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Business and Policy Areas
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Student Loan Default Rate Lowest in History

September 21, 2004

The Department of Education announced a record low 5.2 percent default rate on federal student loans for the 2002 federal fiscal year. The default rate is calculated using the percentage of student loan borrowers defaulting within two years of leaving a higher education institution.

The default rate, which is also calculated for borrowers from individual institutions (known as the “cohort default rate”), is at record low levels because of historically low interest rates and better management from the Department of Education, according to an ED news release. ED also announced availability of cohort default rates for institutions.

Institutions can be dropped from participation in the federal student loan program if their default rate is either more than 40 percent for one year or more than 25 percent for three consecutive years. Only one institution exceeded the cohort default rate in FY 2002.

Until this year, historically black colleges and universities and tribal community colleges had been exempt from the cohort default rate sanctions. Although the exemption expired on June 30, 2004, all HBCUs fall below the default rate thresholds and are thus eligible for participation in the federal student loan program.

For more information, see the Education Department Web site.