The national cohort default rate for federal student loans that entered repayment in fiscal year (FY) 2017 decreased by .4% — dropping for the third 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.
The annual data, publicly released on Wednesday, show that the national three-year default rate decreased from 10.1% for loans that entered repayment in FY 2016 to 9.7% for loans that entered repayment in FY 2017. 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, 2016 and Sept. 30, 2017 and subsequently defaulted prior to Sept. 30, 2019. During that time, more than 4.2 million borrowers entered repayment, compared with more than 4.5 million during the previous cohort. Of the 4.2 million who entered repayment, 417,429 defaulted on their loans.
Broken down by sector, the cohort default rate decreased from 9.6% to 9.3% among public institutions, but increased slightly from 6.6% to 6.7% among private nonprofit institutions. The cohort default rate also dropped from 15.2% to 14.7% among for-profit institutions, which represent 38% of all institutions.
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, 12 institutions are subject to sanctions, unless they successfully appeal to ED. Those schools are:
As of September 2020, 90 eligible Historically Black Colleges and Universities (HBCUs) have official FY 2017 cohort default rates that fall below regulatory thresholds. According to ED, for the FY 2017 official cohort default rate cycle, only one HBCU is subject to cohort default rate sanctions or the consequent loss of Title IV student financial assistance program eligibility.
NASFAA has been outspoken about the fact that the current multitude of repayment options is confusing for borrowers. In its policy priorities for reauthorization of the Higher Education Act, NASFAA recommends 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.
Publication Date: 10/1/2020