Hugh T. Ferguson
April 11, 2022
The continued extension of the federal payment pause on student loans and interest accrual has been a relief to borrowers, but amid this freeze a simple accountability metric on institutions of higher education may be less useful in the coming years, allowing programs that leave students worse off financially to continue to access federal aid.
Because no federal student loan borrower is required to be making payments, there are no defaults. As a result, the annual cohort default rate (CDR) metric will less accurately reflect the financial well-being of borrowers for the next several years. The cohort default rate measures the percentage of a school’s student loan borrowers who enter repayment and subsequently default within a three-year window that begins after they left school.
The Department of Education (ED) releases the official rate once per year and uses the metric to determine the school’s eligibility to continue to participate fully in the Title IV aid programs. If an institution exceeds a default rate of 40% in a single year or a 30% CDR threshold for three consecutive years the school could then lose eligibility.
“The reason CDRs exist is because the rates are supposed to be one measure of how well borrowers are doing at repaying their loans–at least within the first few years after they’re no longer enrolled in school,” said Susan Shogren CPTD®, NASFAA’s director of certification and credentialing.
The metric is meant to capture some of the worst performing institutions and help ensure that the federal government identifies poor performing schools to protect borrowers from using federal aid to enroll in programs that could adversely impact their financial health.