Federal Cohort Default Rates Are Down Again
Good news for the general state of the student loan crisis: student loan default rates have dropped again in 2015!
The Department of Education just announced that cohort default rate for Federal student loan debt decreased to 11.8%, down from last year’s 13.7%.
This is a great sign that things are heading in the right direction, but as we all know, it doesn’t mean that enough solutions are on the table for those struggling to repay their debt.
What’s This Really Mean?
The problem in calling a drop to the Federal cohort default rate a success is that it’s not a very good measurement of what’s really happening with student loan debt.
Here’s why: this rate only included Federal Stafford Loans, and the rate is calculated by determining a the percentage of borrower’s who enter (not finish, but begin) repayment on their Federal Stafford Loans, and remain in repayment for the first three years of their loan.
Anyone who defaults after three years wouldn’t be included in the cohort default rate, and from what I can tell, most people are able to get through the first few years of their loans, and only end up defaulting after running into trouble down the line.
Additionally, all Federal loans other than Stafford Loans are dismissed from the cohort default rate calculations entirely, which means that anyone with Direct PLUS loans, Perkins loans, or any other form of Federal student loan other than Stafford loans won’t be included in the calculation.
There’s another calculation that I think is more valid for measuring success of the Government’s student loan program, called the “Lifetime Default Rate”, which measures defaults down the line as well.
Why Did the Cohort Default Rate Go Down?
This is open for interpretation, but the Department of Education is claiming that the 2015 student loan default rate dropped because the Government is doing a better job of marketing their Student Loan Forgiveness Programs, including the new and increasingly popular Pay As You Earn Student Loan Repayment Plan.
Department of Education is pretty clear about their opinion that it’s participation in PAYE and the other income-based repayment plans which is helping people avoid default, but to tell you the truth, I think that other factors are involved as well.
First, fewer people are going back to school now that the economy is looking better, meaning that those who are going to school likely have a good reason to be there, and the motivation to finish their programs, then get jobs down the line.
Second, more and more people are talking about the problem of student loan debt, creating sites and blogs like this one, and speaking out in the media about the rampant abuses of student loan lenders, and even the Federal student loan system itself.
And third, far fewer people are signing up for illegitimate, poorly-organized and pathetic for-profit college degree programs. As an example, University of Phoenix’s enrollment is about ONE THIRD of what it was back in 2010.
The Silver Lining
Don’t get me wrong though, because I still see the cohort default rate drop as a good sign that people are becoming more aware of how to Avoid Defaulting on Student Loan Debt, and I definitely think that it’s an indicator things are headed in the right direction.
In fact, a recent article from US News even mentioned that there’s been a 50% increase in enrollment into the income-based Federal Student Loan Repayment Plans, which is a great sign that the efforts to publicize these programs is working.
Is it really Department of Education that’s doing the good job here though? Have you received anything from DOE that helped you better understand your options and opportunities for dealing with your student loans?
Or is it really the work Bloggers and other borrower advocates (like myself) which is helping people become more aware of the many options they have for Getting Rid of Student Loan Debt?
I won’t hazard an answer to that question, but I’m sure you could guess the way I feel about this topic.
The News Is Not All Good
There’s some warning signs on the horizon too though, as noted in this week’s report from the Consumer Financial Protection Bureau which noted that there are some serious problems with the way that Federal student loans are being serviced.
A call for public comments and discussion on the issue led to over 30,000 responses from student loan borrowers and watchdog industry groups, which is an obvious sign that servicing has some issues that need to be addressed.
According to the CFPB report, the biggest problem is that student loan borrowers aren’t getting the right kind of information, and that they aren’t getting information early enough to head off a potential default.
As an example, many borrowers remain completely in the dark about the existence of the income-based repayment plans, like PAYE, Income-Contingent Repayment and Income-Based Repayment, each of which could stand to save them hundreds to thousands of dollars per month!
Borrowers also complained about the veracity of information received when contacting their debt service companies, like being told that they don’t qualify for certain Student Loan Forbearance Programs, or that their teaching experience hasn’t satisfied Teacher Loan Forgiveness Program requirements, when in fact it has.
One thing that’s painfully obvious to me is that we still have a long way to go before the grater Student Loan Debt Crisis is resolved in any meaningful way.
The Government has made some significant steps to help borrowers out in the previous few years, from President Obama’s Loan Forgiveness Reforms, to updates to Nursing Student Loan Forgiveness and the introduction of better Public Loan Forgiveness Benefits, but we’re still far from reaching the end of the long, difficult and winding road that leads to resolution of our student loan debt problems.