NAICU Washington Update

Cohort Default Rate Rises Slightly

The overall cohort default rate (CDR) - the government measure of the rate at which college students default on their federal student loans - has crept up about half a point. For FY 2006, the most recent year available, the rate was 5.2 percent, against a 4.6 percent rate for FY 2005. The increase was partially attributed to the impact of Hurricanes Katrina and Rita on the Gulf states. The record low of 4.5 percent occurred in 2003, while the record high of 22.4 percent was in 1989.

The overall private college sector rate for FY 2006 is 2.5 percent, again the lowest for any sector. This is up 0.1 percent from the FY 2005 rate of 2.4 percent, but down from the FY 2004 rate of 2.8 percent. The CDR for the for-profit sector is 9.7 percent, up from its FY 2005 rate of 8.2 percent. For state information and a historical graph of the CDR, go to the Department of Education Web site.

The recently-passed Higher Education Opportunity Act changes the formula for calculating the CDR. Beginning with the rate for FY 2009, the CDR will include three years of data, instead of two in the past, in order to get a more accurate view of defaults. The thresholds for high default rate penalties and low default rate benefits have been adjusted accordingly. In addition, rates will be published annually over the life of the loan. When the change is in place, all colleges can expect their default rates to go up.

MORE News from NAICU