The national cohort default rate for federal student loans that entered repayment in fiscal year (FY) 2018 dropped significantly, falling from 9.7% for loans that entered repayment in FY 2017 to 7.3% for FY 2018, according to data released by the Department of Education (ED) Wednesday.
While the record-low figure is welcomed news, it's worth noting borrowers with federal loans were not making payments for the last six months of the 3-year window as the forbearance period was in place due to the coronavirus pandemic.
Still, the annual data set shows default rates are trending in the right direction. 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, while previous 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, 2017 and Sept. 30, 2018 and went into default prior to Sept. 30, 2020. During that period, nearly 4.1 million borrowers entered repayment, slightly down from previous years. Of the roughly 4.1 million who entered repayment, 300,625 defaulted on their loans.
For public institutions, the default rate dropped from 9.3% to 7%. At private institutions, the default rate went from 6.7% to 5.2%. The cohort default rate also dropped from 14.7% to 11.2% among for-profit institutions, which represents about 38% of all institutions.
As of September 2021, only one eligible Historically Black College and University (HBCU) has an FY 2018 cohort default rate that falls below regulatory thresholds, and only one HBCU is subject to cohort default rate sanctions or the consequent loss of Title IV student financial assistance program eligibility, according to ED.
“HBCUs have deployed innovative approaches towards default management and reduction. Such strategies include implementation of a default management plan that engages stakeholders, identifies approaches to reducing default rates, and tracks measurable goals,” ED stated in a notice announcing the cohort default rates. “These schools have increased borrower awareness of obligations through incorporating borrower topics at orientation sessions and providing enhanced entrance and exit counseling.”
ED distributed cohort default rate packages to eligible individual institutions earlier this week, notifying them of the begin dates for appealing the official rates.
Publication Date: 9/30/2021