Department Of Education Releases New Student Loan Default Data

Today, the Department of Education released new data on student loan defaults. The Cohort Default Rate (CDR) is the percentage of borrowers from a school who default after three years. This new data shows that for the cohort of borrowers who entered repayment during fiscal year 2016, the national cohort default rate was 10.1%—down from 10.8% for fiscal year 2015. There were a total of 458,687 defaulters of the more than 4.5 million student loan borrowers who entered repayment in fiscal year 2016. Defaults might be dropping by this metric, but at certain schools defaults are still high. Many students also might be struggling but are not counted under this metric.

Defaults By Sector

While the national CDR sits at 10.1%, that looks very different across sectors of colleges and universities. Private, non-profit colleges and universities have the lowest defaults at 6.6%. Public institutions—which make up the largest share of borrowers—have a CDR just under the national average at 9.6%—down from 10.3% for fiscal year 2015. For-profit institutions had much higher default rates at 15.2%. The default rates at those schools were so high that, even though for-profits accounted for approximately 22% of all borrowers, they accounted for approximately 33% of all defaults.

Defaults By Institutions

The two schools with the highest defaults were Tomorrow’s Image Barber and Beauty Academy in Virginia and Vibe Barber College in Tennessee, both with default rates of 59.5%. There were a total of 13 institutions with default rates higher than 40%. While the University of Phoenix had a default rate of 12.3%, it accounts for the most defaulters with more than 13,700 students in this cohort alone. That’s about 9,000 more students than the second highest of Ashford University which has more than 4,600 defaulters in this cohort. Of course, these are both for-profit schools with massive online enrollments.

Who Is Held Accountable?

The CDR is the one outcomes-based accountability tool the Department has for colleges and universities. Schools can be subject to loss of eligibility for the Direct Loan program and/or the Pell Grant program if their default rates are 30% or greater for three consecutive years, or 40% or greater for one year. Default rates that high show that schools are leaving large swaths of their students unable to repay their debt.

According to the Department of Education, the following schools are subject to sanctions:

·        Bennett Career Institute (Washington, DC)

·        Cosmetology School of Arts and Sciences (Burley, ID)

·        Larry’s Barber College (Chicago, IL)

·        American College of Barbering (Louisville, KY)

·        Transformed Barber & Cosmetology Academy (Kansas City, MO)

·        United Tribes Technical College (Bismarck, ND)

·        Harris School of Business (Cherry Hill, NJ)

·        Sharp Edgez Barber Institute (Rochester, NY)

·        Champ’s Barber School (Lancaster, PA)

·        Denmark Technical College (Denmark, SC)

·        Vibe Barber College (Memphis, TN)

·        PCCenter (Farmers Branch, TX)

·        MT Training Center (Grand Prairie, TX)

·        K&G 5 Star Barber College (Dickinson, TX)

·        First Class Cosmetology School (Beloit, WI)

How CDR Falls Short

While the CDR is the only accountability metric we have, it currently misses the boat on holding schools accountable and protecting students. Because of income-based repayment options, students can have payments as low as $0 because their income is insufficient. That is a great protection for students struggling to repay their debt, but they are counted as being in a positive repayment status under CDR, so schools could have a large share of their students struggling to repay their loans but not be held accountable for it. Schools also use two other protections to game the system—deferment and forbearance. Schools and loan servicers use this loophole to push students into forbearance and deferment because that will remove them outside of the measurement for CDR. A report from the Government Accountability Office found that schools were hiring consultants to encourage students to put their loans in forbearance, even when income-based repayment options were often more beneficial for students because it was easier to put student in forbearance and allowed them to skirt CDR. And other research has shown that once out of the three-year measurement window, default rates at schools are much higher by year five.