Deferral of Accountability Metrics: Unintended Consequences of the Student Loan Payment Pause

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

The continued extension of the federal payment pause on student loans and interest accrual has been a relief to borrowers, but amid this freeze a simple accountability metric on institutions of higher education may be less useful in the coming years, allowing programs that leave students worse off financially to continue to access federal aid.

Because no federal student loan borrower is required to be making payments, there are no defaults. As a result, the annual cohort default rate (CDR) metric will less accurately reflect the financial well-being of borrowers for the next several years. The cohort default rate measures the percentage of a school’s student loan borrowers who enter repayment and subsequently default within a three-year window that begins after they left school.

The Department of Education (ED) releases the official rate once per year and uses the metric to determine the school’s eligibility to continue to participate fully in theTitle IV aid programs. If an institution exceeds a default rate of 40% in a single year or a 30% CDR threshold for three consecutive years the school could then lose eligibility.

“The reason CDRs exist is because the rates are supposed to be one measure of how well borrowers are doing at repaying their loans--at least within the first few years after they're no longer enrolled in school,” said Susan Shogren CPTD®, NASFAA’s director of certification and credentialing.

The metric is meant to capture some of the worst performing institutions and help ensure that the federal government identifies poor performing schools to protect borrowers from using federal aid to enroll in programs that could adversely impact their financial health.

“It remains an imperative metric to have as a part of our accountability structure because the loan default continues to be the absolute worst outcome for any student who borrows to attend college,” said Jessica Thompson, vice president at The Institute for College Access & Success (TICAS). “The financially devastating consequences of default are significant and can have repercussions for students’ financial lives in their ability to get out of it for so many years to come.”

However, some data suggest that CDRs are ineffective at identifying more than the most extreme cases of poorly performing programs.

According to Michael Itzkowitz, senior fellow of higher Education at Third Way, hardly any institutions fail the metric, with less than 1% of all students nationwide attending schools that do not meet this reporting requirement per his analysis.

Itzkowitz said a key concern with CDR reporting is that it does not capture students’ ability to pay down their federal student loans because the data on which the CDR is based does not include borrowers whose loans are in deferment or forbearance.

“They're actually counted as a success even though these students are economically struggling under the current law,” Itzkowitz said.

Additionally, the metric fails to capture the nuance of loan repayment through income-driven repayment plans, which have grown in size, but often leave borrowers only paying down the accruing interest on their loans.

“While this was put in place as a federal safety net for struggling students, it also has the effect [of] counting them as a success even if they're unable to pay down their loan balance over time,” Itzkowitz said.

Itzkowitz also noted that the metric would become even less of a barometer of capturing successful student outcomes as a result of the payment pause.

“The cohort default rate is going to drop, it's going to drop substantially over the next few years as students haven't been required to pay their loans over that time,” Itzkowitz said.

The Pandemic’s Effect on CDR Metrics

The most recent official CDR metric released in September of 2021 utilized data from borrowers who entered repayment during fiscal year 2018 (Oct. 1, 2017 through Sept. 30, 2018), before the pandemic’s payment pause began. However, borrowers were not making payments during the last six months of the three-year window captured by the CDR metric, artificially lowering it for this cohort of borrowers.

The next official CDRs will be released this fall, and will reflect an even larger time period when borrowers qualified for repayment relief under the student loan moratorium. Once the CDR for the following year is released in the fall of 2023, the percentage of borrowers who defaulted during that window could be close to zero, depending on whether — or how long — the moratorium is extended.

“There's likely to be some pretty good looking cohort default rates, at least initially,” Shogren said of the data that will be published that relates to the period while the moratorium is in full effect.But in a way … you could call it artificial because without the payment pause, some of those borrowers would have gone into delinquency and default. With it, they were protected from having that happen.”

In effect, the continuation of the payment pause will continue to delay the usability of CDRs to hold institutions accountable and, as it stands right now, the soonest the metric can offer clear trends won’t be for another three to four years, which will continue to be lengthened should the payment pause be extended further.

What makes things all the more problematic is that whenever the payment pause does end there is a chance that many borrowers could inadvertently default on their loans due to the continued changes in extensions, adjusting to their new servicers, and ensuring that their contact information has been updated to reflect any life changes from the last two years.

Thompson said that because of this, she’s worried that the CDR could show a sudden spike across a host of institutions and inadvertently penalize schools for a potential rocky return to repayments.

“With respect to the restart, we are absolutely worried about seeing a short-term spike due to confusion. … [There are] all sorts of reasons why trying to get 40-plus million people, at the same time, back into making payments that have not happened for over two years,” Thompson said. “I think everybody is presuming that despite whatever ED does, to try to reduce the odds and smooth the tracks, we feel a little bit cynical about the ability to avoid a massive spike in default for students.”

What makes the delayed usability of this metric so concerning to higher education accountability advocates like Thompson is that while CDR could be argued to be a bare bones accountability metric, it is one of the only ones being actively tracked and used.

“[CDR is] really the only accountability metric that we have right now for colleges participating in Title IV, especially with gainful employment repealed,” Thompson said. “I know that there's currently an ongoing negotiated rulemaking and movement toward getting some sort of gainful employment metric at least back in place for those programs. But that said, CDR is what we have.”

What’s Next for CDR Accountability?

It is unclear exactly when the student loan moratorium will come to an end, especially now that a number of congressional Democrats have urged Biden to continue the pause “at least” through the rest of 2022.

