A guide to the CDR timeline, key impacts of repayment, and tips for preparedness.
Managing Your CDR A guide to the CDR timeline, key impacts of repayment, and tips for preparedness.
Why worry about the CDR now? Cohort Default Rates (CDR) have become a benchmark of reputation and success. Schools with high CDRs risk, among other issues, participation eligibility in U.S. Department of Education Title IV funding. The suspension gave students and schools a break, and maybe even a false sense of security. As you look forward, diligence needs to be taken now to prepare for long-term repayment issues.
All borrowers were brought current effective March 2020, resulting in all borrowers reentering repayment in October 2023 but, the Department of Education also issued a 12-month “on-ramp” to repayment from October 1, 2023 to September 30, 2024 in which borrowers are shielded from the possibility of delinquency and default. This also makes it likely that a larger number of borrowers will become delinquent at the same time whether it’s because they can’t afford it, don’t know how to start repayment or don’t realize they have loans at all. Also, with the economic changes and using natural disaster trending data, there is typically a higher than normal delinquency rate following a disaster. Since many borrowers can default at once, CDRs will change drastically, rather than through the curve in traditional years.
It’s vital for schools to prepare now for the influx of student repayment in order to curb default rates, improve student success and enhance the school’s reputation.
This guide works through the importance of the CDR, how it is calculated, what happens if your CDR is too high for too long, the key impacts to repayment from the CARES Act, and actions you can take now to prepare.
How the CDR Works Federal student loan borrowers typically begin repaying their loans six months after graduating, leaving school, or dropping below half-time enrollment. If borrowers make no payments for any period of 270 days, they will default on their student loans. Default rates for a federal fiscal year encompass the cohort of borrowers who entered repayment during that year. The U.S. Department of Education (ED) annually calculates the percentage of borrowers who default for each college that has participated in the federal student loan program.
tracking the share of federal student loan borrowers who default on their student loans within two years of entering repayment. The Higher Education Opportunity Act of 2008 expanded that window to three years also known as “three-year” CDRs. CDR Calculation The numerator includes the borrowers in the cohort that defaulted during the monitoring period. The fewer students that defaulted during the monitoring period the lower the rate will be. CDRs determine whether an institution’s student borrowers are successful at repaying federal student loans. A cohort is a group of federal Direct and
ED has calculated the Cohort Default Rate or CDR since the late 1980s, when the measure began
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Stafford loan borrowers who enter repayment within a given federal fiscal year. The CDR is the percentage of borrowers in an institution’s cohort who default within the next three years after entering repayment. The denominator is built from those students who enter repayment between October 1 and September 30 but then can default for up to three years after the year the cohort began.
Borrowers in the cohort who default within cohort default three-year period (Numerator) Cohort of federal student loan borrowers who enter repayment during cohort fiscal year (Denominator)
Three-Year Cohort Default Rate Schedule
Repayment
Default
Cohort Rate Release
Default Prevention Deadline*
Cohort Year
Rehabilitation Deadline**
Start Date
End Date
Start Date
End Date
Draft Rate
Final Rate
2018
10/1/2017 9/30/2018 10/1/2017 9/30/2020 12/4/2019
1/1/2020
Feb 2021
Sep 2021
2019
10/1/2018 9/30/2019 10/1/2018 9/30/2021
12/4/2020
1/1/2021
Feb 2022 Sep 2022
2020
10/1/2019 9/30/2020 10/1/2019 9/30/2022
12/4/2021
1/1/2022
Feb 2023 Sep 2023
2021
10/1/2020 9/30/2021
10/1/2020 9/30/2023
12/4/2022
1/1/2023
Feb 2024 Sep 2024
2022
10/1/2021
9/30/2022 10/1/2021 9/30/2024 12/4/2023
1/1/2024
Feb 2025 Sep 2025
2023
10/1/2022 9/30/2023 10/1/2022 9/30/2025
12/4/2024
1/1/2025
Feb 2026 Sep 2026
2024
10/1/2023 9/30/2024 10/1/2023 9/30/2026 12/5/2025
1/1/2026
Feb 2027 Sep 2027
2025
10/1/2024 9/30/2025 10/1/2024 9/30/2027
12/5/2026
1/1/2027
Feb 2028 Sep 2028
*Latest an account can become 60 days delinquent and still default by the end of the cohort year. **Latest date in which a repayment plan can be started and the loan be rehabilitated before the end of the cohort year and be removed from the cohort default rate. This assumes nine payments will be made with no gaps.
Benefits of a Low CDR
Aside from being able to offer Federal financial aid, schools with lower default rates are awarded extra benefits.
Beginning with loans made on or after October 1, 2011, if a school’s official CDR is less than 15% for either the two-year or three-year CDR calculations, for the three most consecutive years, the school may deliver loan funds in a single installment if the loan is made for a single term in a standard term-based program. The same applies to nonstandard, term-based programs when the term is no longer than four months.
Additionally, the school is not required to delay delivery of Stafford loan funds to first-year students who are first-time borrowers if the school’s three most consecutive official CDRs are less than 15%.
