National Cohort Default Rate Plummets Amid Pandemic Payment Pause
By Hugh T. Ferguson, NASFAA Senior Staff Reporter
The national cohort default rate (CDR) for federal student loans that entered repayment in fiscal year (FY) 2019 dropped significantly, falling to 2.3% from 7.3% for loans that entered repayment in FY 2018, according to data released by the Department of Education (ED) Monday.
While that’s a 68.5% decrease in the default rate, it's worth noting borrowers with federal loans were not making payments for more than a year of the 3-year window as the forbearance period was in place due to the coronavirus pandemic. The rates were calculated using the cohort of student loan borrowers who entered repayment on their Direct Loans or Federal Family Education Loans (FFEL) between Oct. 1, 2018, and Sept. 30, 2019, and who defaulted between Oct. 1, 2018, and Sept. 30, 2021.
“Some schools have a small number of student loan borrowers entering repayment. At other schools, only a small portion of the student body takes out student loans,” Federal Student Aid (FSA) noted in the data release. “In such cases, the cohort default rate should be interpreted with caution.”
Due to the pause, now set to expire at the end of 2022, the CDR metric will less accurately reflect the financial well-being of borrowers for the next several years.
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.
During the period for this cohort, roughly 3.9 million borrowers entered repayment, a continued dip from previous years. Of those borrowers who entered repayment, 91,475 defaulted on their loans.
For public institutions, the default rate dropped from 7% to 2.3%. At private institutions, the default rate went from 5.2% to 1.7%. The cohort default rate also dropped from 11.2% to 3.1% among for-profit institutions, which represent about 37% of all institutions in this cohort.
ED distributed cohort default rate packages to eligible individual institutions late last week, notifying them of the begin dates for appealing the official rates.
Publication Date: 10/4/2022
Jeff A | 10/4/2022 10:38:35 AM
The real issue with CDR is what the repayment behavior of borrowers will be post-pandemic, post-forgiveness, and with a new loan repayment structure that incentivizes borrowing every dollar of federal loans a person can get, as well as incentivize to go to college to access those loans where the more you borrow, the lower the % of your loans you will actually repay. Basically negative interest. Many are now learning they made a mistake by repaying their student loans or not borrowing to begin with.
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