This presentation was given at the October 2012 Annual Conference of the Association of Community College Trustees. The presentation discusses ways to monitor and improve an institution of higher education’s student loan cohort default rate.

1. Risk Management
and Student Loan Default

2. Cohort Default Rate
What is a Cohort Default Rate (CDR)?
• A “cohort” is a group of Stafford Loan borrowers who
entered repayment within a given federal fiscal year (FY).
• A Cohort Default Rate (CDR) is the percentage of those
borrowers in a school’s cohort who defaulted within a
specified period of time
− 2-Year CDR: by the end of the next fiscal year
− 3-Year CDR: within the next two fiscal years

3. Changes to the Cohort Default Rate
2-Year Cohort Default Rate Formula FY 2011
10/1/2010 to 9/30/2012

10/1/2010 to 9/30/2011
Loss of eligibility threshold occurs with CDR over 25% for three previous years
10/1/10 9/30/11 9/30/12 9/30/13
New 3-Year Cohort Default Rate Formula FY 2011
10/1/2010 to 9/30/2013

10/1/2010 to 9/30/2011
Loss of eligibility threshold occurs with CDR over 30% for three previous years

4. Cohort Default Rate Date Range
Borrowers Enter Borrowers in Repayment CDR Used
Fiscal Official CDR
Repayment Who Default for School
Year Published
(Denominator) (Numerator) Sanctions
2-Year: 10/1/2008 - 9/30/2010 2-Year: Sept. 2011
2009 10/1/2008 - 9/30/2009 2-Year rate (25%)
3-Year: 10/1/2008 - 9/30/2011 3-Year: Sept. 2012
2-Year: 10/1/2009 - 9/30/2011 2-Year: Sept. 2012
2010 10/1/2009 - 9/30/2010 2-Year rate (25%)
3-Year: 10/1/2009 - 9/30/2012 3-Year: Sept. 2013
2-Year: 10/1/2010 - 9/30/2012 2-Year: Sept. 2013 2-Year rate (25%)
2011 10/1/2010 - 9/30/2011
3-Year: 10/1/2010 - 9/30/2013 3-Year: Sept. 2014 3-Year rate (30%)
2012 10/1/2011 - 9/30/2012 3-Year: 10/1/2011 - 9/30/2014 3-Year: Sept. 2015 3-Year rate (30%)
2013 10/1/2012 - 9/30/2013 3-Year: 10/1/2012 - 9/30/2015 3-Year: Sept. 2016 3-Year rate (30%)
Note: Students entering repayment today will be part of your official 2013 CDR which will not be
released until September 2016.

5. 3-Year CDR - published 2012
School with a single-year CDR of 30% or greater must:
• Establish a default prevention task force
• Develop a default prevention/reduction plan with measurable
objectives for lowering the CDR
• Submit the default reduction plan directly to DOE
School with two consecutive years of CDRs of 30% or greater must;
• Revise the default reduction plan
• Implement additional measures to prevent and reduce defaults
• May be subject to provisional certification

6. Corrective Action and Sanctions
3 consecutive years with official
CDRs of 30% or greater
The US DOE recently
School would lose eligibility to stated that schools
participate in: can expect CDRs to
increase by over 80%
under the new 3-Year
• Pell Grant calculation.
• Federal Direct Loans

7. Corrective Action and Sanctions
1%
1%
2%
3% Public, 4-year
5%
Private, Less-than-2-year
For the 2009
7%
Public, Less-than-2-year
3-Year CDR
41% Private, 2-year
calculation, 218
schools 13%
For-Profit, 4-year
exceeded the Private, 4-year
30% threshold Public, 2-year
For-Profit, 2-year
27% For-Profit, Less-than-2-year
Source : Rachel Fishman, Higher Ed Watch, “Shape Up or Lose Out: The 218 Institutions that Must
Develop Default Prevention Plans”, 2012.

8. Risk Management
Why is it important?
• For schools
− May result in provisional certification or loss of federal aid
eligibility
− Negative publicity for schools
− Additional resources needed to reverse
− No quick fix
• For your former students
− Damaged credit
− No federal/state aid eligibility
− Collection and court costs, wage garnishment, etc.

9. Default Rate History
After Dip, Loan-Default Rates Climb to Highest Rate Since 1997
Source : U.S. Department of Education

10. Public Institution Comparison
Comparison of FY 2010 Official National 2-Year Rates to Prior Three Years
16% School Classification
14% Less than 2 years
12%
2 - 3 years
10%
8% All schools -
national average
6%
4%
2%
0%
2007 2008 2009 2010
Source : U.S. Department of Education

11. Delinquency Rates for Community
Colleges
Timely repayment
24% 24% Deferment/forbearance not delinquent
Delinquent but not defaulted
Default
16%
36%
*Does not include borrowers with consolidation loans.
Source: “Delinquency: The Untold Story of Student Loan Borrowing”, March 2011. Report by the Institute for
Higher Education Policy.

