“Data Driven” and Cohort Default Rates
At times leaders and managers like to “go with their gut” in making decisions. This may be adequate in familiar situations and scenarios. However, once a leader or manager encounters unfamiliar territory, it is helpful to have data upon which to inform his or her decisions as to which next actions to take. This leads to a need for reliable data. It has been said that, “leaders themselves need to adopt a more rational, data-driven mindset themselves, instead of relying solely on largely irrational human instincts.”
Many may find discomfort with data as a means of making decisions. But, perhaps there are instances in which most all agree one must use applicable data—that is, when regulatory or legislative language requires knowledge of and action upon such specified data. One such example is the FY 2014 3-Year official cohort default rate (CDR) data.
ED distributed the FY 2014 3-Year official CDR data notification packages on September 25, 2017, as highlighted in the U.S. Department of Education’s (ED) Electronic Announcement dated September 27, 2017.
All institutions that are eligible to participate in any of the Title IV programs and have had a borrower in repayment in the current or prior cohort default rate periods will receive a CDR calculation. However, institutions that have never had a borrower yet enter repayment in the applicable loan programs will not receive a CDR calculation package.
Schools must have been enrolled in the Electronic Cohort Default Rate (eCDR) process in order to receive the notification packages via the Student Aid Internet Gateway (SAIG). If a school was not enrolled in eCDR at the time of distribution of the notification packages, the school will need to access the data via the NSLDS Professional Access Web site.
Distinguishing the Appropriate Formula
The CDR is calculated for most schools—those with at least 30 students entering repayment in the cohort period—as the percentage of a school’s borrowers in the fiscal year (FY) cohort who default before the end of the second fiscal year following the fiscal year in which the borrowers entered repayment. For example, in these most recent CDR calculations, a school’s FY 2014 3-year CDR will be calculated as the percentage of borrowers who were included in the 2014 cohort (i.e., began repayment in FY 2014, FY 2015, or FY 2016) but then defaulted on or before September 30, 2016. This is the same manner in which future years’ CDRs will also be calculated. (Note: Those schools that have 29 or less borrowers entering repayment in the cohort period have an “average rate” calculated based upon borrowers entering repayment over a three-year period.)
As a reminder, the federal FY that is used in the CDR calculations runs from October 1 of one year to September 30 of the following year, e.g., FY 2014 began October 1, 2013, and ended on September 30, 2014. Thus the federal FY number, FY 2014, corresponds to the calendar year in which the FY ends. In this example, September 30, 2014, is the end of FY 2014.
Non-average rate formula
The “non-average rate” formula is used for a school with 30 or more borrowers entering repayment during a cohort fiscal year. As a result, ED uses the “non-average rate formula” for calculating the official CDR for most schools. In the non-average rate formula, the numerator is comprised of the number of borrowers in the denominator who defaulted or met the other specified condition during the cohort default period, while the denominator is the number of borrowers who entered repayment in the cohort fiscal year. So, generally speaking, the formula would appear as:
Average rate formula
The “average rate formula” is used for schools with 29 or fewer borrowers entering repayment during a cohort fiscal year if the school had a cohort default rate calculated for the two previous cohort fiscal years. It would be portrayed formulaically as:
See ED’s Cohort Default Rate Guide (pages 2.1-5 through 2.1-7) for a discussion on the distinctives of each formula.
Does the Data Make a Difference?
An item that is basic to an institution’s continued participation in the Title IV Federal Student Aid programs is the institution’s CDR. It is important to keep in mind that if a school has an official 3-year CDR of 30% or more, the school will have to establish a Default Prevention Task Force and implement a default prevention plan. And, if the school has three years in which their 3-year CDR has been 30% or more, the school becomes subject to loss of eligibility to participate in Title IV for at least two fiscal years following the fiscal year it is notified of its sanction. This impact can also be the experience if the school has an FY 2014 3-year CDR of 40% or more in one year’s calculation.
Yet, not only does the CDR carry sanctions (penalties) for a high percentage of borrowers defaulting, but there are also benefits to lower CDRs. For example, institutions with a CDR of less than 15.0% for each of the three most recent years for which data are available have at least two benefits. Such institutions may choose to:
- disburse, in a single installment, loans that are made for one semester, one trimester, one quarter, or a four-month period.
- not delay the first disbursement of a loan for 30 days for first time, first-year undergraduate borrowers.
