Borrowing in America

Student Borrowing in America: Metrics,
Demographics, Default Aversion Strategies
By Frank Kesterman
Frank Kesterman is a consultant in the Washington
DC area. He formerly served for the Department of
Education in the office of
Federal Student Aid.

The use of Cohort Default Rate (CDR) as the primary measure of student loan defaults among undergraduates was investigated.
The study used data extracted from the National Student Loan
Data System (NSLDS), quantitative analysis of Likert-scale survey responses from 153 student financial aid professionals on proposed changes to present metrics and methods, and anonymous, qualitative interviews with 12 notable scholars and experts about default aversion strategies. A sample of defaults over eight years revealed a default rate of 17.91%, or almost double the published two-year CDR of 9.6% for the 1996 cohort. Further, the actual average default rate for the entire student loan portfolio was found to be 13.65%, or 2.44 times higher than a point-intime CDR of 5.6% as of September 30, 2002, suggesting limitations of the CDR as the sole loan portfolio measurement tool.
Additionally, there is dissatisfaction with the present 25% default rate ceiling required for schools to maintain institutional eligibility to participate in the Title IV federal student aid programs.
Entire school groups exceeded the 25% default ceiling when viewed over eight years. The study also found strong support for greater utilization of loan guaranty agencies in default aversion instead of debt collection.
The study concludes that economic and demographic changes taking place in higher education over the period 20012015 necessitate increased funding for outreach programs to educate low-income and minority at-risk populations on the availability of federal student aid, student loan repayment options, and the consequences of default. Other recommendations of the scholars and experts interviewed for this study include

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