It happens frequently. There is a tendency to stay in a steady-state mode of operation, based upon acting and reacting in accord with decisions and actions that require little effort. In fact, for many, it would seem that they are pretty well programmed to make decisions by default. Whether it is due to the mental energy and effort required to make a decision that leads to in a “non-decision” or, whether it is a propensity to procrastinate, it is not uncommon to find people living in “default decision” mode. But, is that a good way in which to direct our lives, or our offices and work?
Perhaps the problem arises from the fact that we have not designed a “good default.” As one writer puts it, “[d]esigning a good default ensures that even if we do nothing, we would still do the right thing by sticking to the preset standard.[1]” And, another states that “by having default answers prepared for common questions, I can fast-track a good answer, saving myself some mental energy in the process and improving my decision making overall.[2]”
Regardless the tendency or reason for default decisions, there are some topics in which it is best to not have decisions based upon “default.” In this instance, we are talking about the decisions (and/or sanctions) that are imposed upon institutions with high Federal Direct Loan cohort default rates (CDR). And, how do those CDRs get to a high level? In some cases, it is due to borrowers who, again, have gone with a “default decision” to go the easy route of saying, “I’ll make my student loan payment next month.” (Likely, that sounds easier to them when pressed on many sides with other obligations.) And, the institution with the high CDR has a tendency to go with a “default decision” of just going with the required minimum entrance and exit counseling requirements (because that is the easiest route to take), rather than developing and implementing a strategic default management plan. Many may find discomfort with designing decisions rather than going with the “default decision” of less effort.
But, when it comes to regulatory or legislative requirements, it is a wise move to act with decisions by design rather than by default. And, one case in point is when it comes to the FY 2015 3-Year official cohort default rate (CDR) data.
The U.S. Department of Education (ED) distributed the FY 2015 3-Year official CDR data notification packages on September 24, 2018. The release was highlighted in the U.S. Department of Education’s (ED) Electronic Announcement dated September 25, 2018.[3]
All institutions that are eligible to participate in any of the Title IV programs and have had a borrower in repayment in the current or prior cohort default rate periods will receive a CDR calculation. However, institutions that have never had a borrower yet enter repayment in the applicable loan programs will not receive a CDR calculation package. Such institutions are considered to have a zero CDR.
Institutions enrolled in the Electronic Cohort Default Rate (eCDR) process received the notification packages via the Student Aid Internet Gateway (SAIG). If an institution was not enrolled in eCDR at the time of distribution of the notification packages, it will need to access the data via the NSLDS Professional Access Web site.
Distinguishing the Appropriate Formula
The CDR is calculated for most institutions—those with at least 30 students entering repayment in the cohort period—as the percentage of an institution’s borrowers in the fiscal year (FY) cohort who default before the end of the second fiscal year following the fiscal year in which the borrowers entered repayment. For example, in these most recent CDR calculations, an institution’s FY 2015 3-year CDR will be calculated as the percentage of borrowers who were included in the 2015 cohort (i.e., began repayment in FY 2015, FY 2016, or FY 2017) but then defaulted on or before September 30, 2017. This is the same manner in which future years’ CDRs will also be calculated. (Note: Those institutions that have 29 or less borrowers entering repayment in the cohort period have an “average rate” calculated based upon borrowers entering repayment over a three-year period.)
As a reminder, the federal FY that is used in the CDR calculations runs from October 1 of one calendar year to September 30 of the following calendar year, e.g., FY 2015 began October 1, 2014, and ended on September 30, 2015. Thus the federal FY number, FY 2015, corresponds to the calendar year in which the FY ends. In this example, September 30, 2015, is the end of FY 2015.
Non-average rate formula
The “non-average rate” formula is used for calculating the CDR of an institution with 30 or more borrowers entering repayment during a cohort fiscal year. As a result, ED uses the “non-average rate formula” for calculating the official CDR for most schools. In the non-average rate formula, the numerator is comprised of the number of borrowers in the denominator who defaulted or met the other specified condition during the cohort default period, while the denominator is the number of borrowers who entered repayment in the cohort fiscal year. So, generally speaking, the formula would appear as:
Number of borrowers in the denominator who defaulted (or met the other specified condition[4]) during the cohort default period
Number of borrowers who entered repayment in the cohort fiscal year
Average rate formula
The “average rate formula” is used to calculate the CDR for institutions with 29 or fewer borrowers entering repayment during a cohort fiscal year if the school had a cohort default rate calculated for the two previous cohort fiscal years. It would be portrayed formulaically as:
Number of borrowers in the denominator who defaulted (or met the other specified condition[5]) during the cohort default period
Number of borrowers who entered repayment in the current cohort fiscal year and the two preceding fiscal years
See ED’s Cohort Default Rate Guide (pages 2.1-5 through 2.1-7) for a discussion on the distinctives of each formula.
Does the Data Make a Difference?
An item that is basic to an institution’s continued participation in the Title IV Federal Student Aid programs is the institution’s CDR. It is important to keep in mind that if an institution has an official 3-year CDR of 30% or more, the institution will have to establish a Default Prevention Task Force and implement a default prevention plan. And, if the institution has three years in which their 3-year CDR has been 30% or more, the institution becomes subject to loss of eligibility to participate in Title IV for at least two fiscal years following the fiscal year it is notified of its sanction. This impact can also be the experience if the institution has an FY 2015 3-year CDR of 40% or more in one year’s calculation.[6]
Yet, not only does the CDR carry penalties for a high percentage of borrowers defaulting, but there are also benefits to lower CDRs. For example, institutions with a CDR of less than 15.0% for each of the three most recent years for which data are available have at least two benefits. Such institutions may choose to:
- disburse, in a single installment, loans that are made for one semester, one trimester, one quarter, or a four-month period.
