First Official Three-Year Student Loan Default Rates Published

Press Release

By:  Arne Duncan
Date: Sept. 28, 2012
Location: Unknown

The U.S. Department of Education today released official FY 2010 two-year and official FY 2009 three-year federal student loan cohort default rates. This is the first time the Department has issued an official three-year rate, which was 13.4 percent nationally for the FY 2009 cohort, a slight decrease from the trial three-year rate of 13.8 percent for the FY 2008 cohort. For-profit institutions had the highest average three-year default rates at 22.7 percent, with public institutions following at 11 percent and private non-profit institutions at 7.5 percent.

"We continue to be concerned about default rates and want to ensure that all borrowers have the tools to manage their debt," said U.S. Secretary of Education Arne Duncan. "In addition to helping borrowers, we will also hold schools accountable for ensuring their students are not saddled with unmanageable student loan debt."

The Department is in the process of switching from a two-year cohort default rate to a three-year measurement as required by the Higher Education Opportunity Act of 2008. The national two-year rate rose to 9.1 percent for the FY 2010 cohort, from 8.8 percent in FY 2009.

Congress included this provision in the law because there are more borrowers who default beyond the two-year window, and the three-year rate captures a more accurate picture of how many borrowers ultimately default on their federal student loans. In particular, for-profit colleges demonstrate a large increase in borrowers who defaulted during year three.

To help students access the tools and resources they need to avoid the negative consequences of defaulting on their student loans, the Department has redoubled its efforts to make borrowers aware of their student loan repayment options, including plans like Income-Based Repayment, which allows borrowers to cap their monthly student loan payments at 15 percent of their discretionary income. The Department also recently released an interactive financial aid counseling tool that helps borrowers with their college financing decisions, including information on flexible loan repayment options. For more information on Income-Based Repayment and the online counseling tool, students can visit www.studentaid.gov.

Calculation and breakdown of the rates

The two-year cohort default rates (CDRs) announced today represent a snapshot in time, with the FY 2010 cohort consisting of borrowers whose first loan repayments came due between Oct. 1, 2009, and Sept. 30, 2010, and who defaulted before Sept. 30, 2011. More than 4.1 million borrowers from nearly 6,000 schools entered repayment during this window, and almost 375,000 defaulted for an average of 9.1 percent.

The two-year CDR increased over last year's rates for both the public and private non-profit sectors, rising from 7.2 percent to 8.3 percent for public institutions, and from 4.6 percent to 5.2 percent for private non-profit institutions. CDRs decreased for for-profit institutions from 15.0 percent to 12.9 percent, though the sector still has the highest average two-year rate.

The FY 2009 three-year rates announced today capture the cohort of borrowers whose loans entered repayment between Oct. 1, 2008, and Sept. 30, 2009, and who defaulted before Sept. 30, 2011. More than 3.6 million borrowers from over 5,900 schools entered repayment during this window of time, and approximately 489,000 of them defaulted.

Sector differences also exist when comparing the increase in the CDR from the two-year to the three-year rates for the FY 2009 cohort, with for-profit schools displaying the biggest jump in rates from year two to year three. The Department reported the two-year CDR for the FY 2009 cohort last year. The increases from the two-year to the three-year rates were 7.2 percent to 11 percent for public institutions, 4.6 percent to 7.5 percent for private non-profit institutions, and 15.0 to 22.7 percent at for-profit schools.

Sanctions

Two schools are subject to sanctions for having two-year default rates of 25 percent or more for three consecutive years: Centro de Estudios Multidisciplinarios in San Juan, Puerto Rico, and Tidewater Tech in Norfolk, Va. As a result, these schools face the loss of eligibility in federal student aid programs, unless they bring successful appeals.

No sanctions will be applied to schools based on the three-year rates until three annual rates have been calculated. During this transition period, sanctions will continue to be based on the two-year CDR. However, any school with a three-year CDR of 30 percent or more must establish a default prevention task force and submit a default management plan to the Department. There were 218 schools that had three-year default rates over 30 percent, and 37 schools had three-year default rates in excess of 40 percent.

Borrowers who need assistance in repaying their federal student loans can visit www.studentaid.gov or can contact the holders of their loans to learn about repayment options. For help locating their loan holders, borrowers may access www.nslds.ed.gov or contact the Federal Student Aid Information Center at 1-800-4-FEDAID (1-800-433-3243).

Information on the national student loan default rate, as well as rates for individual schools, states, types of postsecondary institutions, and other sectors of the federal loan industry are available at www.fsadatacenter.ed.gov.