Cohort Default Rates in Context

Burgeoning student loan debt indicates problems not only for the country's borrowers but also for the postsecondary system. The rise in student loan defaults signifies a rise in institutional cohort default rates (CDRs)--a measure of accountability that informs the government and the general public how well an institution prepares its students for loan repayment. Like any institutional measure, CDRs support explanations or assumptions about institutional effectiveness and responsiveness. The issues of student debt and CDRs are of particular concern for Minority-Serving Institutions (MSIs), which have a legacy of providing increased access to some of the nation's most underserved students. Students who enroll at MSIs are more often low-income, first-generation, and underprepared--all student characteristics that indicate a greater likelihood of loan default (Fletcher 2010; McMillon 2004; Volkwein and Cabrera 1998; Woo 2002). Additionally, many MSIs are located in regions with high unemployment rates; as such, some MSIs have higher than average CDRs. A number of MSIs are working to develop and implement sound solutions to manage default, particularly by way of financial literacy initiatives (IHEP 2008, 2009, 2010; Looney 2011; USA Funds 2011). A number of studies explore the individual characteristics and implications of student loan default, but few address how postsecondary institutions and their practices may shape borrower behavior. Students who default may do so for a variety of reasons including misinformation, lack of awareness of forbearance and/or deferment options, and other tools to manage loan use. This brief seeks to address the approaches that institutions may employ to reduce or manage a CDR--with a particular emphasis on MSIs. In highlighting these common approaches, this brief hopes to make a stronger case for financial literacy strategies as a solution for institutions looking to increase student completion and reduce default rates. Cohort Default Rate Challenges and Appeals are appended.