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NCHER News & Press: General

High Default Rates Reinforce Need for Additional Services for Students, Borrowers, and Families

Wednesday, September 24, 2014   (0 Comments)
Posted by: Pamela Shepherd
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FOR IMMEDIATE RELEASE
Contact: James Bergeron
(202) 822-2106
jbergeron@ncher.us

WASHINGTON, DC - The U.S. Department of Education today announced that the new 3-year cohort default rate (CDR) for Fiscal Year 2011 was 13.7 percent, a small drop from 14.7 percent the previous year. The rate for loans made and serviced under the Federal Family Education Loan Program (FFELP) was 9.4 percent, down from 10.4 percent the previous year.

“The new default rates should be a wake-up call to policymakers concerned about how to better support today’s college students in their pursuits of higher education. While the default rate decreased – and there are new questions about the Department’s method of calculating this year’s rate – the number of students who continue to default on their student loans is unacceptable,” said James Bergeron, President of the National Council of Higher Education Resources (NCHER). “Since 2010, fewer borrowers are receiving the critical financial literacy and debt management information they need to make informed decisions and become better consumers. It’s clear that past actions by Congress and the Department of Education have added to more student debt, more student defaults, and lost opportunities for struggling borrowers. Congress and the Department of Education must look for ways to ensure students, borrowers, and families are provided with specialized support services to help them understand and make sound financial decisions.”

The Federal government uses an institution’s cohort default rate as its main measurement for financial aid accountability. An institution that has a CDR over 30 percent is required to establish a Default Prevention Task Force and develop a default prevention plan. An institution that has a CDR over 30 percent for three years in a row loses eligibility for Pell Grants and student loans, which more than likely will result in its closure. The Higher Education Opportunity Act, enacted in 2009, increased the timeframe for CDRs for loans made under the Federal Direct Loan and Federal Family Education Loan Programs from a two-year to a three-year snapshot. Under the new provisions, a school’s CDR is calculated as the percentage of borrowers in the cohort who default within three years beginning with the year the borrowers entered repayment.

The high default rates reflect building evidence that a growing number of borrowers are facing the life-altering consequences of default, impacting their ability to finance and own a home or car, to start a family, and to plan for retirement. For decades, NCHER members have counseled students about borrowing and have provided personalized help to those who are having difficulty repaying their student loan debt. Since 2010, many of these important intensive financial literacy, debt management, and default prevention services have been dramatically reduced or eliminated because of changes to the Federal student loan programs. NCHER and its members continue to explore ways to help students better understand their financing and repayment options before, during, and after their college careers. The financial literacy needs of students and families vary widely due to individual circumstances and, in order for assistance to be most effective, cannot be a one-size-fits-all proposition.

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