Student Loan Default Rates Drop Again
Cohort default rates have decreased for the third straight year. Nationally, the overall cohort default rates decreased to 11.3% for the FY2013 cohort, from 11.8% for the FY2012 cohort and 13.7% for the FY2011 cohort, after peaking at 14.7% for the FY2010 cohort.
Cohort default rates are a short-term default rate measure. The 3-year cohort default rate is the percentage of federal student loans entering repayment one federal fiscal year that default by the end of the second following federal fiscal year. The federal fiscal year starts on October 1 and ends on September 30. Thus, the cohort default rate for the FY2013 cohort is published in September 2016.
The decrease in cohort default rates may be a sign of the improving economy.
The cohort default rate decreased to 11.3% from 11.7% at public colleges, increased to 7.0% from 6.8% at private non-profit colleges, and decreased to 15.0% from 15.8% at private for-profit colleges. More than half (51.5%) of defaulted borrowers were at public colleges, 13.3% at private non-profit colleges and more than a third (35.2%) at private for-profit colleges. The percentage of defaulted borrowers that were enrolled at private for-profit colleges has decreased significantly from 46.1% in FY2010.
If a college’s cohort default rate is more than 40% in a single year or 30% per year for three consecutive years, the college can lose eligibility for federal student aid.