Cohort Default Rates

Thanks to the National Association of Student Financial Aid Administrators (NASFAA) and especially NASFAA's  Federal Issues Committee for compiling the background information  and basic template used on this page

 Default is a legal term which describes a borrower's failure to repay  a loan according to the terms agreed to when  he/she  signed a promissory note.  For the Federal Direct Student Loan Program, default  occurs when a borrower fails to make a payment for 270 days under the normal monthly repayment plan.

Given the high unemployment rate and the bleak job market that recent graduates face, it is no surprise that student loan default rates continue to creep up from the record low set just a few years ago. Many families have also had to deal with recovery issues following natural disasters. Research shows that many additional factors affect the likelihood that a borrower will successfully repay his or her student loan and avoid default. Some of these factors include:

The government's official "cohort-default rate" presently measures the percentage of borrowers who default in the first two years of repayment and is used to penalize colleges with high rates. At its highest, the cohort default rate reached 22.4 percent in 1990. After falling steadily through the 1990s and reaching a low of 4.3 percent in 2003, the national two-year cohort-default rate began climbing in 2004.

The Department of Education plans to released the 2 year rate  for the 2011 cohort of borrowers on March 18, 2012.

  • The national rate is X.X % ercent, .
  • The average default rate for students at public institutions is X.X%. The average default rate for students at private schools is X.X%. The average default rate for students at for-profit schools is X.X%.
  • There are three separate types of default rates that you will read about in the news . Learn the difference.

At the end of the 2008 fiscal year, $39.1-billion worth of loans were in default, according to the Education Department. By the end of the 2009 fiscal year, that total had swelled to $50.8-billion, an increase of nearly 30 percent. As of the end of April, the government had recovered only $6.2-billion of that money.

 

Why This Is Important

The consequences of default are severe—for students, schools, and taxpayers. Colleges with high cohort default rates can lose eligibility for federal student aid programs.Taxpayers are on the hook for 97 to 100 percent of the losses when borrowers default on their federal student loans . As a Catholic and Jesuit institution, Loyola is committed to helping our students learn the responsibilities involved in faithful citizenship.

Default Prevention Activities

We are committed to helping our students learn how to borrow responsibly so that they can meet their obligations to repay their outstanding student loans.  Default prevention work is student success work. That’s why we have chosen to model our program based on the Department of Education's Default Prevention and Management: A Plan for Student and School Success. We have taken several steps to help borrowers successfully complete their course of study, enter the job market, and avoid default. These steps include:

Some factors are out of schools’ control

 The dismal job market and rising college costs are two factors that could have a significant impact on borrowers’ ability to avoid default. Unfortunately, increased unemployment rates have a significant impact on students’ default rates because it means that families may not be in a position to provide supplemental support while students are in repayment. The increased  costs associated with attending a private institution mean that more students and parents rely on debt to pay for college. We are humbled by the sacrifices families are willing to make as an indication of the value  associated with attending a Jesuit university. But we do also recognize that higher loan burdens in turn increases the likelihood of default.

Finally, mathematical changes to the default rate formula that takes into account a longer repayment period will ultimately lead to higher default rates.

Helping Families Make Wise Choices About Paying for College

We believe that can still have a positive impact on student loan repayment. Issues such as unemployment rates and family income cannot be controlled by colleges. 

However, we embrace the concept that we can have a positive impact on student loan repayment rates by helping families prepare for financing a college education though a number of outreach activities .  Besides speaking at local high schools, we have a dedicated web page with information for families on preparing for college. Another section of our website provides information for parents including information on available financing tools. We also produce an electronic newsletter for parents. Finally we maintain pages with information on "outside" scholarship opportunties that are available to our students.

  We hope that by providing this information, we  can help families make wise choices about how they will pay for college. There are only a limited number of circumstances where the schools have the authority to refuse to certify a student's federal direct student loan application.

Schools’ face significant challenges

 We take our obligation to educate students about responsible borrowing and debt management seriously. Students are assigned a specific counselor to allow for individual and consistent support throughout their enrollment at Loyola. Nonetheless, schools face significant challenges in this arena. Those challenges include:

Additional borrower resources

We have joined with the federal government to provide additional resources to prevent default. A strengthened Income-Based Repayment program will lower monthly payments for low-income borrowers with large student loan debt. In the coming years, institutions and the U.S. Department of Education will be providing a host of new consumer information to better inform students and parents and help them avoid pitfalls that lead to default. Among the new disclosures - as well as those planned for the future - are:

 

Updated March 14, 2013