Cohort Default Rate (CDR): An FAA’s Challenge of Discovery

1. Cohort Default Rate (CDR):  An FAA’s Challenge of Discovery • Panel Discussion • Moderated by Bill Spiers – Financial Aid Director, Tallahassee Community College

2. Panel Members

3. Outline • Default management – why does it matter? • Cohort default rate (CDR) – what is it? • Panel discussion • Best practices and strategies to keep CDRs low

4. Default Management – Why does it matter?

5. Managing default is more important than ever Tough economy and job market Rising enrollment and borrowing Split loans (multiple servicers) Transition to a 3-year cohort default rate

6. Default management – Why does it matter? Higher education is an investment worth protecting Cohort default rates help enforce accountability

7. Default management – Why does it matter? • Schools • May result in provisional certification or loss of Title IV eligibility • Risk of negative publicity • Additional time and resources to manage and reverse high rates • Borrowers • Damaged credit • Wage garnishment, collections costs, treasury offset, etc.

8. Cohort default rate – What is it?

9. What is a Cohort Default Rate (CDR)? • A “cohort” is a group of Stafford loan borrowers who enter repayment within a given federal fiscal year (FY) • The CDR is the percentage of those students ina school’s cohort who default 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

10. 2-year and 3-year CDR illustration Stafford borrowers who entered repayment and defaulted between 10/1/08 and 9/30/10 FY 2009 2-year CDR = Stafford borrowers who entered repayment between 10/1/08 and 9/30/09 Stafford borrowers who enter repayment and default between 10/1/08 and 9/30/11 FY 2009 3-year CDR = Stafford borrowers who entered repayment between 10/1/08 and 9/30/09

11. 2-year CDR trends Source data: http://www2.ed.gov/offices/OSFAP/defaultmanagement/defaultrates.html

12. Comparing the 3-year CDR Source data: http://www2.ed.gov/offices/OSFAP/defaultmanagement/defaultrates.html

13. Benefits for low CDRs • Three most recent 2-year CDRs < 10% • Loans released in one disbursement • No 30-day delayed disbursement for first-year, first-time borrowers • Three most recent 2- or 3-year CDRs < 15%(Effective for loans first disbursed after October 1, 2011)

14. Sanctions for high CDRs – Provisional certification Two3-year CDRs ≥ 30% inlast three years Effective with third 3-year rate (September 2014) Trigger event – A single 2-year CDR ≥ 25%

15. Sanctions for high CDRs – Loss of eligibility • FDLP loans and Pell Grants: • 2-year CDR 25% or greater for 3 years • 3-year CDR 30% or greater for 3 years Effective with third 3-year rate (September 2014) 1 year FDLP loans only : 2- or 3-year CDR greater than40% for a single year

16. High CDRs – New requirements When 3-year CDRs are ≥30%, but less than 40%: • First year • Establish default prevention task force • Prepare default prevention plan • Second year • Review and revise plan • Third year • Lose eligibility (Pell grants and Direct loans)

17. Two-Year and Three-Year CDRs

18. Panel Discussion

19. Questions?

20. Contact Information