Earlier this week, the U.S. Department of Education released data by institution of higher education on the federal student loan cohort default rate. These data show the percentage of a school's borrowers who entered repayment on federal loans in fiscal year 2009 (October 1, 2008 through September 30, 2009) and defaulted on those loans in either fiscal year 2009 or 2010 (ending September 30, 2010). These data are now available on the Federal Education Budget Project’s website, http://www.edbudgetproject.org, where users can easily search the data by institution and view data on price, demographics, and outcomes alongside the default rate data.
These most recent default rates have caused quite a stir among education stakeholders because they suggest that default rates have increased since the 2008 data were released. For example, 8.8 percent of federal student loan borrowers who entered repayment in 2009 defaulted on their loans by the end of fiscal year 2010. In comparison, only 7 percent of borrowers who entered repayment in 2008 had defaulted by the end of 2009. Student borrowers that attended for-profit institutions showed even greater increases in default rates from 2008 to 2009, increasing 3.4 percentage points to 15 percent default in 2009.
It is important to note that these default rates are only a snapshot in time – they show borrowers who defaulted within two years of going into repayment. However, many borrowers default after two years and those defaulters are not captured in the data. However, the Department of Education will soon be releasing three-year cohort default rates to partially address this issue. Additionally, the default rates do not include students that have gone into deferment or forbearance, options that allow borrowers that can’t repay their loans to avoid default.
News reports suggest that these increasing default rates are attributable to the floundering economy because high unemployment rates usual mean that recent graduates are not earning enough income to pay back their loans. Moreover, this is the first set of default numbers that capture borrowers who began repayment in 2008 and 2009, when the economy and layoffs were at their worst. Additionally, a federal official suggested that growth in the number of students borrowing to attend for-profit institutions also contributed to the increase in default because graduates of those institutions typically default at higher rates.
The Federal Education Budget Project’s website allows users to test some of these hypotheses through the comparison function. For example, the comparison function allows us to view institutions that have similar default rates.
Let’s say we are interested in Heald College in Fresno, California – a large, two-year for-profit institution with a 2009 federal loan default rate of 13.0 percent. By conducting a comparison of other institutions with default rates within 10 percent of that, we find that 90 two-year for-profits have similar default rates. When we expand the comparison to include other types of two-year institutions, we discover that 204 non-profit and public institutions have default rates that are within 10 percent of that Heald College campus. While Heald College in Fresno does not have the highest default rate – many for-profit institutions have default rates well above 20 percent – this suggests that many non-profits and public institutions have similar default rates as large for-profits.
Overall default rates, however, are determined by individual student, not by institution, the actual number of federal borrowers that go into default at each institution matters as well. Luckily, the FEBP database also includes data on total enrollment and number of federal borrowers at each institution as well. By including these data in the comparison, we can even better assess the degree to which for-profit institutions are fueling federal loan default rates. For example, Heald College in Fresno had 1,481 subsidized and 1,416 unsubsidized Stafford loan recipients in 2009. In comparison, the Onondaga Community College in New York (a public institution) had 2,723 subsidized and 2,165 unsubsidized Stafford loan recipients in the same year and the same default rate as Heald College in Fresno. This suggests that some large public and non-profit institutions could also be driving high default rates because they also have high levels of enrollment in federal loan programs. (Click here to view the data from this particular comparison.)
The FEBP database provides a wealth of information on higher education finance, price, demographics, financial aid participation, and outcomes including the most recent 2009 federal loan cohort default rates. We encourage our readers to explore the data and draw their own conclusions about trends in higher education borrowing.