Cohort Default Rates

1
Prepared by NCHELP Membership Education
Training Committee - March 2001
Cohort Default Rates
This presentation provides a summary of the
regulations. Refer to the regulations and the
preamble of the NPRM and Final Rule for detailed
requirements and a discussion of the regulatory
intent.
2
Part VII Department of Education

• 34 CFR Parts 668 and 682
• Final Rule - November 1, 2000
• NPRM - August 2, 2000

3
Cohort Default Rates Final Rule Summary

• Creates new Subpart M in 668.
• Provides method to calculate rates for schools
  that merge, add branches or locations.
• Revises some rules for schools who want to
  challenge or appeal their rates.

4
Subpart M -- Cohort Default Rates

• 668.181 - 668.198

5
Definition of Cohort Default Rate (CDR)

• A cohort default rate is the percentage of a
  schools student borrowers entering repayment on
  loans in a fiscal year and defaulting (or meeting
  other conditions) in that fiscal year or the next
  fiscal year.

6
Loans Included in a CDR

• FFELP
• Subsidized Stafford Loans
• Unsubsidized Stafford Loans
• Supplemental Loans for Students
• FDLP
• Subsidized Stafford Loans
• Unsubsidized Stafford Loans

7
Definitions
668.182

• Data Manager
• Guaranty agency, or the Department, for FFELP
  loans held by ED
• Days
• Calendar days, not working days

8
Definitions

• We
• The Secretary of Education
• You
• The institution

9
Definitions
668.182

• Entering Repayment
• Stafford -- the day after grace expires
• SLS -- same day as the Stafford OR day after
  student ceases at least half time
• PIF date, if paid before entering repayment under
  above definitions

10
Types of CDR Calculations

• Non-Average
• gt30 borrowers in a fiscal year
• Average
• lt30 borrowers in a fiscal year
• at least 3 years of data
• Unofficial
• lt30 borrowers in a fiscal year
• less than 3 years of data

11
Calculating the Cohort Default Rate
668.183

• Non-Average Rate Calculation
• For gt30 borrowers entering repayment
• (i.e., the cohort) --
• ?
• of borrowers who default
• in that FY or before the end of the next FY
• entering repayment in that FY

12
Example of a Non-Average CDR Calculation

• 28 x 100 23.0
• 122

13
Calculating the Cohort Default Rate
668.183

• Average Rate Calculation
• For lt30 borrowers entering repayment
• in a fiscal year --
• of defaulted borrowers in that
• cohort and in the 2 most recent cohorts
• of borrowers in that cohort and 2 most recent
  prior cohorts

14
Example of an Average CDR Calculation

• FY97 FY98 FY99
• 17 35 7 59
• 68 144 27 239
• x 100 24.7

15
Example of an Unofficial CDR Calculation

• NA 35 7
• NA 144 27 x 100 25.9

16
Determining Rates at Schools That Change Status
668.184

• Acquisition or Merger of Schools
• To determine rates for years prior to the merger,
  use rate of the school with the most borrowers
  entering repayment for last 2 cohort years.
• To determine rates after the merger, include all
  applicable borrowers from both schools.

17
Determining Rates at Schools That Change Status
668.184

• Acquisition of Branches or Locations
• Rates prior to the change, acquiring schools
  rates apply to new branch.
• Next 3 rates after change, use borrowers from
  both schools.
• Both schools the acquiring school and all
  locations of school from which branch or location
  is acquired MORE ?

18
Determining Rates at Schools That Change Status
668.184

• Acquisition of Branches or Locations
• After next 3 rates, acquiring schools rates do
  not include borrowers from other school.
• Rates for the school from which branch or
  location was acquired are never affected by the
  change.

19
Determining Rates at Schools That Change Status
668.184

• Branches or Locations
• Becoming Separate Schools
• Rates prior to change parent schools rates
  apply to new, separate school
• Next 3 rates use borrowers from both schools to
  calculate
• Both schools new school and former parent
  school and locations MORE ?

