rates. FSA provides a variety of training opportunities to the higher education community, including webinars and online training, participation in state, regional and national association training forums, and through face-to-face training events such as the FSA Training Conference for Financial Aid Professionals. In addition, any school with a three-year CDR of 30 percent or more must establish a default prevention task force and submit a default management plan to the Department. There were 221 schools that had three-year default rates over 30 percent.