Yesterday, the U.S. Department of Education (ED) released the Official Cohort Default Rates (CDRs) for Schools, an assessment of the percentages of individual colleges’ students who borrow federal student loans and default on repayment. The Association of Community College Trustees (ACCT) has been investigating CDRs among community college students at the institutional and state levels for several years.
Many community colleges have made cohort default rate reduction a priority, and this is evident in the official CDRs released yesterday. The most recent rate measures the number of borrowers who entered repayment in federal fiscal year 2013 (FY2013) and defaulted within the next three years. The CDR for public two-year colleges dropped to 18.5 percent, down from 19.1 percent in FY2012.
J. Noah Brown, president and CEO of ACCT, praised community colleges for their dedication to reducing cohort default rates. “Our colleges have taken significant steps over several years to prevent students from experiencing default,” Brown said. “Community colleges are open-access institutions. They serve every student who comes through the door prepared to learn, and we need to make sure our students are successful not only academically, but financially once they have completed their educations at our colleges.”
Institutions with a CDR that is consistently over 30 percent are threatened with federal sanctions, including loss of eligibility to participate in all federal student aid programs. This means that all students at any given institution, including responsible students, are penalized for defaulted loan rates of a minority of students by losing loan eligibility if their institutions’ default rates exceed 30 percent.
Only 17 percent of community college students borrow federal student loans, and many who default have low loan balances. ACCT’s 2015 report A Closer Look at the Trillion: Borrowing, Repayment, and Default at Iowa’s Community Colleges showed that nearly half of all FY2011 community college defaulters in Iowa borrowed less than $5,000. Research published by the White House Council of Economic Advisors showed that two-thirds of all defaults in FY2011 were of those with less than $10,000 in debt. Although most borrowers can take advantage of a variety of payment options, including income-based repayment plans, high-balance borrowers use them at a higher rate.
“We call on the Department of Education to continue to increase transparency and accountability in the loan servicing process to aid low-balance borrowers,” Brown said. Loan servicers facilitate the repayment process and are responsible for counseling borrowers and guiding them toward appropriate options.
When students enter default, they lose eligibility for federal student aid, which can preclude them from re-enrolling in school. And the current punitive system follows them beyond college: Federal loan defaults, regardless of the level of debt, is recorded on their credit histories for seven years and can limit students’ abilities to lead successful lives by disqualifying them from reasonable automobile and housing loan interest rates, resulting in financial disability, further debt, and being able to do less with their financial resources.
“The reality is that default penalizes not only students, but our communities,” Brown said. We cannot expect our communities to thrive if a significant number of borrowers default, and our college leaders are making progress toward improving defaults to the best of their abilities. It is incumbent upon the Education Department to likewise make adjustments to existing policies so that students who do falter won’t continue to suffer undue consequences.”