Recalculated 3-Year Default Rates Reveal the Same Troubling Trends

In February 2011, the U.S. Department of Education released “unofficial trial three-year cohort default rates” (CDRs) for colleges around the country based on students who entered repayment on their federal student loans in FY2008. The purpose of these unofficial rates is to help colleges prepare for the release of official three-year CDRs next year, which will be based on students who entered repayment in FY2009. Only if a college’s official rate exceeds certain thresholds is a school subject to sanctions.

This week, the Department informed schools that the unofficial trial FY2008 CDRs released in February reflected defaults in the first 3.3 years of repayment, rather than the first three years of repayment, and the Department issued recalculated rates for just the first three years. Because the recalculated rates cover a shorter period of time, the rates for all schools are slightly lower, but they reveal the same troubling picture as the rates released in February:

• Nearly half of all defaulters (47%) attended proprietary (for-profit) colleges even though only about 1 in 10 students attends these colleges;

• The average CDR for proprietary colleges (22.3 percent) is still more than double the rates for public and non-profit colleges (9.7 and 6.8 percent, respectively);

• Default rates rose more steeply in the third year of repayment at proprietary colleges (93 percent) than at other types of schools (60 and 69 percent at publics and non-profits, respectively);

• Across all colleges, 176,000 former students defaulted in their third year of repayment, but their former schools are not currently being held accountable for these defaults; and

• These data underscore the need for a strong gainful employment rule that will go into effect in 2012 to prevent taxpayer dollars from continuing to be wasted on ineffective or exploitative career education programs.

In early 2012, the Department will release draft official three-year FY2009 CDRs to colleges for their review before final official rates are released later in the year. This standard procedure for releasing official CDRs gives colleges time to review the data and appeal any potential sanctions before the official rates are finalized.

See our CDR resource page for quick links to individual colleges’ cohort default rates and federal student loan repayment rates, and other background information.

Posted in Federal and State Policy | Comments Off

Comments are closed.