ED Releases Trial Three-Year Default Rates

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February 10, 2011

The Department of Education has released trial three-year default rates by institution for borrowers entering repayment in FY2008. Beginning next year, the official cohort default rate for the federal guaranteed student loan programs will move from the current two-year measure to looking at the percentage of borrowers who default during the first three years of repayment. Institutions with rates above 30 percent will face potential sanctions beginning in 2014.

As would be expected, the three-year rates are significantly higher than the current two-year default rates. For all institutions, the three-year rate averaged 13.8 percent, compared to 7.0 percent for the two-year rate. The largest increase between the two-year and three-year rates is found at proprietary schools, which also typically have higher default rates than nonprofit and public institutions. The overall default rate for for-profit schools was 11.6 percent using the two-year measure, jumping to 25 percent for the three-year rate.

The three-year cohort default rates are high enough to cause concern for some public and nonprofit colleges. ED has identified steps that institutions can take to help reduce defaults among their students. A recent ED webinar, Default Prevention and Federal Student Loan Servicing Overview, was recorded and is available without charge.