Why Colleges Are Starting to Worry About Student-Loan Defaults

Credit.com reports:

More and more community colleges — arguably the most economical point of entry to higher education — are opting out of the federal student loan program. At last count, roughly 1 million students in 30 states are now scrambling for alternative financing.


According to a report by the Institute for College Access and Success, the schools are increasingly concerned about their cohort default rates, or CDRs — a calculation that divides the total number of students whose government loans entered repayment in a particular year (the so-called cohort year) and who defaulted on those loans later on, by the total number of borrowers who began to repay their education-related debts in that same cohort year.

CDRs are a big deal for all higher education institutions these days. That’s because schools with 30% default rates for three consecutive years — or those with greater than 40% in any one year — stand to lose their access to the various federal aid programs. The reason 2014 is of particular importance is because in 2008, Congress changed the look-back period to three years from two, beginning with loans that entered repayment mode in 2011.

As you might expect, those institutions that will no longer participate in the federal programs (including for Pell Grants) have taken to rationalizing that decision.

The bubble is here.