Cohort Default Rate
Definition
The Cohort Default Rate (CDR) refers to the percentage of student loan borrowers from a specific cohort, usually a school or institution, who default on their loans within a certain timeframe after entering repayment.
Detailed Explanation
The Cohort Default Rate (CDR) is a crucial metric used by educational institutions and federal agencies to monitor the repayment behaviors of student loan borrowers. It is calculated by identifying the borrowers who enter repayment on certain Federal Family Education Loan (FFEL) Program or William D. Ford Federal Direct Loan (Direct Loan) Program loans during a specific federal fiscal year (FY). The CDR then measures the number of these borrowers who default on their loans within the next two to three fiscal years. A high CDR can be indicative of broader issues at an institution, such as poor academic quality, unmanageable student debt levels, or inadequate student support services.
CDRs are also used by the U.S. Department of Education to assess penalties or sanctions on institutions with excessively high rates. Schools with a high CDR for multiple years can lose their eligibility to participate in federal student aid programs, which can significantly impact their enrollment and financial health.
For many prospective students and families, the CDR can be a valuable tool when evaluating institutions. It provides insight into the potential financial risk of attending a particular school. Institutions with lower CDRs might be seen as offering a better return on investment and providing better support to their students.
Example
Imagine University A has 1,000 students who enter repayment on their student loans in the fiscal year 2020. By the end of fiscal year 2022, 100 of those students have defaulted on their loans. Thus, University A's Cohort Default Rate for that period would be 10% (100 defaulted borrowers ÷ 1,000 total borrowers).
Cohort Default Rate = 100 / 1,000 = 10%
Key Articles Related To Cohort Default Rate
Related Terms
Default: Failure to repay a loan according to the agreed-upon terms.
Direct Loan: A federal student loan, made through the William D. Ford Federal Direct Loan Program.
Federal Family Education Loan (FFEL) Program: A federal student loan program, which was replaced by the Direct Loan Program.
Fiscal Year (FY): A one-year period used for budgeting, accounting, and financial reporting purposes.
Repayment: The act of paying back borrowed money over time.
Editor: Colin Graves Reviewed by: Chris Muller
