Hearing the phrase “our draft cohort default rate is out” can bring out many different emotions to someone working at a college or university.
Whether you work in university governance or down in the trenches of a financial aid office, there’s a lot on the line in higher education once draft CDRs are received. With draft cohort default rates comes the task of reviewing borrower data and submitting challenges and appeals. And with the clock ticking to process any challenges, time is of the essence. But where should your school start?
A little prep work for before and after receiving your draft cohort default rate can go a long way. In this guide, we’ll provide you with the necessary plan to understanding what your draft CDR means, how to properly challenge yours, and some proactive steps to take after receiving draft cohort default rates.
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Every February, the U.S. Department of Education sends draft cohort default rates to institutions for the most recently closed cohort year. Your draft CDR will be the basis for calculating your official cohort default rate, released in September. Institutions will receive notification packages electronically, via eCDR, through the Student Aid Internet Gateway.
All schools must enroll in eCDR or they will not receive official notice of its cohort default rates.
There are three key items each eCDR will contain:
An LRDR contains information on the loans that were used to calculate a school’s official or draft cohort default rate. The LRDR lists a school’s Federal Family Education Loan Program and/or Federal Direct Loan activity, including, but not limited to:
The information on the LRDR includes loan information that schools and data managers have submitted to the National Student Loan Data System.
Compare your school’s records to the information on the LRDR. To simplify this process, some schools create a spreadsheet or database using information from their records or from NSLDS.
Look at things like:
Type of loan: Are the loans listed in the LRDR the kind of loans that affect the CDR, or did a PLUS or Perkins loan sneak its way in?
Loan status: Is the student’s enrollment status reported correctly and with the correct effective date?
Enrollment status, enrollment status date and last date of attendance or date the student was considered less-than-half-time (LTHT): If you have a student who withdraws from all classes and the last date of attendance is March 15, but the Registrar’s Office sends in enrollment data showing that the student ceased attending or dropped below half-time on April 2, that could affect your cohort. Pay close attention to borrowers at LTHT status. Students often float between LTHT and eligible enrollment status or withdrawal status.
Date entered repayment: This, of course, is driven by the last date of attendance. If the last date of attendance is incorrect, this may be wrong, too. And it certainly will affect the cohort year the student will be counted in.
Date of default: Of course, you should check this carefully, too. Just being one day off could make a difference. Think of it this way: You have two students headed for default. One student defaults September 30, and the other defaults October 1. The student who defaulted September 30 will be included in your CDR, while the one who defaulted a day later will not.
Once you’ve reviewed all of the enrollment data, paying particular attention to the last date of attendance and the date of repayment, you may want to filter your LRDR and highlight all borrowers that fall into the cohort. Then, note the ones that have a high probability of falling outside the repayment date window for the cohort.
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To appeal, or not to appeal? That is the question.
Why challenging the draft cohort default rate, an institution is contesting the accuracy of the Stafford loan records in the NSLDS system as reported by the U.S. Department of Education and the guarantors.
While many schools consider whether or not they should challenge and appeal their draft cohort default rate, consider the following three items:
In the past, we hosted a webcast on draft cohort default rates and asked attendees if they had ever appealed their draft rates and, if so, what the outcome was. About half of those who responded had gone through the appeal process in the past, and there were mixed responses as to whether the appeal made a difference.
Once schools get their draft CDR, they have 45 days to submit an Incorrect Data Challenge. This deadline starts five business days after rates were released. You should look for the official announcement on the Information for Financial Aid Professionals (IFAP) website. Should an institution not appeal before the deadline and later finds data to be incorrect, the institution may not appeal the accuracy of the data when the official cohort default rate is released.
Regardless of where your draft rate comes in, it’s a good idea to carefully compare your LRDR with your own borrower data.
Incorrect data challenge:
In order to complete this type of challenge, you have to compare information in the loan record detail report (LRDR) to your institutional system of record. You are looking for:
Participation rate index challenge:
Every school could submit a participation rate index challenge, but that doesn’t mean every school should:
It’s important to conduct a proactive review of your borrower data to notice patterns about who defaults and why. You can then use those insights to take data-driven actions, making your default prevention efforts more effective and efficient.
