Nichelle Alston Jones and Donna Bellflower | Nov. 2012U.S. Department of Education

2012 Fall Conference

3-Year Cohort Default Rates: Here and Beyond

Session 20

Background

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For schools having 30 or more borrowers entering repayment in a fiscal year, the school’s cohort default rate is the percentage of a school’s borrowers who enter repayment on certain Federal Family Education Loans (FFELs) and/or William D. Ford Federal Direct Loans (Direct Loans) during that fiscal year and default (or meet the other specified condition) within the cohort default period. For schools with 29 or fewer borrowers entering repayment during a fiscal year, the cohort default rate is an “average rate” based on borrowers entering repayment over a three-year period.

What is a 3-Year Cohort Default Rate?

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Two-year cohort default rates are being phased out. For these rates, which the Department will continue computing for each fiscal year in which borrowers enter repayment up to and including, but not after, fiscal year 2011, the phrase “cohort default period” refers to the two-year period that begins on October 1 of the fiscal year when the borrower enters repayment and ends on September 30 of the following fiscal year. This is the period during which a borrower’s default affects the school’s two-year cohort default rate. The Department will publish the final two-year cohort default rates, for FY 2011, in September, 2013.

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What happens to 2-Year Cohort Default Rates?

CDR Denominator:Enter Repayment

Numerator:Default

Publish Rates Cohorts used for Sanctions

FY 2009(3-Year)

10/1/08-9/30/09 10/1/08-9/30/11 September 2012 No Sanction

FY 2010(2-Year)

10/1/09-9/30/10 10/1/09-9/30/11 September 2012 FY 08, FY 09, FY 10

FY 2010(3-Year)

10/1/09-9/30/10 10/1/09-9/30/12 September 2013 No Sanction

FY 2011(2-Year)

10/1/10-9/30/11 10/1/10-9/30/12 September 2013 FY 09, FY 10, FY 11

FY 2011(3-Year)

10/1/10-9/30/11 10/1/10-9/30/13 September 2014 FY 09, FY 10, FY 11

First cohort year where schools will be subject to sanction based on 3-Year Cohort Default Rates

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How are 3-Year Rates Calculated?

The 3-Year Numerator is the number of a school's borrowers who enter repayment on certain FFEL Program or Direct Loan Program loans during a particular federal fiscal year (FY), which is from October 1 to September 30, and default prior to the end of the next two fiscal years.

The 3-Year Denominator is the number of a school's borrowers who enter repayment on certain FFEL Program or Direct Loan Program loans during a particular federal fiscal year (FY), which is from October 1 to September 30

Non-Average 3-Year

Cohort Default Rate

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The 3-Year Average Rate Numerator is the number of borrowers who entered repayment in the cohort fiscal year or either of the two preceding cohort fiscal years and who defaulted or met the other specified condition in the cohort default period for the cohort fiscal year in which they entered repayment.

The 3-Year Average Rate Denominator is the number of borrowers who entered repayment in the cohort fiscal year or either of the two preceding fiscal years.

3-Year Average Cohort

Default Rate

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Sanctions and Benefits

Old Benefit Threshold New Benefit Threshold as of 10/1/110%

2%

4%

6%

8%

10%

12%

14%

16%

Old

New

CDR Benefit Threshold Changes

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3-Year Cohort Default Rate BenefitsEligible School Benefits

A school whose most recent official cohort default rate is less than 5.0 percent and is an eligible home institution that is originating loans to cover the cost of attendance in a study abroad program.

-May disburse loan proceeds in a single installment to a student studying abroad regardless of the length of the student’s loan period.-May choose not to delay the disbursement of the first installment of loan proceeds for first-year, first-time borrowers studying abroad.

A school with a cohort default rate of less than 15.0 percent for each of the three most recent fiscal years for which data are available, including eligible home institutions and foreign institutions.

-May disburse, in a single installment, loans that are made for one semester, one trimester, one quarter, or a four-month period. -May choose not to delay the first disbursement of a loan for 30 days for first-time, first-year undergraduate borrowers.

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CDR Sanction Threshold Changes

Old Sanction Threshold New Sanction Threshold as of 10/1/11

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Old

New

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3-Year Cohort Default Rate SanctionsSchool SanctionsA school‘s three most recent official cohort default rates are 25.0 percent or greater for the two year calculation, or 30.0 percent or greater for the three year calculation.

Except in the event of a successful adjustment or appeal, such a school will lose Direct Loan and Federal Pell Grant program eligibility for the remainder of the fiscal year in which the school is notified of its sanction and for the following two fiscal years.

A school‘s current official cohort default rate is greater than 40.0 percent or greater, for both the two year and three year CDR calculation.

