On Wednesday, the U.S. Department of Education released its annual data set on student loan default rates.
The percentage of borrowers who defaulted on their student loans in the past three years dropped across all higher education sectors. According to the data, 13.7 percent of borrowers who began repayment between October 1, 2010, and September 30, 2011 defaulted on their federal loans – a drop from the previous year's 14.7 percent.
Ahead of the publication of this year's data, the Education Department announced late Tuesday that it was "adjusting" the default rates of some colleges that would otherwise have been penalized under new metrics, reported The Chronicle of Higher Education. This year, institutions will be judged on a three-year default rate. Lawmakers changed the standard in 2008, but this is the first year that colleges face penalties for the three-year, as opposed to two-year, rates. Using the new calculations, the agency intends to bar federal aid to colleges with default rates of 30 percent or more for three consecutive years, or 40 percent in a single year.
Tuesday's announcement signaled that the Education Department would simply leave out some defaulted loans when calculating the default rate of the colleges facing a loss of federal student aid.
In justifying the default rate calculation changes, which are unusual, the department's announcement cited the fact that some borrowers have different slices of their federal student loan debt managed by different loan servicing companies, a problem known as "split servicing." The problem arose several years ago when the Education Department began buying some, but not all, loans issued through the now-defunct federal bank-based lending program, Inside Higher Ed reported.
As a result, the list of 21 institutions facing sanctions comprised mainly cosmetology schools. All but one of the institutions are for-profit. The department has not revealed how many colleges would have been subject to penalties if it had not adjusted their rates.
Student and consumer advocates accused the department of letting underperforming colleges off the hook and of undermining lawmakers' efforts to hold those institutions accountable, the Chronicle reported. They questioned the department's decision to offer relief to colleges, but not to the borrowers whose loans are in default.
Related Links
U.S. Education Department's Three-year Official Cohort Default Rates for Schools
http://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html
The Chronicle of Higher Education
http://chronicle.com/blogs/ticker/student-loan-defaults-decline-in-latest-data-education-dept-says/86699
Inside Higher Ed
https://www.insidehighered.com/news/2014/09/24/education-dept-tweaks-default-rate-calculation-help-colleges-avoid-penalties