The importance of using data in default prevention planning is clearly demonstrated in “A Closer Look at the Trillion: Borrowing, Repayment, and Default at Iowa’s Community Colleges” by Colleen Campbell and Dr. Nicholas Hillman. This study, released in September 2015, shows a disconnect between the group’s predictions and what the data actually revealed:
Prediction: Students who default borrowed large amounts.
What the data revealed: Of those who defaulted, 43 percent owed less than $5,000 and 75 percent owed less than $10,000.
Prediction: Defaulted borrowers finished, but couldn’t afford to repay.
What the data revealed: Of those who defaulted, 60 percent earned 15 or fewer credit hours and 69 percent did not complete a credential.
Prediction: Defaulted borrowers simply stopped making payments.
What the data revealed: Of those who defaulted, two-thirds never made a loan payment and most defaults occurred in the first year.
Prediction: Transfer students are at higher risk.
What the data revealed: Non-completers who subsequently used in-school deferment defaulted at a lower rate than other groups.
In a recent webcast, we asked participants what actions they would take if they were seeing similar data in their analyses. Here are some of their answers:
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Here are some ways to stay forward-thinking about student loan repayment success year round:
Use financial literacy programming to be proactive about default prevention
Unfortunately, knowledge gaps are a real problem for student loan repayment. Our counselors routinely hear borrowers confused over how much they owe. Sometimes they are not even aware they have an outstanding student loan balance! In fact, financial stress correlates with a failure to complete, which itself is a major threat to student loan repayment. With many arriving at college without prior help developing financial literacy skills, institutions face both challenges and opportunities to add value to the post-secondary experience.
A “check-the-box” approach falls short of serving students. Financial education should not be limited to the Financial Aid Office. It needs to be integrated into the student experience throughout the educational career. WhichWay, an interactive, student-facing app that is available at the convenience of students, is one way to maintain a persistent resource that develops financial literacy.
Communicate your draft CDR results internally
The release of your draft rates provides you with an excellent opportunity to gather support for your default prevention efforts across campus. Communicate what happened to your rate, why it happened, what you are currently doing to impact the rates and what else may be needed to get the results that lead to your students being successful in repaying their loans. If you are close to sanctions, you want to make sure that the community understands the consequences of a high default rate – for both your institution (potential loss of eligibility to participate) and your students (ruined credit, extra expenses, lack of access to further aid, etc.)
If your rate went down – take the opportunity to highlight your efforts and how they are having a positive impact – it’s okay to brag a little!
Default prevention begins with student retention
Research has shown that students who don’t finish their courses of study are more likely to default on their loans, so retention is an important part of a holistic default prevention strategy. If you have separate default prevention and student retention committees and plans, combine them. Involving other areas in your default prevention efforts will make them stronger.
Consider starting a peer mentoring program.
Create educated consumers with loan counseling and money management education workshops. Peer mentoring programs can have positive impacts on academic performance, improve overall student satisfaction and have a significant effect on students’ decision to stay in a program in cases where they were contemplating discontinuation of studies.
Brainstorm new activities
If you have a default prevention committee, and you probably should, ask the group to brainstorm around “What is the one thing we could do right now to lower our cohort default rate?” If you don’t have a committee, pull together a meeting of people currently connected to your default prevention strategies and engage them in the process. Try to involve people other than just financial aid administrators. You might get some great ideas that you can incorporate and get some champions from outside your office. Also consider involving students and/or alumni in this process.
What gets measured gets managed
Establish goals for cohort default rates and leverage actionable data for your default prevention activities. Evaluate your efforts. Look back over what you’ve done and when, and use the data to determine whether what you’re doing is working. If it is working, keep doing it. If it isn’t, make some changes. Let the data highlight risks and reveal opportunities to match borrowers with the outreach most effective for their individual needs and circumstances.
After receiving your draft cohort default rate, does your institution need help with its default prevention strategy?