The percentage of borrowers who defaulted on their student loans in the past three years has dropped
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The percentage of borrowers who defaulted on their student loans in the past three years has dropped across all higher-education sectors, according to data released on Wednesday by the U.S. Education Department. The overall default rate for borrowers who began repayment between October 1, 2010, and September 30, 2011, fell to 13.7 percent from the previous year’s 14.7 percent.
Here’s a snapshot of the rates by sector over time, with the new data in the last of the three columns:
What’s less clear is what exactly accounts for the decline. On Tuesday the department announced that it was “adjusting” the default rates of some colleges that would otherwise have been penalized under new metrics, in force for the first time this year. As the Chronicle reporter Kelly Field explains in an article this morning, “split servicing,” in which a borrower has loans serviced by different financial institutions, was a key factor in the adjustments:
In the Tuesday announcement, the department acknowledged the difficulties that split servicing had caused some borrowers, without providing evidence that such borrowers default at higher rates.
To account for such borrowers, the department removed from its calculations those who had defaulted on a loan but who had one or more loans in repayment, deferment, or forbearance for at least 60 consecutive days, explained Jeff Baker, policy director for the Office of Federal Student Aid.
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.
It’s also unclear whether the split-servicing change, or other factors, affected the reported percentages. The reaction among higher-education observers on Twitter was appropriately confused:
Downward trend in CDRs this year sounds nice, but is it due to IBR, split servicer exception, or actual progress?
— Robert Kelchen (@rkelchen) September 24, 2014
Good news in general on default rates, but the decision to adjust data so only for-profits end up sanctioned... wow.
— Libby Nelson (@libbyanelson) September 24, 2014
@libbyanelson this is why the adjustment is frustrating. I assume it helped some FPs too. But who?
— Ben Miller (@EduBenM) September 24, 2014
For more, see this Chronicle article.