- not delay the first disbursement of a loan for 30 days for first time, first-year undergraduate borrowers.
Directing the Data
While it may be “simple” to accept the data presented, and allow that to be your default decision, an institution may have opportunity to direct the data to a more favorable decision. Although the prime time to analyze CDR data is when the “draft” CDR is released early each calendar year, there may still be opportunity for an institution to provide more specific input to generate a more desirable decision by design at this point, in some situations.
There are several potential actions an institution may consider to aid in potentially affecting the data presented in the official CDR that was distributed. These include requesting an Uncorrected Data Adjustment, submitting a New Data Adjustment, or possibly, an Erroneous Data Appeal, or a Loan Servicing Appeal.
Uncorrected Data Adjustment
ED provides the description of an “uncorrected data adjustment” as being a request submitted to ED “to ensure that a school’s official cohort default rate calculation reflects changes that were correctly agreed to as a result of an incorrect data challenge that the school submitted after the release of the draft cohort default rates.” See page 4.3-2 in the CDR Guide for specific instances that are applicable and guidance on the steps to submit the request.
New Data Adjustment
As described in the CDR Guide, a “new data adjustment” allows an institution to challenge the accuracy of “new data” included in the institution’s most recent official cohort default rate. Instructions pertinent to this type of adjustment request begin on page 4.4-2 of the CDR Guide.
Erroneous Data Appeal
An “erroneous data appeal” may be appropriate if an institution believes that “new data” and/or “disputed data” included in the official cohort default rate calculation resulted in the institution’s official cohort default rate being inaccurate. Page 4.5-2 of the CDR Guide begins the discussion on this topic.
Loan Servicing Appeal
A “loan servicing appeal” may be an option if the official CDR includes defaulted loans that the institution believes were improperly serviced for cohort default rate purposes. More information and details on this type of appeal are provided in the CDR Guide, beginning on page 4.6-2.
(Note: There may be other less common categories of appeals or adjustments that may be useful to an institution. An institution should become aware of these, if necessary, by reviewing the descriptions on page 2.4-5 of the CDR Guide.)
Dates for Review
The start date for requesting adjustments or appealing any information in the recently released CDR package begins Tuesday, October 2, 2018. Depending upon the specific item being appealed or requested for adjustment, the time period for action may range from 15-30 days from October 2, 2018. Institutions should review the EA dated September 25, 2018, along with the official Cohort Default Rate Guide(September 2018 edition) that is available on the Information for Financial Aid Professionals (IFAP) Web site at ifap.ed.gov, for specific time frames applicable to the action they wish to request. The link is accessible through the “iLibrary” tab in the top banner ribbon of the IFAP page, and also via the “Default Prevention” link under “Information Pages” in the right-hand side menu of the IFAP home page.
Decisions by Design (vs. by Default)
Data included in the CDR calculation does impact an institution’s continued participation in Title IV Federal Student Aid programs. Therefore, an institution would do well to include the CDR process in its annual operations calendar. Some points to consider in your operations calendar which may impact your CDRs being more by design (than by default) may include decisions to:
- Schedule in your annual operations calendar a review of your “draft” CDR data when it is released each year (typically in late February),
- Develop a spreadsheet or database (depending upon your institution’s information technology capabilities and resources) from your own records to detail your borrowers’ data. (Note that this may be done before the draft CDR is released each year.)
- Review the Loan Record Detail Report (LRDR) when released with the draft CDR each calendar year, comparing it to your institution’s own data records.
- Ascertain demographic data of your institution’s loan defaulters. For example, determine the borrower’s GPA, whether the borrower was maintaining satisfactory academic progress, completed the exit counseling requirement, what his or her academic program was, and whether the student withdrew or was a “stop out,” as well as the expected family contribution (EFC) of the borrower.
- Compare the derived demographic data with data on the LRDR.
- Determine if your institution needs, or desires, to develop or enhance its default prevention plans, including whether to enlist the assistance of an outside provider of default prevention services, etc.
- Ascertain whether your institution is required, or desires, to implement a Default Prevention Task Force and take appropriate steps accordingly.
The newly released official cohort default rate is an important piece of information with potential for significant consequences or benefits. An institution would be wise to review its Loan Record Detail Report (LRDR) to see if any of the adjustments or appeals detailed earlier merit consideration for its situation. Such steps as listed above may indeed prove beneficial to an institution’s CDR decisions being made by design, rather than accepting the default decision of ED’s publication of unrefined CDR data. This, in turn, may yield more positive results in your institution’s final official CDR.
This article is presented for informational and educational purposes only and should not be considered to be giving legal advice.
[1] “Design Your Default: How To Create The Best Environment For Making Decisions” at ConstantRenewal.com. Accessed on 09/26/2018 at https://constantrenewal.com/design-for-default/.
[2] Walker, Adam J. CEO of Sideways8; July 10, 2018. Accessed on 09/26/2018 at https://adamjwalker.com/2018/07/make-better-decisions-by-having-a-default-answer/.
[3] “FY 2015 Official Cohort Default Rates Distributed September 24, 2018,” Electronic Announcement (September 25, 2018); U.S. Department of Education.
[4] Per the CDR Guide, “other specified condition” occurs when the school’s owner, agent, contractor, employee, or any other affiliated entity or individual makes a payment to prevent a borrower’s default on a loan that entered repayment during the cohort fiscal year, before the end of the cohort default period.” (See page 2.1-2.)
[5] Ibid.