12. Student Loan Risk Management
Why now?
• Economic slump
• Split servicing and PUT loans
• Graduate underemployment
• Transition to 3-Year Cohort Default Rate (CDR)

13. At-Risk Borrowers
Average Loan Repayment Rates
College Type < 10% Pell Grant Recipients > 66% Pell Grant Recipients
Public 4 year 68.4% 12.7%
Public 2 year 43.9% 21.0%
Private 4 year 68.6% 29.0%
Proprietary 53.3% 25.9%
Total 66.3% 26.3%
Source : Mark Kantrowitz, Student Aid Policy Analysis, “The Impact of Loan Repayment Rates on Pell
Grant Recipients”, 2010.

14. The Biggest Risk Factor
Students who do not graduate
– 62% of borrowers who default did not complete their
program of study!
– Risk factors affecting persistence and attainment
• Delayed enrollment
• Part-time enrollment
• Working full-time while enrolled
• Single parent status

15. Other Risk Factors
Parent educational attainment
Default is less likely if at least one
parent has a Bachelor’s degree
Larger household size
Students from larger households may
be at higher risk of default

16. Financial Attitudes & Behaviors Across
the States
Source : EverFi, ButtonwoodTM study, 2011.

17. Challenges to Keeping CDR Low
• Community colleges are open access
• At-risk students are more likely to attend community
colleges
• Retention and graduation rates are critical
• Strained staffing resources
• At one time, default rates were considered a “Financial
Aid” issue by administration
• Borrowers who become delinquent are no longer your
students

18. Action Plan Options
1) Change enrollment policies?
Source : Jennifer Cohen Kabaker, Ed Money Watch, “3-Year Student Loan Cohort Default Rates Reveal Concerning
Graduation Rate Trend”, 2012.

19. Action Plan Options
% Change in FTE
2) Eliminate Community College
Enrollment
student loan School A -2.4%
program School B -5.4%
School C -4.6%
participation? School D -4.8%
School E* -13.3%
School F -7.1%
School G -0.2%
School H -3.5%
School I -5.1%
School J -6.2%
School K* -8.1%
School L -7.6%
School M -4.5%
*Schools who did not offer student loans

20. Action Plan Options
3) Appeal CDR sanctions?
• Grounds for appeals
• Resource waste
• Management time
• Not guaranteed
• Does not help students

21. Action Plan Options
4) Develop default management plan and
devote resources to manage risk?
• Default management task force
• Create plan
• Best practices

22. Tools to Manage Risk
• Financial literacy programs
• Improve retention
• Enhanced institutional control measures

23. Tools to Manage Risk
• Increase financial aid counseling staff
– Calls to former student borrowers/references
– Letters/emails
• Outsource outreach initiatives
– Repayment education and assistance vs. CDR
manipulation
– Re-enrollment counseling/collaboration

24. Contact Information
Dennis Cariello, Chair, Higher Education Sector
DLA Piper LLP
212.335.4816
Dennis.cariello@dlapiper.com
Judith Witherspoon, Senior Vice President
Edfinancial Services
865.342.5200
jwitherspoon@edfinancial.com
Jonathan Looney, Regional Director
Edfinancial Services
706.410.0261
jlooney@edfinancial.com

25. Sources
Inside Higher Education
– http://www.insidehighered.com/news/2011/05/23/student_loan_default_rates_rise_sharply_es
pecially_for_for_profit_colleges
– http://www.insidehighered.com/news/2011/04/14/tidewater_community_college_requiring_st
udents_with_federal_loans_to_complete_personal_budget_and_repayment_plan
Finaid.org
– http://www.finaid.org/educators/20100901gainfulemploymentimpactonpell.pdf
– http://www.finaid.org/educators/20100507demographicdifferences.pdf
New American Foundation
– http://higheredwatch.newamerica.net/blogposts/2012/shape_up_or_ship_out_the_218_institu
tions_that_must_develop_default_prevention_plans-
http://edmoney.newamerica.net/blogposts/2012/3_year_student_loan_cohort_default_rates_r
eveal_concerning_graduation_rate_trend-7220
Additional Sources
– http://www.ihep.org/assets/files/publications/a-f/delinquency-
the_untold_story_final_march_2011.pdf
– http://www.finaid.org/educators/20100901gainfulemploymentimpactonpell.pdf
– EverFi, ButtonwoodTM study, 2011