Posted Date: February 4, 2011
William J. Taggart, Chief Operating Officer, Federal Student Aid
Subject: Release of Trial Three-Year Cohort Default Rates
The Higher Education Opportunity Act (HEOA), enacted on August 14, 2008, made a number of changes to the student aid programs authorized under Title IV of the Higher Education Act (HEA), including changes to the monitoring timelines used in the calculation of an institution’s Federal Family Education Loan (FFEL) Program/William D. Ford Federal Direct Loan (Direct Loan) Program Cohort Default Rate (CDR). On October 28, 2009, the Department published in the Federal Register the regulations that will govern the calculation of CDRs beginning with the Fiscal Year 2009 (FY 2009) cohort calculation.
Consistent with the new rules, an institution’s CDR is the percentage of the institution’s former students who entered repayment on a FFEL/Direct Loan during the relevant cohort year who defaulted before the end of the second fiscal year following the cohort year. This represents a one-year extension of the current default monitoring period. The FY 2009 cohort (borrowers who entered repayment between October 1, 2008 and September 30, 2009) is the first cohort that will be monitored for the additional year. Thus, an institution’s FY 2009 three-year CDR will be the percentage of its borrowers who were included in the 2009 cohort who subsequently default on or before September 30, 2011. Draft FY 2009 three-year CDRs will be provided to institutions in February 2012 with official rates released in September 2012.
Since the HEOA provided that any sanctions that would result from the new three-year CDRs would not be effective until there were three sets of official three-year rates, the Department will continue to calculate and publish official two-year CDRs until three sets of three-year rates are published. The last two-year rate calculation will be for the FY 2011 cohort and will be released in 2013. Beginning in 2014, only three-year rates will be published since at that time three sets of three-year rates will have been calculated (FY 2009 published in 2012, FY 2010 published in 2013, and FY 2011 published in 2014).
To assist institutions in understanding the impact of the new three-year CDR calculation, the Department calculated and is making available unofficial trial three-year CDRs. Last year, we provided trial three-year CDRs for the 2005 – 2007 cohorts. This year, we are posting the trial three-year CDRs for the FY 2008 cohort. An institution’s trial FY 2008 three-year rate is calculated as the percentage of the institution’s borrowers who entered repayment between October 1, 2007 and September 30, 2008, who subsequently defaulted on or before September 30, 2010.
These rates are provided for information only. No benefits or sanctions apply to these trial rates. In addition, because these are unofficial rates and serve as preview data only, institutions may not submit challenges or appeals that normally apply to draft and official rates. Additionally, these rates do not reflect certain adjustments that may be made for official rates (fewer than 30 borrowers in a cohort, low participation, mergers, recalculations due to appeals/adjustments, etc.). The calculation and release of these trial rates is simply to assist institutions in preparing for the upcoming release of the official three-year FY 2009 CDRs next year.
Institutions may immediately access their trial FY 2005 through FY 2008 CDRs and request a Loan Record Detail Report (LRDR) for each calculation using NSLDS at www.nsldsfap.ed.gov. Institutions will also be able to compare their trial rates with their official two-year rates for the relevant cohort years. To see the trial rate an institution should choose the “Org” tab on the NSLDS FAP homepage, select the “Cohort Default Rate” link from the sub-menu at the top of the screen and look for the row labeled “3-Year Trial.” Use the Request Loan Details box to access the backup information. These trial rates will also be posted publicly on the Federal Student Aid Data Center at www.FSADataCenter.ed.gov.
While the primary reason for an increase between an institution’s two-year official rate and its three-year trial rate is the additional monitoring year, there may be other reasons. The most common is that official rates and trial rates were calculated at different times. Thus, there could have been small changes in the makeup of the cohort over time as a result of corrections made to the NSLDS database by lenders, guaranty agencies, and/or our Direct Loan Servicers.
We hope institutions find the release of these trial rates useful as they consider not only the impact of the move to a three-year rate but also as they think about interventions they might take to help their students avoid the consequences of defaulting on their student loans.