On Wednesday, the Department of Education announced that the cohort default rates have dropped for the third consecutive year. 5.2 million borrowers entered repayment in the 2013 fiscal year, and 11.3 percent defaulted on their student loans, which is down from 11.8 percent the previous year. The default rate has been on a downward trend since the 2010 fiscal year when rates stood at 14.7 percent. Borrowers default on a loan after they fail to make a payment for more than 360 days.
Public institutions saw their rates dropped from 11.7 percent in the FY 2012 to 11.3 percent. Public institutions represent 27.2 percent of the total number of schools and nearly 51.6 percent of borrowers who entered repayment in the FY 2013. Proprietary schools also saw their rates drop from 15.8 percent in the FY 2012 to 15.0 percent. Proprietary schools make up 37.8 percent of the total number of institutions.
There were slight increases among private and foreign schools. For private institutions, the default rate went up from 6.8 percent in the FY 2012 to 7.0 percent. Private schools represent 28.2 percent of the total number of institutions. Foreign schools also had their default rates rise from 3.3 percent in the FY 2012 to 3.6 percent. Foreign institutions represent 6.8 percent of all postsecondary schools.
If a college’s default rate exceeds 30 percent for three consecutive years or 40 percent in one year, they become ineligible for receiving federal aid. If any college exceeds the default rate of 30 percent, they are required to create a default-prevention task force to assess why the rate is so high and prepare a plan to submit to the Department of Education.
In the past seven years, the Obama Administration has made easing the burden of student loan debt a priority. In 2015, the President revealed the Student Aid Bill of Rights, which helps ensure strong consumer protections for borrowers.
The Administration has also made huge investments in college affordability. They increased the maximum Pell Grants by more than $1,000 and created the American Opportunity Tax Credit, which is worth up to $10,000 over four years of college. The Administration has also cut student loan interest rates and made the process of applying for federal financial aid easier.
Education Secretary John King Jr. stated, “The Obama administration has taken unprecedented measures to provide borrowers more options to avoid default, manage their student debt and stay on track to repayment, and to hold institutions accountable for improving student outcomes. Even with progress, however, we know considerable work remains ahead.”