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Cohort Default Rates Improve Slightly

October 2, 2014

Newly released data from the Department of Education show the three-year default rate for higher education institutions improved slightly to 13.7 percent in FY11 from the prior year's 14.7 percent. The FY11 rate is an approximate return to the default rate in FY09 of 13.4 percent.

Data by institution type show private, nonprofit institutions had an average of 7.2 percent of students default in the FY11 three-year cohort, while public institutions had default rates near 13 percent. The for-profit sector had the highest default rates at 19.1 percent.
This is the first year that institutions are subject to penalties for high default rates. Sanctions are imposed on schools that have had three consecutive years of three-year cohort default rates of 30 percent or higher. These schools are at risk of losing their eligibility to participate in certain Title IV programs.

The federal calculation of cohort default rates was enacted in the Higher Education Opportunity Act of 2008. The three-year cohort default rate is calculated as the percentage of borrowers in the cohort who defaulted before the end of the second fiscal year following the fiscal year in which the borrowers entered repayment. The federal fiscal year begins on October 1 of the calendar year and ends on September 30 of the next calendar year and is identified by the calendar year when the fiscal year ends.

While much attention has been paid to a minority of institutions classified as having a default rate of 30 percent or more and are at risk of losing the option of offering federal student loans on their campuses, these institutions mostly represent for-profit colleges and non-degree granting programs. Receiving less of the spotlight, the Department of Education has also identified 912 institutions that have a cohort default rate of less than 5 percent. Because of their low default rate, these schools may be exempt from certain loan disbursement requirements. NACUBO's original analysis of the cohort default rate data shows the distribution of institutions according to their cohort default rate ranges. A large majority of schools had less than a 20 percent default rate for FY11. In fact, 24 percent of Title IV institutions had no default rate calculation due to a small student population, less than 30 students, entering repayment. The distribution shows that 15 percent of institutions had a default rate between 0 and 4.9 percent; 18 percent of institutions had a default rate between 5 and 9.9 percent; and only 3 percent of all institutions had a default rate of 30 percent or more. For a subset of these institutions, this will mark their third consecutive year with a cohort default rate above 30 percent and will be subject to sanctions.


Natalie Pullaro Davis
Manager, Research and Policy Analysis