20
Determining Rates at Schools That Change Status
668.184

• Branches or Locations
• Becoming Separate Schools
• After next 3 rates, do not include borrowers from
  former parent school in calculation.

21
Draft Cohort Default Rates and Challenges
668.185

• Draft rates sent before official rates-- schools
  review accuracy
• Draft rates accompanied by loan record detail
• Uses data from that FY only
• Draft rates are NOT public information

22
Challenges to the Draft Rate

• May challenge draft rate based on
• Incorrect data
• formerly was draft data challenge
• Send to data manager (guaranty agency or ED, for
  FFELP loans held by ED)
• Participation Rate Index (PRI)
• Draft rate gt40 may use PRI

23
Challenges to the Draft Rate

• To challenge the draft rate, follow instructions
  in the Cohort Default Rate Guide
• Format not correct may cause denial
• Critical timelines are spelled out

24
Official Cohort Default Rate
668.186

• Official rates are public information.
• Loan record detail sent to schools with rates
  gt10 OR by request if lt10.

25
Consequences on Ability to Participate
668.187

• Lose eligibility for FFEL and DL when current
  rate is gt40.
• Lose eligibility for FFEL, DL and Pell when 3
  most recent rates gt25.
• May continue in Pell under certain conditions

26
Consequences on Ability to Participate
668.187

• Generally, eligibility loss is effective 30 days
  after notice extends through the next 2 fiscal
  years.
• May request an adjustment or appeal.
• Remain eligible while appeal is pending
• Liable for disbursements if appeal fails
• Tribal, HBCUs exempt if school meets default
  reduction requirements.

27
Preventing Evasion of Consequences
668.188

• Purpose of the section --
• ... To keep institutions from evading the
  consequences of cohort default rates through the
  use of measures such as branching, consolidating,
  changing ownership or similar devices.
• Preamble

28
Preventing Evasion of Consequences
668.188

• Schools loss of eligibility is applied to
• another school if all 3 of the following
• conditions apply
• Both in a change in structure or identity
  (ownership change, merger)
• Eligible school offers program at substantially
  same address as the ineligible school
  MORE ?

29
Preventing Evasion of Consequences

• There is commonality of ownership or management
  between the schools.
• No commonality of management if a teach-out is
  performed under certain circumstances.

30
Preventing Evasion of Consequences
668.188

• If the 3 conditions apply and school
• faces loss of eligibility, that school
• may appeal or request an adjustment
• under the same requirements that
• apply to the ineligible school

31
Preventing Evasion of Consequences

• Schools are encouraged to contact ED
• before undergoing a change in
• structure so that ED may provide
• initial determination of the changes
• effect on eligibility.

32
Appeals and Requests for Adjustments
33
Appeals and Requests for Adjustments

• Challenges are made to draft rates.
• Appeals and adjustments are made to official
  rates.

34
Uncorrected Data Adjustments
668.190

• May request data adjustment for most
• recent cohort rate if challenge of
• draft data was made and accepted by
• data manager.
• Submit to ED lt 30 days of receiving loan record
  detail
• ED recalculates if incorrect data was not changed

35
New Data Adjustments
668.191

• May request data adjustment for most
• recent cohort rate if different data
• appears on official loan record detail
• report that was not on draft report.
• New data
• Changed data
• Omitted data

36
New Data Adjustments

• 668.191
• Request must be submitted to data manager within
  15 days of receiving the loan record detail

37
Erroneous Data Appeals
668.192

• May appeal the rate on which eligibility
• loss is based if --
• Accuracy of the draft rate data was challenged
  and is still disputed
• Inaccurate data appears in official rate that was
  not on draft loan record detail

38
Erroneous Data Appeals

• 668.192
• Must submit appeal to data manager within 15 days
  of receiving notice of eligibility loss
• May use this appeal if notified of EDs intent to
  place school on provisional certification due to
  high cohort rate(s)

