Submitted by: Gretchen Bonfardine, Professional Services Consultant, American Student Assistance

Cohort Default Rate is such a common concept to financial aid administrators, but few know everything that goes into it. And with all eyes on the pending legislation to reform student aid, it's easy to forget that Fiscal Year 2009 will be the first year of new rules for the calculation of Cohort Default Rates. Here are five things that you may not know that could help you manage future CDRs.

1. How is it calculated? You are already aware of the CDR calculated for your institution each year, and you probably know the national CDR as well, but do you know what goes into this calculation? The CDR is based on the number of borrowers entering repayment, not the number or types of loans. Several pieces of this statement need explanation.
   1. Borrowers are considered to 'enter repayment' following the last date of their grace period. Even if the borrower immediately takes advantage of available forbearance or deferment options, as long as their grace period ends, that borrower is officially in repayment ~ whether or not they must make that first payment.
   2. The borrower must enter repayment during the specified Cohort Fiscal Year (FY). A Fiscal Year begins on October 1 of a particular year, and ends on September 30 of the following year. So, FY09 is October 1, 2008 through September 30, 2009. For FY09, borrowers who enter repayment between these dates are the only ones whose defaults count for your FY09 CDR. If you think about this, you may be surprised to realize then that your May 2009 grads would not be included in your FY09 CDR, since their grace period would not run out until November. Those students would be included in your FY10 CDR.
   3. FFEL and Direct Subsidized and Unsubsidized Stafford Loans are included in the calculation. Officially, the old Supplemental Loans for Students (SLS) are included as well (although there are few, if any, that would be entering repayment at this point). PLUS, Grad PLUS, and Perkins are NOT included.
2. What's the difference between the two-year and three-year calculation?. Basically, in the 2 year calculation, a borrower's default was only counted within the first 2 years of repayment (officially called the 'Cohort Default Period). Under the 3 year terms, a default in the first 3 years (again, the 'Cohort Default Period) will be counted. So, it's not that more students are defaulting, it's just that previously, borrowers who only defaulted in their third year of repayment weren't considered in the calculation...now they will be. It is anticipated that Cohort Default Rates will rise significantly when the 3 year calculation is used. Officially, the FY09 CDR will be the first 3 year calculation. Therefore, you will not see what this means to your school until you receive your draft rate for FY09 in February 2012. Here are some timelines to make it more clear:
   1. 2 Year CDR example for FY09 (this is just an example since for FY09, the 3 year calculation will be used)
      
      
      
      
   2. 3 year example for FY09
      
      
      
      
3. How are Rehabilitated loans handled? While the new 3 year CDR calculation allows more time for defaults to occur, it also provides greater opportunity for a successful rehabilitation. Rehabilitated loans are previously defaulted loans on which the borrower makes 9 timely agreed upon payments. After the 9 months, the loan is no longer considered to be in default. If the borrower successfully rehabilitates their defaulted loan before September 30th of the Cohort Default Period (in our previous example, that would be September 30, 2011), then that borrower is NOT counted as a defaulted borrower in the CDR calculation. If the borrower successfully rehabilitates after the end of the Cohort Default Period, they are no longer in default, but they ARE counted as a defaulted borrower in the CDR calculation. The key date is September 30th of the Cohort Default Period. If the borrower is in default as of that date, then they are counted as such for the CDR calculation.
4. How do consolidation loans affect the CDR? Consolidation loans do not directly affect the CDR. Even though the underlying loans are paid off when a consolidation loan is borrowed, it is still the Cohort Fiscal Year associated with the underlying loans that matter. So, if a borrower goes into repayment on underlying loans in FY09, then consolidates their loans, then proceeds to default on the consolidation loan during the Cohort Default Period (sometime on or before September 30, 2011), that borrower is considered to be in default. Even though the underlying loans have technically been paid-in-full by the consolidation loan, this borrower would be counted as defaulted for the CDR calculation. Remember that the consolidation loan itself isn't considered for the CDR calculation; it is the repayment start date of the underlying loans that matter.
5. How can I have an impact on my CDR? ED recommends that you regularly monitor the loan repayment status of your current and graduated students, not just when your Draft Rate is released each February. In the Cohort Default Rate Guide that can be found at http://www.ifap.ed.gov/DefaultManagement/CDRGuideMaster.html, several NSLDS reports are identified which will help you do just that. With these reports, you can choose a specific cohort of your students and monitor their repayment status. While schools focus the majority of their effort on current and prospective students, it may behoove you to begin spending a little time developing a default prevention outreach program for your recently separated students. It is widely agreed that the school is the trusted partner with the student. If they receive a call or letter from the school, it could be better received than something from a lender, guarantor, or ED. Reaching out to offer assistance (even just information) when the borrower finds themselves delinquent in their repayment will go a long way in changing their repayment habits and getting them back on the right track, therefore directly impacting your CDR.

If you have additional questions about how the CDR is calculated or how you can monitor or appeal your rate, the information can be found at http://www.ifap.ed.gov/DefaultManagement/CDRGuideMaster.html. Your guarantor can also prove to be a valuable resource. From answering questions, to providing reports assisting you with regular monitoring of your CDR, your guarantor is there to support you every step of the way.