Understanding 3-Year Cohort Default Rates in Education

1. 3-Year Cohort Default Rates: Here and Beyond Nichelle Alston and Franka Dennis June. 2014 U.S. Department of Education 2014 FSA Learning Symposium

2. What is a 3-Year Cohort Default Rate? For schools having 30 or more borrowers entering repayment in a fiscal year, the school’s cohort default rate is the percentage of a school’s borrowers who enter repayment on certain Federal Family Education Loans (FFELs) and/or William D. Ford Federal Direct Loans (Direct Loans) during that fiscal year and default (or meet the other specified condition) within the cohort default period. For schools with 29 or fewer borrowers entering repayment during a fiscal year, the cohort default rate is an “average rate” based on borrowers entering repayment over a three-year period. 2

3. How are 3-Year Rates Calculated? The 3-Year Numerator is the number of a school's borrowers who enter repayment on certain FFEL Program or Direct Loan Program loans during a particular federal fiscal year (FY), which is from October 1 to September 30, and default prior to the end of the nexttwofiscal years. Non-Average 3-Year Cohort Default Rate The 3-Year Denominator is the number of a school's borrowers who enter repayment on certain FFEL Program or Direct Loan Program loans during a particular federal fiscal year (FY), which is from October 1 to September 30

4. How are 3-Year Rates Calculated? (continued) The 3-Year Average Rate Numerator is the number of borrowers who entered repayment in the cohort fiscal year or either of the two preceding cohort fiscal years and who defaulted or met the other specified condition in the cohort default period for the cohort fiscal year in which they entered repayment. 3-Year Average Cohort Default Rate The 3-Year Average Rate Denominator is the number of borrowers who entered repayment in the cohort fiscal year or either of the two preceding fiscal years.

5. 3-Year Cohort Default Rate BENEFITS 5

6. 3-Year Cohort Default Rate SANCTIONS 6

7. 3-Year Cohort Default Rate –Corrective Actions Effective with the Release if the FY 2011 3-year Cohort Default Rates • First year at 30% or more • Default prevention plan and task force • Submit plan to FSA for review • Second consecutive year at 30% or more • Review/revise default prevention plan • Submit revised plan to FSA • FSA may require additional steps to promote student loan repayment • Third consecutive year at 30% or more • Loss of eligibility: Pell, DL • School has appeal rights

8. Managing 3-Year Cohort Default Rates 8

9. NSLDS Reports for Schools • Monthly, schools should compare the default and repayment status reports available through the National Student Loan Data System (NSLDS) with the school’s data. This provides the school an opportunity to identify and correct errors before the draft or official cohort default rates are released.

10. NSLDS Reports for Schools (continued)

11. CDR Guide CDR Guide CDR Guide Cohort Default Rate Guide The “Cohort Default Rate Guide” is a publication that the U.S. Department of Education designed to assist schools with their 3-Year FFEL Program and Direct Loan Program cohort default rate data. The Guide has been updated and should be used as a reference tool in understanding cohort default rates and processes.

12. Challenges, Adjustments, and Appeals

13. Cohort Default Rate Challenges • Incorrect Data Challenges (IDC) are submitted to Guaranty Agencies(GA) via eCDR Appeals for FFEL loans held by the GA and to the Department’s servicers/not-for-profits for FFEL loans held by ED and for Direct Loans. • Possible incorrect data: • Borrower did not enter repayment during cohort year • Borrower did not default during monitoring period • Other borrowers entered repayment during cohort period

14. Cohort Default Rate Challenges (continued) • Participation Rate Index Challenges (PRI)are submitted to the Department of Education. They are only available if school is potentially subject to loss of eligibility (or provisional certification) based on draft rates • No sanction is applied if, based upon statutory formula, only a small percentage of a school’s students who could receive a Title IV loan actually received one during a defined enrollment period

15. Cohort Default Rate Adjustments • Uncorrected Data Adjustments (UDA) can be done via eCDR Appeals in response to an Incorrect Data Challenge agreed to by data manager but not reflected in the official rate • They are only available for most recent cohort of borrowers, used to calculate most recent official rate. If approved, rate will be adjusted

16. CDR Adjustments (continued) • New Data Adjustment (NDA) is available via eCDR Appeals only for most recent cohort of borrowers, used to calculate most recent official rate • A review of loan record detail reports for draft and official rates show data newly included, excluded, or otherwise changed • The School identifies errors that are confirmed by the data manager. If approved, rate will be adjusted

17. Cohort Default Rate Appeals • Erroneous Data Appeals (ER) are only available if the school is subject to loss of eligibility (or provisional certification) based on official rates • An Erroneous Data Appeal is only available if a school previously challenged the accuracy of data as part of its Incorrect Data Challenge, or if a review of loan record detail reports for draft and official rates show data newly included, excluded, or otherwise changed and the school disputes accuracy of data • Provides school the opportunity to appeal the data manager’s decision on an unsuccessful IDC challenge or new data allegation

18. Cohort Default Rate Appeals (continued) • Loan Servicing Appeals (LS) Schools request loan servicing records from GA for FFEL loans held by the GA and the Department of Education(ED) servicers/not-for-profits for FFEL loans held by ED and for Direct Loans • Schools may appeal their most recent official rate; or any official rate upon which loss of eligibility is based • A successful appeal will result in adjustments to numerator and denominator • Available via eCDR Appeals beginning in Fall 2013

19. When is a defaultedFFELconsidered improperly serviced for cohort default rate purposes? 19

20. When is a defaulted Direct Loan or FFEL PUT to the Department considered improperly serviced for cohort default rate purposes?

21. Cohort Default Rate Appeals (continued) • Economically Disadvantaged Appeals (EDA) areavailable based on loss of eligibility or notice of second successive official rate potentially subjecting school to provisional certification • An Economically Disadvantaged Appeal requires an independent auditor opinion certifying school’s low income rate and completion or placement rates meet regulatory requirements

22. Cohort Default Rate Appeals (continued) • Participation Rate Index Appeals (PRI) areonly available if a school is subject to loss of eligibility or provisional certification based on official rates • There will be no sanction applied if, based upon statutory formula, only a small percentage of a school’s students who could receive a Title IV loan actually received one during a defined enrollment period • See Participation Rate Index Challenge

23. Other Cohort Default Rate Appeals • Average Rate Appeals. If a school is subject to loss of eligibility but two or more of the official rates are average rates, actual rates will be used for those years • Before notice of official rate Department will make an initial determination that school may qualify for an average rate appeal • If school qualifies they will receive notice of that determination at the same time they receive notice of official rate

24. Other Cohort Default Rate Appeals • Thirty-or-Fewer Borrower Appeals. If combined total of all three years of borrowers entering repayment is less than 30, there will be no loss of eligibility • Before notice of official rate Department will make an initial determination that school may qualify for a thirty-or-fewer borrower appeal • If school qualifies they will receive notice of that determination at the same time they receive notice of official rate

25. Submitting Appeals/Adjustments • Use eCDR Appeals at ecdrappeals.ed.gov) to submit IDC, UDA, LSA, and NDA • At this time, all other CDR appeals will continue to be submitted via hard copy

26. Contact Information Phone: 202-377-4259 E-mail: FSA.Schools.Default.Management@ed.gov Website: ifap.ed.gov/DefaultManagement/ DefaultManagement.html E-Appeals: https://ecdrappeals.ed.gov/ecdra/ index.html Operations Performance Division 2023774259

27. QUESTIONS?