The Higher Education Opportunity Act of 2008 (HEOA) amended the Higher Education Act (HEA) by changing the length of time during which a school’s cohort default rate (CDR) is measured from two years to three. While the first official three-year CDRs will not be released until 2012 — for fiscal year (FY) 2009 — schools are already in the thick of their first three-year cohort default rate period.

That’s why last year, on December 14, the Department of Education (ED) posted trial, three-year cohort default rates (CDRs) for FY 2007 on its Federal Student Aid Data Center Web site at http://federalstudentaid.ed.gov/datacenter/cohort.html. ED released this information to assist schools in preparing for the transition to the three-year CDR provisions. The projected three-year rates were meant to get schools thinking about the impact of that third year on their institutions’ CDRs.

Consequences of High CDRs
A dire consequence of high CDRs is loss of eligibility to participate in Title IV aid programs. Effective with the third three-year CDR (for FY 2011, published in 2014), any time a school's three most-recent three-year CDRs equal or exceed 30 percent (increased from the current 25 percent), the school will lose eligibility to participate in the Federal Family Education Loan Program (FFELP), the Federal Direct Loan Program (FDLP), and the Federal Pell Grant Program. This sanction could be applied as early as 2014, based on the school's FY 2009, 2010, and 2011 three-year CDRs. Note that FFELP and FDLP eligibility loss is also triggered by a single CDR over 40 percent (this threshold is unchanged with the implementation of the three-year CDR).

The HEOA established some additional consequences that take effect with the issuance of the new three-year rates. The first time a school's three-year CDR is equal to or greater than 30 percent, the school must establish a default prevention task force and prepare a default prevention plan to:

• Identify the factors causing the rate to be 30 percent or greater,
• Establish measurable objectives and steps to improve future rates, and
• Specify actions that can be taken to improve student loan repayment, including counseling regarding loan repayment options.

The school's plan must be submitted to ED for review. This could happen as early as 2012, based on the school's official FY 2009 three-year CDR.

If the school's CDR remains equal to or greater than 30 percent for two consecutive fiscal years, the school's default prevention task force must review and revise the plan, and submit the revised plan to ED. ED may require the school to make further revisions to the plan and/or take actions to improve student loan repayment success. This could happen as early as 2013, based on the school's FY 2009 and 2010 three-year CDRs.

Quick Reference Chart
The following chart provides a quick reference for FYs 2008–2012, including applicable cohort periods, official CDR publication dates, and the CDR used for school benefits and sanctions.

Action Steps
A school can take actions now to make a difference in its future CDRs. Here are just a few examples of steps that a school can take. First, a school can beef up the frequency and accuracy of its enrollment reporting. Second, a school can increase its outreach to students at risk of withdrawing from school, which may prevent those students from completing their programs of study and, in turn, from being able to repay their student loans. Third, a school can educate its students on the potential pitfalls of loans with multiple loan holders and the importance of communicating with those holders to stay on track in repayment. Finally, a school can enhance its entrance and exit counseling sessions with “add-ons” beyond regulatory requirements, and consider offering or enhancing a financial literacy program for its students.

ED issued additional default management practice guidance for schools (including a sample default management plan) in Dear Colleague Letter GEN-05-14 (released in 2005), available on the Information for Financial Aid Professionals (IFAP) Web site.

Chansone Durden is an account executive team manager with TG serving schools in MASFAA. You can reach Chansone at (800) 252-9743, ext. 2513, or by e-mail at chansone.durden@tgslc.org. Additional information about TG can be found online at www.tgslc.org.