Cohort Default Rates 101

1. Cohort Default Rates 101

2. Cohort Default Rate Definition • The Cohort Default Rate (CDR) is a percentage of the number of the borrowers that enter repayment in a fiscal year (FY) and default within the next two fiscal years • Historically the CDR has been calculated on a 2-year cohort period; however, the 2-year calculation is being phased out to be replaced by 3 year calculation beginning with FY 2009, to be published in 2012

3. How CDRs are Calculated The FY 2009 2-year CDR is based on borrowers that entered repayment in FY 2009 (October 1, 2008 – September 30, 2009) and defaulted before the end of FY 2010 (October 1, 2009 – September 30, 2010) number of borrowers that defaulted FY 2009between october 1, 2008 and september 30, 2010 2-year CDR =number of borrowers that entered repayment between october 1, 2008 and september 30, 2008 Beginning with FY 2009 cohort, the Department of Education (ED) will transition from the two year to the three year CDR calculation. Under the three year CDR, a borrower will affect a school’s CDR if he/she enters repayment in a given fiscal year and defaults within the next two fiscal years number of borrowers that defaulted FY 2009 between october 1, 2008 and september 30, 2011 3-year CDR =number of borrowers that entered repayment between october 1, 2008 and september 30, 2009 Below is a CDR calculation using fiscal year (FY) 2009 as an example

4. Benefits of Low CDRs Having several consecutive low CDR’s entitles a school certain benefits A school with a cohort default rate of less than 15 percent for each of the three most recent fiscal years for which data is available, may Disburse, in a single installment, loans that are made for one semester, one trimester, one quarter, or a four-month period and Choose not to delay the first disbursement of a loan for 30 days for first-time, first-year undergraduate borrowers

5. Drawbacks of High CDR’s Consistently high CDRs can result in some significant consequences. Schools with three official, consecutive CDRs of 25 percent or greater, or a single CDR of 40 percent, could lose eligibility for participating in certain Title IV programs including: the Federal Direct Loan Program and Federal Pell Grant Program. Effective 2014, any time two of a school’s three most-recent 3-year rates equal or exceed 30 percent, the school may be placed on provisional certification for Title IV participation. The threshold for triggering a sanction will increase at that time from 25 to 30 percent. The Higher Education Opportunity Act (HEOA) amended the Higher Education Act by establishing some additional consequences that take effect with 3-year CDRs. The first time a school's 3-year CDR is equal to or greater than 30 percent, the school must establish a default prevention task force and prepare a default prevention plan that provides the following: Identify the factors causing the rate to be 30 percent or greater Establish measurable objectives and steps to improve future rates Specify actions that can be taken to improve student loan repayment, including counseling regarding loan repayment options The school's plan must be submitted to ED for review. This could happen as early as 2012, based on the school's official FY 2009 3-year CDR. If the school's CDR remains equal to or greater than 30 percent for two consecutive fiscal years, the school's default prevention task force must review and revise the plan, and submit the revised plan to ED. ED may require the school to make further revisions to the plan and/or take actions to improve student loan repayment success. This could happen as early as 2013, based on the school's FY 2009 and 2010 3-year CDRs.

6. CDR Calculations By CDR Year

7. CDR Publication Process ED provides schools with draft, or unofficial CDRs in February of each year. The draft rate is ED’s initial calculation and is released only to schools. The official rates are released to schools in September of each year and is available to the general public. ED electronically transmits cohort default rate notification packages to all schools using the Student Aid Internet Gateway (SAIG) destination point designated by the school. Each CDR package will include a cover letter, a reader-friendly Loan Record Detail Report (LRDR) and an extract type LRDR. All schools are allowed five business days to report any problems with the electronic transmission of their CDR packages.

8. Challenging Your Draft CDR Any school that receives a draft cohort default rate is provided the opportunity to challenge its most recent draft cohort default rate. Because the draft data forms the basis for a school’s official cohort default rate, it is important that every school reviews its loan record detail report (LRDR) for the draft cohort default rates and, if necessary, submit an incorrect data challenge to the appropriate data manager. Information on how to review the LRDR is found in Chapter 2.3 of ED’s Cohort Default Rate Guide at http://ifap.ed.gov/DefaultManagement/finalcdrg.html Domestic schools have 45 days from the time a draft CDR is received to submit a challenge. For domestic schools the “timeframe begin date” is the sixth business day after the cohort default rates are released as officially announced on the IFAP website.

9. Incorrect Data Challenge In filing an incorrect data challenge, the school may contest a borrower’s repayment start date and/or date of default. The repayment start date is the determined by adding six months plus on day to the date the borrower graduated, withdrew, or dropped to less than half-time enrollment. For CDR purposes, the date of default on a Federal Family Education Loan (FFEL) is the date a default claim is paid to the lender by the guarantor. For FFEL loans held by ED (PUT Loans) or Federal Direct Loans (FDL) the default date is the 361st day delinquency. A school’s incorrect data challenge must be submitted to the appropriate data manger. The guarantor/servicer code on the LRDR identifies the data manger for a particular loan record. If a school identifies inaccuracies on multiple loans involving multiple data managers, the school submits a separate incorrect data challenge to each of those data managers. Each challenge includes only the loans associated with the data manager to which the challenge is submitted. Details on how to construct an Incorrect Data Challenge are provided in Chapter 4.1 of ED’s Cohort Default Rate Guide http://ifap.ed.gov/DefaultManagement/CDRGuideMaster.html

10. How Does a School Submit an Incorrect Data Challenge? All schools must submit their incorrect data challenge via the electronic Cohort Default Rate Appeals (eCDR Appeals) system. The eCDR Appeals system is a web-based application that allows school to submit their incorrect data challenge allegations electronically, allows the data manager to respond electronically, and allows ED to review the data manager response electronically. All schools must complete the registration process in order to use the eCDR Appeals system. Complete instructions for registering for the eCDR Appeals as well as the processes to submit your challenge can be found in the eCDR Appeals Registration and User Account Guide at https://ecdrappeals.ed.gov/ecdra/index.html