Except in the event of a successful adjustment or appeal, such a school will lose Direct Loan program eligibility for the remainder of the fiscal year in which the school is notified of its sanction and for the following two fiscal years.

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Managing 3-Year Cohort Default Rates

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• Monthly, schools should compare the default and repayment status reports available through the National Student Loan Data System (NSLDS) with the school’s data. This provides the school an opportunity to identify and correct errors before the draft or official cohort default rates are released

DRC016 DER001 SCHDF2 SCHPR2 DELQ01

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NSLDS Reports

for Schools

Report Description

DRC016 This report provides the current repayment status of certain borrowers in the FFEL and Direct Loan programs who attended a school during a specific period

DER001 The Date Entered Repayment Report (DER001) is a list of student borrowers who are scheduled to go into repayment during a specified date range, with their loan histories

SCHDF2 The Borrower Default Summary Report (SCHDF2) provides a list of loans that currently have a defaulted loan status (DB, DL, DO, DT, DU, DW, DF, or DZ) and a loan status date that falls within the requested date range

SCHPR2 The School Portfolio Report (SCHPR2) provides school users with information about all Direct Loan and/or FFEL program loans for a specified school

DELQ01 The Delinquent Borrower Report (DELQ01) provides school users a report of borrowers who have been reported as delinquent in making loan payments to one of the federal loan servicers

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CDR Guide CDR Guide

CDR Guide

The “Cohort Default Rate Guide” (Guide) is a publication that the U.S. Department of Education designed to assist schools with their 2-Year and 3-Year FFEL Program and Direct Loan Program cohort default rate data. The Guide has been updated and should be used as a reference tool in understanding cohort default rates and processes.

Cohort Default Rate Guide

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To learn how the Department calculates a school’s cohort default rate 2.1

To find out how cohort default rates affect your school’s eligibility 2.4

To find out the effects of a change in the school’s status and evasion 2.5

Obtaining, Reviewing, & Submitting Data

To request cohort default rate files or Loan Record Detail Reports 2.2

To see contents and layout of the Loan Record Detail Report 2.3

[Schools] To find out how to respond to draft and official cohort default rates 3.1

Cohort Default Rate Guide Breakdown

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Preparation & Long-Term Strategies

To learn how to prevent defaults by monitoring the loan repayment of your school’s students and former students year-round

3.2

[Data managers] To learn about cohort default rate strategies for data managers 3.3Challenges, Adjustments, & Appeals

To challenge draft cohort default rate data based on • incorrect data • low borrower participation rate

 4.1 4.2

To submit an adjustment to FINAL cohort default rate data based on • uncorrected data • new data

 4.34.4

To submit an appeal to a FINAL cohort default rate based on • erroneous data• loan servicing errors• a high number of economically disadvantaged students• a low participation rate index• average rates• thirty-or-fewer borrowers

 4.54.64.74.84.9

4.10

Cohort Default Rate Guide Breakdown

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Challenges, Adjustments, and Appeals

Challenges, Adjustments, and Appeals

Challenges•Incorrect Data Challenge

(IDC)•Participation Rate Index

Challenge (PRI)

Adjustments•Uncorrected Data

Adjustment (UDA)•New Data Adjustment

(NDA)

Appeals•Loan Servicing Appeal (LS)•Erroneous Data Appeal

(ER)•Economically

Disadvantaged Appeal (EDA)

•Participation Rate Index Appeal (PRI)

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CDR Challenges Incorrect Data Challenges are submitted to Guaranty Agencies(GA) via eCDR Appeals for FFEL loans held by the GA and to the Department’s servicers/not-for-profits for FFEL loans held by ED and for Direct Loans.

Possible incorrect data:Borrower did not enter repayment during cohort yearBorrower did not default during monitoring periodOther borrowers entered repayment during cohort period

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CDR Challenges (continued) •Participation Rate Index Challenges are submitted to the Department of Education. They are only available if school is potentially subject to loss of eligibility (or provisional certification) based on draft rates

•No sanction is applied if, based upon statutory formula, only a small percentage of a school’s students who could receive a Title IV loan actually received one during a defined enrollment period

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Adjustments

CDR Adjustments

• Uncorrected Data Adjustments can be done via eCDR Appeals in response to an Incorrect Data Challenge agreed to by data manager but not reflected in the official rate

• They are only available for most recent cohort of borrowers, used to calculate most recent official rate. If approved, rate will be adjusted

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CDR Adjustments (continued)

•New Data Adjustment is available via eCDR Appeals only for most recent cohort of borrowers, used to calculate most recent official rate

•A review of loan record detail reports for draft and official rates show data newly included, excluded, or otherwise changed

