The U.S. Department of Education announced on Wednesday that the official three-year federal student loan cohort default rate has declined to 11.8 percent for students who entered repayment in FY 2012. The default rate for FY 2011 was 13.7 percent.
The rate decreased from last year’s rates across all sectors of higher education. Public institutions saw a decrease from 12.9 to 11.7 percent; private, nonprofit institutions, 7.2 to 6.8 percent; and for-profit institutions, 19.1 to 15.8 percent, although for-profits still have the highest three-year rate.
The Education Department uses the default rate to prevent the lowest performing schools from receiving student aid. Because of the Higher Education Opportunity Act of 2008, sanctions against institutions with high cohort default rates are based on the three-year cohort default rates. Institutions with a rate equal to or greater than 30 percent must establish a default prevention task force to identify factors contributing to the school’s high default rate.
Schools with rates exceeding 30 percent may lose eligibility to participate in federal student aid programs. This year, two public community colleges, one private nonprofit institution, and 12 for-profit schools had rates that were at or above 30 percent for three consecutive years or that exceeded 40 percent for the last year. These institutions are subject to lose their eligibility for federal student aid programs unless they submit successful appeals to the Education Department.
These recently released three-year default rates were calculated using the cohort of borrowers who entered repayment on their direct loans or FEEL Program loans between Oct. 1, 2011, and Sept. 30, 2012, and who defaulted before Sept. 30, 2014. During that time, more than 5.1 million borrowers entered repayment, of which about 611,000 defaulted on their loans. These borrowers represent 6,121 postsecondary institutions across the U.S.
More information on the national student loan default rate — as well as the rates for individual schools, states, and types of institutions — can be found here.