Introduction to the Cohort Default Rate:
When students default on their federal student loans the government and by consequence, taxpayers, lose money. Although student debt default costs the university money as well, it only has an appreciable effect as long as the institution cannot collect on short-term tuition payments and/or is subsequently unable to replace the student with another. As a consequence and to prevent abuse, the federal government sanctions schools with a cohort default rate over a certain percentage. On the flip side, the government provides benefits to schools with cohort default rates below a certain percentage. But what is the cohort default rate? This is the rate which a school's loans are being defaulted on. The intent is to create an atmosphere where schools are incentivized to work with borrowers and to prevent further participation in certain federal loan programs when the rate of default becomes excessive.
I’m a school … what can I do to improve Cohort Default Rates and mitigate sanctions?
Review the draft Cohort Default Rate data when it is released by the U.S. Department of Education and submit an Incorrect Data Challenge to contest inaccurate statistics.
Put in place a process to challenge the Cohort Default Rate presented to schools in the DoE draft. Schools that have ironed out procedures to challenge data in draft format are much more likely to challenge the official statistics and will be much better equipped to do so. Further, those that track their own data are much more capable of finding and correcting errors before the official statistics are released.
Partner with a collection agency that has a history of empathetic and reasonable student loan collection practices and that specializes in education collections.
Student loans are a unique type of debt in that you are dealing with young adults and parents doing their utmost to put their children through college. It is a sensitive subject to say the least. You want to make sure your collection agency represents your school professionally and that they are willing to work with students to achieve win-win solutions that maximize the benefit for both the school and the enrollees.
Submit a Participation Rate Index Challenge to maintain loan eligibility and/or prevent being placed on a provisional certification status.
A school that submits a Participation Rate Index Challenge is trying to make the case that they should not lose loan eligibility or be placed on provisional certification due to their Cohort Default Rate (CDR). Loss of eligibility can occur after three consecutive years of CDR > 30% or a single year of CDR > 40%. Provisional certification can occur when two of the last three consecutive year’s CDR > 30%. You can submit a Participation Rate Index Challenge against either of the last two official Cohort Default Rate reports or the most recent draft. In order to prevail, the school must show that their participation rate index has been 0.0625 or less in one of the last three years (if being censored for an extended CDR > 30%) or that the participation rate index is 0.0832 or less for their most recent CDR (if being censored for a single CDR > 40%).
There are a lot of things that schools can do to improve their CDR rates, develop positive student relationships, and simultaneously advance the best interests of both the university and the students. Want to add to the conversation? Comment and share. What have you had success with at your university? What are your biggest challenges?