Default Rates Continue To Rise For Student Loans

The U.S. Department of Education has released fiscal year 2011 two-year and fiscal year 2010 three-year federal student loan cohort default rates (CDR) — and the results aren’t pretty.

The national two-year cohort default rate rose from 9.1% for 2010 to 10% for 2011, and the three-year cohort default rate rose from 13.4% for 2009 to 14.7% for 2010, the department said in a statement.

The department has replaced its CDR calculations from two-year to three-year calculations as required by the Higher Education Opportunity Act of 2008. Congress included this provision in the law because more borrowers default after the two-year monitoring period. The three-year CDR better reflects the percentage of borrowers who ultimately default on their federal student loans.

The fiscal year 2010 three-year cohort default rate is the second that the department has issued, following the release of last year’s fiscal year 2009 three-year cohort default rate. Under the law, only three-year rates will be calculated starting next year.

The department plans to expand its outreach efforts to struggling borrowers to ensure that students are aware of the flexible income-driven loan repayment options available through Federal Student Aid (FSA).

According to department, for-profit institutions continue to have the highest average two- and three-year cohort default rates at 13.6% and 21.8%, respectively. Public institutions followed at 9.6% for the two-year rate and 13% for the three-year rate.

Private non-profit institutions had the lowest rates at 5.2% for the two-year rate and 8.2% for the three-year rate.

The three-year CDR increased over last year’s measure for both the public and private non-profit sectors, rising from 11% to 13% for public institutions, and from 7.5% to 8.2% for private non-profit institutions. CDRs decreased for for-profit institutions, slipping from 22.7% to 21.8%.

The three-year rates were calculated based on the cohort of borrowers whose loans entered repayment during 2010 and who defaulted before Sept. 30, 2012. More than 4 million borrowers from over 5,900 postsecondary institutions entered repayment during this window of time, and about 600,000 of them defaulted for an average of 14.7%.

“The growing number of students who have defaulted on their federal student loans is troubling,” U.S. Secretary of Education Arne Duncan said. “The Department will continue to work with institutions and borrowers to ensure that student debt is affordable. We remain committed to building a shared partnership with states, local governments, institutions, and students—as well as the business, labor, and philanthropic leaders—to improve college affordability for millions of students and families.”