39
Loan Servicing Appeals
668.193

• May appeal the most recent cohort
• default rate, or any cohort default rate
• that would cause ineligibility on the
• basis of improper loan servicing.
• No longer limited to schools gt20
• Submit to data manager within 15 days of
  receiving loan record detail

40
Loan Servicing Appeals
668.193

• Improperly serviced The borrower
• made NO payment and the lender failed
• to perform at least one of the below --
• Send at least 1 letter besides FD
• Attempt at least 1 phone call
• Send the final demand letter
• Request preclaim assistance
• Prove skip tracing was performed

41
Loan Servicing Appeals
668.193

• School must request loan servicing records
• Data manager may charge per file
• School forwards appeal and supporting
  documentation to ED
• ED makes determination and recalculates, if
  defaults are due to improper servicing.

42
Economically Disadvantaged Appeals
668.194

• May appeal loss of eligibility if 2/3 of
• students are low income and --
• Completion rate is gt70 (degree school)
• Completion rate is gt44 (non-degree school)
• Independent auditor must certify the above
  conditions

43
Economically Disadvantaged Appeals
668.194

• Low Income designation for purpose
• of this appeal is based on
• Pell eligibility
• Adjusted gross income (AGI)
• If married, include spouses AGI
• Submit appeal lt30 days of notice
• Submit auditor certification lt 60 days

44
Participation Rate Index Appeals
668.195

• May appeal loss of eligibility based on
• Current rate gt40 if PRI lt0.06015
• 3 rates gt25 if PRI lt0.0375
• Submit appeal to ED within 30 days of
• receiving notice of eligibility loss

45
Participation Rate Index Appeals
668.195

• Participation Rate Index
• cohort default rate
• x
• of loan recipients
• ?
• of regular students

46
Average Rates Appeals
668.196

• May appeal a notice of loss of eligibility
• based on current rate gt40 if calcula-
• ed as an average rate. (Fewer than 30
• borrowers entering repayment)

47
Average Rates Appeals
668.196

• May appeal a notice of loss of eligibility
• based on 3 rates of gt25 if
• At least 2 of the rates are calculated as average
  rates, and
• At least 2 of the rates would be less than 25 if
  calculated as non-average rates.
• Submit appeal lt30 days of notice

48
Thirty-or-Fewer Borrowers Appeals
668.197

• May appeal loss of eligibility based on
• current rate gt40 or 3 rates gt25 if
• lt30 borrowers entered repayment in
• 3 most recent cohort years.
• Submit appeal lt30 days of notice

49
Relief from Consequences for Special Institutions
668.198

• Special Institutions include --
• Historically Black Colleges and Universities
  (HBCUs)
• Tribally Controlled Community Colleges
• Navajo Community Colleges

50
Relief from Consequences for Special Institutions

• These schools are exempt from the
• consequences of their high rates until
• July 1, 2002 if they comply with
• default reduction requirements that
• target improved rates lt25.

51
Challenges and Appeals Summary

• Appendix A
• The following may be submitted by any
• school, even if not facing sanctions --
• Incorrect Data Challenge
• Participation Rate Index Challenge
• Uncorrected Data Adjustment
• New Data Adjustment
• Loan Servicing Appeal

52
Challenges and Appeals Summary

• Appendix A
• The following may be submitted only by
• schools subject to loss of eligibility --
• Economically Disadvantaged Appeal
• Participation Rate Index Appeal
• Average Rates Appeal
• Thirty-or-Fewer Borrowers Appeal

53
Challenges and Appeals Summary

• Appendix A
• The following may be submitted only by
• schools subject to loss of eligibility or
• provisional certification --
• Erroneous Data Appeal

54
Remember to consult the Cohort Default Rate
Guide when submitting challenges and appeals.
55
Questions?