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Dangers of a High CDR The Cohort Default Rate is a mandate of the federal Higher Education Act stating if a higher education institution has too many former students defaulting on their federal loans, it can no longer be eligible to receive taxpayer-funded student grants and loans. The longer the rate remains high, the less federal support they will be able to offer their students. School Requirements A school with a single-year CDR of 30% or greater is required to establish a default prevention task force. The task force must develop a default prevention plan that includes measurable objectives designed to lower the school’s CDR. The plan must be submitted to the U.S. Department of Education. Schools with CDRs of 30% or greater for two consecutive years must revise their plans to implement additional measures and could also be subject to provisional certification. Sanctions A school with three consecutive official CDRs of 30% or over (without a successful appeal) will lose eligibility to participate in the Federal Direct Loan program and the Federal Pell Grant program. If the official three-year CDR or any succeeding year’s rate exceeds 40%, without a successful appeal, the school will lose eligibility to participate in the Direct Loan program. The school will, however, retain eligibility to participate within the Federal Pell Grant program. Reminder: If a borrower defaults on their Federal Stafford loans and later consolidates the defaulted loans, the borrower is still included in the cohort fiscal years when the borrower entered repayment on the underlying loans. The borrower is still considered to be in default for the purpose of calculating the school’s cohort default rate. Students No Longer Hid from Debt Blue Ridge Community College needed to lower its higher student loan default rate but its limited staff size prevented them from doing so. The financial aid team knew an outsourced solution would help students pay back debt and relieve their workload. Read more.
Try the Cohort Year Impact Tool This tool displays the amount of time that has expired versus the amount of time still remaining within each cohort year. It’s important to understand the ability to impact your school’s cohort default rate and that it is directly related to the amount of time remaining within each cohort year to work the delinquent accounts.
Scan code with your phone’s camera or click here.
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Key Impacts of CARES Act Expiration The CARES Act was a necessary and positive action to help students and families through this unprecedented time. When student loan repayment suspension ends, it will set up an unusual set of challenges for students and the Financial Aid Office. This article outlines eight overlying potential challenges as they relate to students and financial aid offices. As a reminder, FFEL Loans and private loans held by lenders are not included in these changes. 1. All delinquent borrowers, as of March 2020, were brought current and will be kept current until the suspension expires. Everyone not making payments before the suspension were brought current without having to do anything. Some of these borrowers may have been on the verge of default and may not even know their loans are now current. When the suspension expired, all borrowers entered repayment at roughly the same time. For those that were on the edge of default, it will have been more than three years since they have done anything on their student loans. 2. Some borrowers were in a suspended status such as a deferment or forbearance. These borrowers started that suspension before March 2020, and should have come out of that status before the end of the suspension. Since the servicers are ensuring that no borrower goes beyond 31 days delinquent, these borrowers may forget they had payments coming due. With the provisions of the CARES Act, these borrowers likely weren’t engaged until the suspension expired and still may not be aware. 3. Diligent Repayers Tripped Up by Timing: Many borrowers were enrolled in Income Driven Repayment Plans. If the plan would have been due for renewal between March 2020 and June 2023, the CARES Act allowed servicers to continue to use the plan. The plan was not really being used because everyone has a zero payment amount. However, beginning in July 2023, many borrowers needed to recertify their Income Driven repayment plans. This is at the same time many new borrowers are trying to enroll causing delays due to volume. Due to job changes, there may be others that were able to pay prior to the pause, that are not able to make payments now. They will also need additional assistance. 4. Based on previous experience with natural disasters, it is predicted that when repayment resumes, there will be an influx of delinquent borrowers. These borrowers will be more challenging to resolve because all borrowers who could not, or chose not to, make payments, will reenter repayment at the same time. Restarting all at once will likely result in a large number of borrowers becoming 60 days delinquent at the same time creating a larger number of borrowers requiring repayment guidance at once. 5. Many borrowers are in between their repayment right now, but in the traditional sense, the suspension also impacts students who were in their grace period. Some students that left school or dropped below half-time since March of 2020 have gone through Grace, but they have not had to make payments and prepare a budget as they would have before the pandemic. They don’t have the experience of students who left school and entered repayment before the pandemic. Think about a student who left school in October 2019. They would have been in Grace November through April and entered repayment in May. They have not had to do anything since October of 2019. That will be more than 3 years without action on their part. Students that dropped below half-time after April 2023, didn’t have an extension in their grace period and may be confused as to when they start paying. Without guidance, these students may not even know where to start.
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6. Falling behind on student loan repayments has a lasting impact on students. Default can wreck their credit and make them ineligible to receive additional student aid. Even worse, students can end up with garnished wages or even have their tax refund withheld. Students who are struggling now will have an even tougher hill to climb as their debt compounds with possible collection fees, increasing interest or being sued for the entire amount at once. 7. The suspension may have created a false sense of security. As you look down the road, diligence needs to be taken to prepare for long-term repayment issues. • The 2019 CDR was established on March 20, 2020 when the office of Federal Student Aid began providing the following temporary relief on ED-owned federal student loans: suspension of loan payments, stopped collections on defaulted loans, and a 0% interest rate. All loans were brought current and a school’s 2019 CDR was established. • The 2020, 2021 and 2022 CDR was impacted in March 2020 when the CARES Act went into effect and all borrowers were brought current. When loans resume repayment in October 2023, they cannot default within the cohort year, thus the 2020, 2021, and 2022 CDRs will be zero. • For 2023, the “on-ramp” transition period means no delinquencies will be recorded until October 1, 2024. Only students who have a payment due date between October 1-5, 2024 and never make a payment could default and impact the school’s CDR.
