Colleges & Universities

COHORT DEFAULT RATES

Colleges & UNIVERSITIES, whose cohort rate is at a dangerous level, Section 435(l) of the Higher Education Act of 1965 defines a federal education loan that is paid in monthly installments to be in default if the loan is more than 270 days delinquent. (For loans that are paid in less frequent installments, the threshold is 330 days.) The regulations at 34 CFR 682.200(b) reflect the statute.

Sanctions for a High Cohort Default Rate

Colleges & Universities with high cohort default rates can lose eligibility for federal student aid programs as follows:

• Section 435(a)(2) of the Higher Education Act of 1965 suspends eligibility for FFELP loans for the remainder of the current fiscal year and the two following years for any college with a cohort default rate of greater than or equal to 25% for three years in a row. This suspension is appealable. The threshold was previously 30% in FY1993 and 35% in FY1991 and FY1992.
• Section 401(j) of the Higher Education Act of 1965 specifies that a college is no longer considered an eligible institution based on high cohort default rates for FFELP and DL loans. A college that is no longer considered an eligible institution loses eligibility for federal student aid.

The regulations at 34 CFR 668 subpart M clarify the loss of eligibility as follows:

• 34 CFR 668.187(a)(1) lose eligibility for FFEL and DL loans if the cohort default rate is > 40% in a single year
• 34 CFR 668.187(a)(2) lose eligibility for FFEL and DL loans and Pell Grants if the cohort default rate is >= 25% for each of the three most recent years
• 34 CFR 668.187(b) the loss of eligibility is for the remainder of the current fiscal year and next two fiscal years if not successfully appealed

This is one of the reasons why some community colleges have opted out of the student loan system. A community college that has a cohort default rate that is close to the threshold might choose to stop offering federal education loans in order to preserve its student's eligibility for the Pell Grant.

Privileges for a Low Cohort Default Rate

Colleges & Universities with low cohort default rates are entitled to a few privileges:

• Section 428G(a)(3) of the Higher Education Act of 1965 waives the multiple disbursement rule for colleges with a cohort default rate that is less than 10% for three years in a row.
• Section 428G(b)(1) of the Higher Education Act of 1965 waives the 30-day disbursement delay for first-time first-year undergraduate borrowers for colleges with a cohort default rate that is less than 10% for three years in a row.
• Section 435(d)(2)(E) of the Higher Education Act of 1965 requires school as lender schools to have a cohort default rate of less than or equal to 15%. (This was amended by the Higher Education Reconciliation Act of 2005 (PL 109-171) on February 8, 2006. Prior to this amendment, the threshold was 10 %.)