A cohort default rate
is the percentage of a school's borrowers who enter repayment on certain loans during a federal fiscal year (October 1 to September 30) and default prior to the end of the next one to two fiscal years. The United States Department of Education
The United States Department of Education, also referred to as ED or the ED for Education Department, is a Cabinet-level department of the United States government...
(ED) releases official cohort default rates once per year.
History of the Cohort Default Rate
The cohort default rate was initiated in the late 1980s as a way of drawing attention to institutions that were thought to be preying on low-income students who might have trouble re-paying their loans.
There had been a burst of trade schools in cities with large minority populations and
low-income residents who tried to build enrollment by encouraging academically
under-qualified students to apply for grants and loans that they would be unlikely to be able to repay, especially if they received a substandard education.
The cohort default rate plan was that institutions with abnormally high default rates would be identified and held accountable for their actions. These institutions would lose access to federal grants and loans after having a cohort default rate that exceeded the national average by 25% for three years, or 40% in one year. The goal was that fraudulent schools would be weeded out and all institutions would be forced to look at student education debt more seriously.
Problems with the Cohort Default Rate
The idea worked at first, as hundreds of illegitimate trade schools closed. However, some college leaders argued that default rate provisions were endangering legitimate colleges that served low-income students who needed loans to pay for their education.
Other criticisms have been raised as well. The cohort default rate only tracks a portion of borrowers –- those who default within the first two years of repayment.
Changes have been made to address certain criticisms. In 1998, the United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
decided to extend the amount of time (from 180 to 270 days) before loans were considered to be in default. Additionally, it takes the government 90 days to pay the insurance claim. That means it takes roughly a full year for a loan to be considered in default, and that’s not including the 6-month grace period before repayment begins.
Then, starting in 2005, Congress began advising colleges to compare the ED’s cohort default rates for their schools with their own records in order to ensure consistency. Schools that find inconsistencies between cohort-default-rate data and their own can challenge the ED’s findings.
- "New Default Rate Data for Federal Student Loans: 44% of Defaulters Attended For-Profit Institutions", The Pew Charitable Trusts
The Pew Charitable Trusts is an independent non-profit, non-governmental organization , founded in 1948. With over US$5 billion in assets, its current mission is to serve the public interest by "improving public policy, informing the public, and stimulating civic life."-History:The Trusts, a single...
, Project on Student Debt, Berkeley, California, December 15, 2009
- "College, Inc.", PBS FRONTLINE documentary, May 4, 2010