•The School identifies errors that are confirmed by the data manager. If approved, rate will be adjusted

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Appeals

CDR Appeals•Erroneous Data Appeals are only available if the school is subject to loss of eligibility (or provisional certification) based on official rates

•Concurrently, an Erroneous Data Appeal is also only available if school previously challenged the accuracy of data as part of its Incorrect Data Challenge, or if a review of loan record detail reports for draft and official rates show data newly included, excluded, or otherwise changed and the school disputes accuracy of data

•Provides school the opportunity to appeal the data manager’s decision on an unsuccessful IDC challenge or new data allegation

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CDR Appeals (continued)•Loan Servicing Appeals. Schools request loan servicing records from GA for FFEL loans held by the GA and the Department of Education (ED) servicers/not-for-profits for FFEL loans held by ED and for Direct Loans

•Schools may appeal their most recent official rate; or any official rate upon which loss of eligibility is based

•A successful appeal will result in adjustments to numerator and denominator

•Should be available via eCDR Appeals beginning in Fall 2013

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When is a defaulted FFEL considered improperly serviced for cohort default rate purposes?

A defaulted FFEL is considered improperly serviced for cohort default rate purposes if one or more of the following occur:

The borrower never made a loan payment, and the school can document that the lender was required but failed to send at least one letter (other than the final demand letter) urging the borrower to make payments on the loan.

The borrower never made a loan payment, and the school can document that the lender was required but failed to attempt at least one telephone call to the borrower.

The borrower never made a loan payment, and the school can document that the lender was required but failed to submit a request for pre-claims assistance or default aversion assistance to the guaranty agency.

The borrower never made a loan payment, and the school can document that the lender was required but failed to send a final demand letter to the borrower.

The borrower never made a loan payment, and the school can document that the lender was required but failed to submit a certification (or other documentation) to the guaranty agency to demonstrate that the lender performed skip tracing.

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When is a defaulted Direct Loan or FFEL PUT to the Department considered improperly serviced for

cohort default rate purposes?

A defaulted Direct Loan is considered improperly serviced for cohort default rate purposes if one or more of the following occur:

The borrower never made a loan payment, and the school can document that the Federal Servicer was required but failed to send at least one letter (other than the final demand letter) urging the borrower to make payments on the loan.

The borrower never made a loan payment, and the school can document that the Federal Servicer was required but failed to attempt at least one telephone call to the borrower.

The borrower never made a loan payment, and the school can document that the Federal Servicer was required but failed to send a final demand letter to the borrower.

The borrower never made a loan payment, and the school can document that the Federal Servicer was required but failed to document that skip tracing was performed if the Federal Servicer determined it did not have the borrower’s current address.

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CDR Appeals (continued)

•Economically Disadvantaged Appeals are available based on loss of eligibility or notice of second successive official rate potentially subjecting school to provisional certification

•An Economically Disadvantaged Appeal requires an independent auditor opinion certifying school’s low income rate and completion or placement rates meet regulatory requirements

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CDR Appeals (continued)

• Participation Rate Index Appeals are only available if a school is subject to loss of eligibility or provisional certification based on official rates

•There will be no sanction applied if, based upon statutory formula, only a small percentage of a school’s students who could receive a Title IV loan actually received one during a defined enrollment period

•See Participation Rate Index Challenge

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Other CDR AppealsOther CDR Appeals•Average Rate Appeals. If a school is subject to loss of eligibility but two or more of the official rates are average rates, actual rates will be used for those years

•Before notice of official rate Department will make an initial determination that school may qualify for an average rate appeal

•If school qualifies they will receive notice of that determination at the same time they receive notice of official rate

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Other CDR Appeals•Thirty-or-Fewer Borrower Appeals. If combined total of all three years of borrowers entering repayment is less than 30, there will be no loss of eligibility

•Before notice of official rate Department will make an initial determination that school may qualify for a thirty-or-fewer borrower appeal

•If school qualifies they will receive notice of that determination at the same time they receive notice of official rate

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Submitting Appeals/Adjustments•Starting in 2012 schools may submit challenges/appeals/adjustments for both the 2-year CDR and the 3-year CDR

•Use eCDR Appeals (at ecdrappeals.ed.gov) to submit IDC, UDA, and NDA (LS beginning in Fall 2013)

•At this time, all other CDR appeals will continue to be submitted via hard copy

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Operations

Perform

ance

Divisio

n20

23774259

Phone: 202-377-4259E-mail: FSA.Schools.Default.Management@ed.govWebsite: ifap.ed.gov/DefaultManagement/DefaultManagement.htmlE-Appeals: https://ecdrappeals.ed.gov/ecdra/index.html

Contact Information

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QUESTIONS?

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