Directing the Data
While it may be “simple” to ride along with the data presented, and allow it to take you where it determines, an institution may have opportunity to direct the data to a more favorable destination. Although the prime time to analyze CDR data is when the “draft” CDR is released early each calendar year, there may still be opportunity for an institution to provide more specific direction to a more desirable outcome at this point, in some situations.
There are several potential actions a school may consider to aid in re-directing the data presented in the official CDR that was distributed. These include requesting an Uncorrected Data Adjustment, submitting a New Data Adjustment, or possibly, an Erroneous Data Appeal, or a Loan Servicing Appeal.
Uncorrected Data Adjustment
ED provides the description of an “uncorrected data adjustment” as being a request submitted to ED “to ensure that a school’s official cohort default rate calculation reflects changes that were correctly agreed to as a result of an incorrect data challenge that the school submitted after the release of the draft cohort default rates.” See page 4.3-2 in the CDR Guide for specific instances that are applicable and guidance on the steps to submit the request.
New Data Adjustment
As described in the CDR Guide, a “new data adjustment” allows a school to challenge the accuracy of “new data” included in the school’s most recent official cohort default rate. Instructions pertinent to this type of adjustment request begin on page 4.4-2 of the CDR Guide.
Erroneous Data Appeal
An “erroneous data appeal” may be appropriate if an institution believes that “new data” and/or “disputed data” included in the official cohort default rate calculation resulted in the institution’s official cohort default rate being inaccurate. Page 4.5-2 of the CDR Guide begins the discussion on this topic.
Loan Servicing Appeal
A “loan servicing appeal” may be an option if the official CDR includes defaulted loans that the institution believes were improperly serviced for cohort default rate purposes. More information and details on this type of appeal are provided in the CDR Guide, beginning on page 4.6-2.
(Note: There may be other less common categories of appeals or adjustments that may be useful to an institution. An institution should become aware of these, if necessary, by reviewing the descriptions on page 2.4-5 of the CDR Guide.)
The start date for requesting adjustments or appealing any information in the recently released CDR package begins October 3, 2017. Depending upon the specific item being appealed or requested for adjustment, the time period for action may range from 15-30 days from October 3, 2017. Institutions should review the EA dated September 27, 2017, along with the official Cohort Default Rate Guide (September 2017 edition) that is available on the Information for Financial Aid Professionals (IFAP) Web site at ifap.ed.gov, for specific time frames applicable to the action they wish to request.
Determine the Destination
Data included in the CDR calculation does drive an institution’s continued participation in Title IV Federal Student Aid programs. Some points to observe along the CDR data-driven excursion include decisions to:
- Schedule in the institution’s annual operations calendar a review of its “draft” CDR data when it is released each year (typically in late February),
- Develop a spreadsheet or database (depending upon the institution’s information technology capabilities and resources) from its own records to detail its borrowers’ data. (Note that this may be done before the draft CDR is released each year.)
- Review the Loan Record Detail Report (LRDR) when released with the draft CDR each calendar year, comparing it to the institution’s own data records.
- Ascertain demographic data of the institution’s loan defaulters. For example, determine the borrower’s GPA, whether the borrower was maintaining satisfactory academic progress, completed the exit counseling requirement, what his or her academic program was, and whether the student withdrew or was a “stop out,” as well as the expected family contribution (EFC) of the borrower.
- Compare the derived demographic data with data on the LRDR.
- Determine if the institution needs, or desires, to develop or enhance its default prevention plans, including whether to enlist the assistance of an outside provider of default prevention services, etc.
The newly released official cohort default rate is an important piece of information with significant consequences or benefits. An institution would be wise to review its Loan Record Detail Report (LRDR) to see if any of the adjustments or appeals detailed earlier merit consideration for its situation. Such steps, as well as the points listed above, may indeed assist in determining a more positive end as the institution’s final destination for its data driven journey to an official CDR.
This article is presented for informational and educational purposes only and should not be considered to be giving legal advice.
 “Data Driven Leaders Can Create a Big Data Payoff,” (Business News Daily), September 30, 2014, at http://www.businessnewsdaily.com/7218-data-driven-leadership.html (accessed on October 2, 2017).
 “FY 2014 Official Cohort Default Rates Distributed September 25, 2017,” Electronic Announcement (September 27, 2017); U.S. Department of Education.
 Per the CDR Guide, “other specified condition” occurs when the school’s owner, agent, contractor, employee, or any other affiliated entity or individual makes a payment to prevent a borrower’s default on a loan that entered repayment during the cohort fiscal year, before the end of the cohort default period.” (See page 2.1-2.)
 Per the CDR Guide, page 2.4-4