Sen. Patty Murray (D-Wash.), who serves as chair of the Senate Health, Education, Labor, and Pensions (HELP) Committee, also indicated that she wants the entire student loan repayment system to be fixed before the relief is formally ended.

The continuation of the moratorium has resulted in the landscape for student loans being somewhat frozen since the implementation of the payment pause and the conversation over potential policy solutions have largely been stalled.

“There's so much going on in the world and we've been in emergency mode for two years on so many fronts, federally and at the state level, and at the individual level, maybe one would say,” Thompson said. “I haven't seen the ability to create space for this conversation to be happening, which is what needed to be the case if we were going to be prepared, and able to do something within the timeframe that we're going to be kind of an open a bit of a black hole on accountability.”

While Congress and the White House continue their oscillation on who has what authority over broad-scale loan forgiveness, it is unclear what will prompt a conversation that could lead to overhauling the student loan system itself, especially as we enter the midterm election campaigning season with Democratic leadership urging the administration to address flaws within the loan system before borrowers are transitioned back into their payment plans.

Thompson said such an overhaul will require Congress to act on its long overdue reauthorization of the Higher Education Act (HEA), which could help create the space for in-depth discussions.

“It’s still urgent that we start this conversation and this process in earnest and that is probably going to require a real go at the HEA reauthorization process,” Thompson said. “That's where all of this really … needs to happen in real, substantive policy conversation that's holistic and looking at all of the major pieces of HEA, which is long overdue for reauthorization and has been stalled out for a long time.”

A detailed report that TICAS put out looking to spur this conversation, detailing how policymakers can handle adverse debt outcomes and seeking to really get the process underway, is more than a year old now and Congress has yet to embark on a focused legislative solution to addressing the student loan landscape once the moratorium comes to a conclusion.

There is a litany of legislation focused on improving the student loan repayment system and quality and accountability metrics, but the bills need some sort of process by which to move through both chambers of Congress.

“This is going to be a long, complex process and so there's no easy way out,” Thompson said, underscoring that the solution to implementing accountability metrics, even prior to the pandemic, will require many detailed policy discussions.

“There isn't a clear solution right now for the gap that we will have in the immediate term for at least five years, in terms of [ensuring] that colleges are meeting this minimum bar of not exceeding current CDR thresholds,” Thompson said. “The reality is we are just looking at at least five years of not really having a valid accountability metric.”


Publication Date: 4/11/2022

Jesse H | 4/11/2022 5:16:24 PM

CDR has always been a pretty broken metric, and the fact that community colleges with open admissions and majority-disadvantaged populations get held to the same standards as Ivy League universities on their default rate has always irked me. ED either needs to acknowledge fundamentally different academic and financial realities between these student populations via different standards, or they need to give CC's broader latitude in restricting loan access for a struggling/failing student's own good.

Ben R | 4/11/2022 1:24:09 PM

Conceptually, schools should be held accountable when a substantial portion of its borrowers leave with debts they rarely ever repay and fall mostly on taxpayers, whether that is due to defaults, borrower defense cancellations, perpetual forbearance or IDR. However, to hold institutions accountable for costs which they control, ultimately the definition of cost of attendance must also change so that it is less possible to borrow beyond ability to repay in the first place. The whole notion would get more buy in from institutions if they had say over the total borrowing allowed.

As long as students are able to borrow for indirect costs in all circumstances, regardless of whether they have anything to do with the school (such as while taking online classes at home in your pajamas), it doesn't matter how much transparency you provide, what the school does to rein in tuition and fees or improve instructional quality. Vulnerable and/or conniving students will still get over their head with loans unless the lending itself is responsibly restrained.

One policy shift possible is that moving forward, FSA should focus primarily on direct costs while indirect costs would fall to another agency (sound too complicated? Not really. We do it now when we simultaneously manage FSA, VA, scholarships and state aid, and not all students need funding for indirect cost). Another option would be to define online, night and hybrid courses the same way as correspondence courses – i.e. no indirect cost allowed when course delivery is separate from housing concerns.

Peter G | 4/11/2022 12:34:04 PM

I agree with Jeff's comment that CDR was never a particular great metric and that's hardly been a contentious statement or a secret.

It feels like that conversation had more inertia a decade ago and tapered off not because people became enamored with CDR again, but because alternative suggestions all have flaws as well so we've defaulted back to CDR (no pun intended).

Thompson's note about them spiking gets to the point that CDRs have only ever kinda sorta been about the school quality or in certain ways even a student's theoretical ability to repay the loans, but about the economy (local or national), practical mechanics of servicing, communication, plan selection, etc. and probably to an extent also societal and personal views about whether the loans should be repaid.

Jeff A | 4/11/2022 9:7:26 AM

There IS a solution! it is called transparency. CDRs never were an effective tool for much of anything.
New data in the College Scorecard, and other HE data sources, can be leveraged to inform consumers, and help institutions identify weaknesses at a program level, and make improvements in response. Or competition will push them away from ‘failing’ programs. ED’s effort to do this with GE is very ineffective when it only impacts about 6% of students enrolled at HE institutions.
It is time for ED to use this neg reg process to enhance 668.43 to require disclosure of any metric that would also be a guardrail for “GE programs”. Institutions are competitive and will respond to the benefit of all students. And some students will make better choices!

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