The national cohort default rate for federal student loans that entered repayment in fiscal year (FY) 2016 decreased by 6.5% — dropping for the second year in a row and representing the lowest national default rate since the Department of Education (ED) began publishing three-year default rates in 2012. At the same time, 15 institutions may be in danger of losing their eligibility for federal student aid due to high default rates, according to new ED data.
The annual data, publicly released on Wednesday, show that the national three-year default rate decreased from 10.8% for loans that entered repayment in FY 2015 to 10.1% for loans that entered repayment in FY 2016. ED changed its formula for calculating cohort default rates several years ago to capture the percentage of loans in default three years after beginning repayment. Previously, cohort default rates followed loan repayment for two years.
The federal default rate captured in the new data measures the percentage of borrowers who entered repayment between Oct. 1, 2015 and Sept. 30, 2016 and subsequently defaulted prior to Sept. 30, 2018. During that time, more than 4.5 million borrowers entered repayment, compared with more than 4.9 million during the previous cohort. Of the 4.5 million who entered repayment, 458,687 defaulted on their loans.
Broken down by sector, the cohort default rate decreased from 10.3% to 9.6% among public institutions, and from 7.1% to 6.6% among private nonprofit institutions. The cohort default rate also dropped from 15.6% to 15.2% among for-profit institutions, which represent 38% of all institutions.
"NASFAA is encouraged to see that for the second year in a row we’re trending in the right direction,” NASFAA President Justin Draeger said. "Although schools cannot control many of the elements that lead to default, colleges can have a positive impact on student loan repayment rates and keeping overall indebtedness down. As we inch closer to the next reauthorization of the Higher Education Act, we’re hopeful that we can make some meaningful reforms to student loan repayment that will help students to make timely payments and avoid default. NASFAA has recommended consolidating and simplifying the current federal loan repayment plans, solidifying Public Service Loan Forgiveness, exempting all loan forgiveness from the calculation of gross income for income tax purposes, and continuing forward with the Department of Education's steps on improving federal loan servicing. We look forward to working with our federal colleagues and lawmakers to implement these commonsense changes.”
Individual institutions with default rates of 30% or higher for three consecutive years, or greater than 40% for one year — or both — are subject to sanctions, including a loss of eligibility for one or more federal student aid programs. Under the new data, 15 institutions (13 proprietary schools, one public, and one private institution) are subject to sanctions, unless they successfully appeal to ED.
Those schools are:
DC – Washington – Bennett Career Institute
ID – Burley – Cosmetology School of Arts and Sciences
IL – Chicago – Larry's Barber College
KY – Louisville – American College of Barbering
MO – Kansas City – Transformed Barber & Cosmetology Academy
ND – Bismarck – United Tribes Technical College
NJ – Cherry Hill – Harris School of Business
NY – Rochester – Sharp Edgez Barber Institute
PA – Lancaster – Champ's Barber School
SC – Denmark – Denmark Technical College
TN – Memphis – Vibe Barber College
TX – Farmers Branch – PCCenter
TX – Grand Prairie – MT Training Center
TX – Dickinson – K&G 5 Star Barber College
WI – Beloit – First Class Cosmetology School
According to ED, 11 of those institutions were subject to sanctions for having a cohort default rate of 40% or more for one year, and seven are in jeopardy for having a default rate of 30% or more for three years.
Publication Date: 9/25/2019