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ECSI Regulation Bulletin - Cohort Default Rate

On November 1st, 2007, the Federal Department of Education (DOE) released final regulations on the Federal Perkins Loan Program, Federal Family Education Loan Program, and the William D. Ford Federal Direct Loan Program. These regulations will take effect on July 1st, 2008. As your servicer, ECSI feels that it is our duty to keep track of these regulations for you, being sure to keep your institution in compliance with all mandatory federal regulations.

Regulation Spotlight: Cohort Default Rate

Regulation:

The House of Representatives, last November, amended legislation to renew the Higher Education Act (HEA). Added was a provision to extend the Cohort Default Rate to three (3) years, from the current two (2). The Cohort Default Rate serves to gauge the proportion of student loan borrowers who default on their loan(s) within a certain time period after they leave college.

By making this provision to the HEA, which needs to be renewed by March, Congress believes the Cohort Default Rate will now be a more accurate assessment of how successful each institution is in keeping their student borrowers on track with repayment. So far, the renewal bill of the HEA has passed through the Senate, but has yet to find its way through the House.

Many critics estimate that the new provision will only serve to put more institutions at risk to be reprimanded by the Department of Education, due to default rates possibly increasing by an average of 60 percent. According to Education Department data from 2004, the average rate would nearly double for "For-Profit" colleges, and increase by 50 to 75 percent for most other types of institutions.

Penalties are steep for institutions that have high Cohort Default Rates. Colleges that have a Cohort Default Rate of 25 percent or higher for three (3) consecutive years, or 40 percent or greater for any one year, lose access to federal aid funds. The department also has the ability to impose restrictions on an institution’s ability to receive and disburse funds if their Cohort Default Rate exceeds 10 percent. These reprimands can be devastating to any college. For example: enrollment can drastically drop due to students not being able to afford costs without federal aid.

Solution:

Don’t ever worry about the Cohort Default Rate again. As you know, the best way to manage your Cohort Default Rate is to monitor and counsel your borrowers in their earliest stages of delinquency.

ECSI’s Default Prevention Service was designed as a cost-effective solution to compliment the Federal Due Diligence Requirements and intensify your collection efforts through a series of fully customized Collection Letters, Phone Calls, and E- mails to help you manage one of your most important responsibilities.

Like most of ECSI’s Value Added Services, you will also have the option to assess pre-determined Collection Letter Fees, Phone Call Fees, and E-mail Fees that will instantly appear on the SAL system and on the borrowers next ECSI Billing Statement. By assessing these Collection Fees, your institution has the ability to allow the Default Prevention Service to pay for itself.

By utilizing ECSI’s Default Prevention Services, you and your staff will avoid hours and hours of tedious, resource-draining work, and make worrying about the Cohort Default Rate a thing of the past.

Other Important Regulations:

Please keep in mind that there are many other Federally Regulated Responsibilities that all Higher Education institutions must follow. ECSI will keep your institution notified and updated on these regulations in future "Regulation Bulletins." Including:

  • Mandatory Government Assignments - Mandatory Government Assignments will soon be a reality. According to the DOE, schools will be notified on a school by school basis when they need to start assigning, and that implementation instructions will be released later this year. (More Information)
  • 1098-T's - Per regulations, any student that paid qualified tuition and/or expenses in a given year must be given a 1098T tax form for that year. (More Information)
  • Promissory Notes - We all know the importance of Promissory Notes, however, regulations give an institution several ways for them to be signed. (More Information)
  • Exit Interviews - Like Promissory Notes, Exit Interviews are a very important part of the Federal Loan process that can be completed in several different ways. (More Information)
  • Disclosure Statements - Regulations state that a borrower must be kept aware of the total amount of their loans while still enrolled. These to can be sent in a variety of ways. (More Information)

If you have a question on any regulation, please feel free to contact us at any time. ECSI feels it employs the most educated and knowledgeable staff in the Student Loan Servicing Industry.