Potential Changes to Cohort Default Rate Formula
The Department of Education (ED) defines the cohort default rate as the percentage of a school's borrowers who enter repayment on Federal Stafford, Federal SLS, and Direct Stafford/Ford loans during a particular federal fiscal year and default or meet other specified conditions prior to the end of the next fiscal year. A proposed amendment to the House version of the Higher Education Act reauthorization would change the formula for calculating the cohort default rate.
The amendment, offered by Rep. Timothy Bishop (D-N.Y.) and Rep. Raul Grijalva (D-Ariz.), proposes to extend the length of the cohort default rate calculation from the current two-year period to a three-year period. Insiders expect the measure to be presented for full House consideration next week.
If passed, this legislation could cause significant changes and possible hardship for schools, especially schools that struggle to maintain low cohort default rates. According to Inside Higher Ed, “Based on previous studies and reports, lobbyists and others estimated that adding a third year to the time period in which defaults were tracked could increase default rates by an average of 60 percent, putting more institutions at risk of penalty by the Education Department.” The forecasted increase for proprietary schools is significantly higher; ED’s three-year projection showed a 94 percent increase in the default rate of for-profit institutions.
Schools with a cohort default rate of 25 percent for three consecutive years or 40 percent for any one year may lose access to all Title IV funds. The Career College Association has strongly encouraged members to contact legislators immediately, noting that many schools could be in danger of losing Title IV eligibility. Although OGSLP does not anticipate loss of Title IV eligibility for Oklahoma schools, internal analysis confirms that many schools would experience significant rate increases if the change in calculation methodology is enacted.
Schools with a cohort default rate of less than 10 percent for each of the three most recent fiscal years may deliver or disburse, in a single installment, loans that are made for one semester or other prescribed academic period. Schools in this low cohort rate category may also choose not to delay the first disbursement of a loan for 30 days for first-time, first-year undergraduate borrowers. OGSLP’s internal analysis indicates that the proposed amendment may result in rate increases that could cause a number of Oklahoma schools with current cohort default rates of less than 10 percent to exceed the 10 percent threshold.
2007-08 Negotiated Rulemaking Begins
The January 8, 2008 Federal Register announced the establishment of two negotiated rulemaking committees to develop proposed regulations related to Federal student aid programs. The first committee will focus on proposed regulations for the Teacher Education Assistance for College and Higher Education (TEACH) Grant program. The second committee will focus on proposed regulations for other Federal student aid programs authorized by Title IV of the Higher Education Act (HEA). The first round of sessions has ended for both committees.
ED announced plans to develop two separate regulations packages. The first package deals with changes enacted by the College Cost Reduction and Access Act (CCRAA), and the second package will address issues of federal preemption of state laws relating to improper inducements and arrangements between schools and lenders. On January 30, ED released draft regulations for the student loan negotiated rulemaking committee to discuss at next week's meeting. Click here for a listing of agenda topics, session dates, and committee members and for news about the sessions.
OGSLP will keep you advised. We encourage you to visit our Legislation Page often to view important updates and access detailed information about legislative activity. If you have questions, please contact Policy, Compliance, and Training at (405) 234-4432 or firstname.lastname@example.org.