The U.S. Department of Education is scheduled to release this week its annual cohort default rates, which describe what percentage of borrowers are defaulting on their student loans. The data were due to be released to colleges on Monday and to the public in the middle of the week. Here’s what you need to know:
What’s new this year?
There is one big change. This is the first year colleges will be judged on a three-year default rate, measuring whether borrowers who began repaying their loans between October 1, 2010, and September 30, 2011, have defaulted. The department has been in the process of shifting from a two-year rate to a three-year rate, which it says is more indicative of the percentage of borrowers who actually default.
What does this mean for colleges?
The Education Department will bar federal aid to colleges with default rates of 30 percent or more for three consecutive years, or 40 percent in a single year. But it’s not quite that simple. Historically, very few institutions have exceeded those standards. Last year only eight colleges out of almost 6,000 faced penalties, and half of those were beauty or barber schools. Colleges have maneuvered to keep their default rates below the limit by encouraging students to opt for deferments, forbearances, or consolidations of their loans.
Is anyone worried?
Yes. Community colleges, in particular. In the last six years, the three-year default rate among community colleges has risen from 13 percent to 21 percent. For-profit institutions also tend to have higher default rates.
According to one Education Department official, as many as two to three dozen colleges (not just community colleges or for-profits) are at risk of losing their federal aid.
Have there been any general trends?
Yes, and they’re not good. Last year the two-year rate rose for the sixth year in a row, from 9.1 percent in the previous cohort to 10 percent. The three-year rate rose by a similar amount, from 13.5 percent to 14.7 percent. The education secretary, Arne Duncan, called the trend “troubling.”
I don’t think the statistics are an accurate barometer of student debt. Why should I care?
For one, the Obama administration may use default rates as one metric in its controversial college-ratings system, a draft of which is due out this fall.
Corrections (9/22/2014, 1:45 p.m.): This post originally stated incorrectly that cohort default rates measure the percentage of “college graduates” who default on their student loans. In fact, the rates cover all borrowers, whether or not they graduated. The post also incorrectly stated when the default rates would be released. The data were due to be released to colleges on Monday and to the public in the middle of the week. The post has been updated to reflect those corrections.