• In 2024, two-thirds of the cohort year remains that will determine the CDR.
• 2025 will be the first cohort year not impacted by the cares since 2018.
While suspending student loans was a relief to many students and schools alike, returning to repayment in a much different atmosphere than when it was suspended serves many challenges in understanding the impact and how to return to successful repayment habits. Taking these challenges into account now and planning for what’s ahead will help you manage the impact to protect your students and your school. Additional Servicer Challenges You might be thinking, what’s the rush? It will be busy, but probably a lot of the same questions. BUT servicers aren’t going to be easy to get ahold of or even find adding another layer of complexity and set of questions that could lead to very negative actions. • P rior to Covid millions of borrowers were with FedLoan Servicing, which also handled the Public Service Loan Forgiveness program. Recently, Fed Loan Servicing completed its withdrawal from the federal student loan servicing system and MOHELA has now taken over the program. This could be a shock to those that have not paid attention and will try to get ahold of Fed Loan servicing when payments restart.
• A lso prior to Covid, millions of borrowers were with Navient who also recently withdrew from the Education Department’s student loan servicing system. Those accounts are now with Aidvantage.
• G reat Lakes Higher Education is currently in the process of transitioning many accounts to Nelnet another major department loan servicer.
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• Central Research, Inc. was recently announced as a new servicer and will have loans transferred to them for future servicing.
There have also been changes to the servicer contracts. For example: the Department is reducing the minimum number of customer service hours Previously, servicers were required to have their contact centers open from 8 a.m. to 11 p.m. EST on Mondays, 8 a.m. to 8 p.m. Tuesdays through Friday, and 10 a.m. to 2 p.m. on Saturdays. Now, they are not required to have its contact centers open on Saturdays, and are allowed to close two hours earlier in the evenings on Mondays, Thursdays and Fridays.
In addition to the changes to customer service hours, the Department’s contract modification with at least one servicer also allows them to have a higher abandon rate — or the share of calls where a customer hangs up before getting help — and stay in compliance with its contract. Previously, this servicer’s acceptable abandonment rate was 4%, now it’s 8%. That’s a 100% increase.
How do I prepare? Stay in touch throughout this process. It will be far easier for student borrowers to work through issues they have before the ramp-up period ends, while they have the opportunity to avoid delinquency, default and collections. If borrowers can make payments now, they should as interest is accruing. If they can’t make payments, this is a great time to renew or enroll for an Income Driven Repayment (IDR) plan. These plans can be changed when income changes significantly. Consider the timing. Knowing where your borrowers are in the borrowing lifecycle is key. Though the CARES Act has many resuming repayment at the same time, also consider where your students are in their Grace Period. Their timing may have been extended or there may be no change at all if they dropped below half time in early April 2023.
Offer student borrowers resources. Help prepare your borrowers for the next step with relevant resources and access to experts. Reminders, checklists, timelines, and even some information on general money management can go a long way to empowering students to take the steps they need for repayment success. See the Exit Counseling & Repayment Toolkit. We are all in this together – patience and empathy will be key. Many times with personal hardship, financial hardship follows so even the simplest of questions might be the first question. An empathetically fresh ear to each borrower’s concerns will help get to the root of the information you need to determine next steps in counseling and recommendations.
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We Can Help Inceptia has student advocate counselors ready to answer student borrower questions through our Knowl website, chat and a simple telephone call. We will be there to help them prepare for the next step, so their student loans are one less concern. Early engagement equals a better outcome and we can help you keep in contact with your student borrowers through our outreach programs that span the student borrower lifecycle. Proactive outreach promotes successful outcomes, extends personal contact, empowers borrowers with the information they need to help them make better financial decisions for their future. Our outreach includes, email, phone and text messages when possible with a complete communication plan at the time it matters most. Return to Repayment Outreach: Proactive outreach to borrowers to remind them of resuming repayments and determining if there are any additional challenges will put them on the right track for successfully fulfilling their repayment obligations without falling behind. Grace Counseling Outreach: Connect with borrowers about the repayment process to launch a successful financial future. Hear a call sample. Repayment Counseling Outreach: Guide your students back to successful repayment and improve your school’s default rate. Hear a call sample. Connect with Us To learn more about how our outreach programs can help keep your students and school on track, visit Inceptia.org or contact your business development representative.
Early Student Connection is Key The CDR at Metropolitan Community College had been climbing. The College knew their exiting students didn’t have the information they needed to successfully enter repayment, but staff simply didn’t have the extra bandwidth for more outreach. MCC needed a partner who could support guiding students toward financial empowerment. Read more.
Visit https://inceptia.fyi/MYCDRb to view the interactive brochure.
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