Nation's largest guarantor could record a 16-percent drop in its student-loan default rate
USA Funds Projects Further Decline in Default Rate
INDIANAPOLIS—Preliminary figures indicate that USA Funds®, the nation's largest student-loan guarantor, will record another significant decline in its student-loan default rate when final figures are released by the U.S. Department of Education later this year.
USA Funds' draft default rate issued by the Education Department for the 1999–2000 cohort of student-loan borrowers is 5.66 percent. That rate would represent a 16-percent decline from the rate of 6.75 percent that USA Funds recorded for the 1998–99 cohort, the most recent figure available.
The cohort default rate measures the percentage of borrowers who enter repayment in a given federal fiscal year and default on their loans by the end of the following federal fiscal year. The cohort default rate is the most frequently cited indicator of student-loan defaults, because the rate is a factor in determining the eligibility of postsecondary institutions to participate in federal student-aid programs.
"Because we guarantee more than 25 percent of all new guaranteed education-loan dollars issued in America each year, the prospects for a significant decline in USA Funds' default rate bode well for a ninth consecutive year of lower national student-loan default rates," said Carl C. Dalstrom, USA Funds president and CEO.
The national student-loan default rate fell to a record-low 6.9 percent for the 1998–1999 cohort, down from a high of 22.4 percent in 1990.
Dalstrom cited the following factors as contributing to the further decline in the USA Funds default rate:
- Successful default aversion activities. During fiscal 2000, default-aversion activities undertaken on behalf of USA Funds prevented default on more than 90 percent of seriously past-due education-loan accounts. These efforts averted approximately $8.8 billion in potential loan defaults.
- Cooperative efforts with postsecondary institutions. USA Funds provides support for a debt-management team that has assisted more than 400 postsecondary institutions nationwide. Members of the team work with individual schools to enhance their debt-management efforts and conduct workshops for financial-aid professionals in locations across the country. USA Funds also underwrites the activities of a Default Prevention Council that brings together campus representatives and default-prevention experts to develop best practices to help schools achieve lower default rates.
- Student-aid law changes. The new guarantor-funding model, enacted by Congress as part of the Higher Education Amendments of 1998, encouraged guarantors to redouble their default-prevention activities. In addition, USA Funds acknowledges that a change in the definition of default, enacted as part of the same law, contributed to the lower default rate. The 1998 amendments extended the standard for default to 270 days of nonpayment, from the previous standard of 180 days of nonpayment.
"Because low default rates protect the integrity of the student-loan program and benefit all program participants, USA Funds will continue to explore and invest in new and improved ways to help education-loan borrowers successfully repay their higher-education debt," Dalstrom said.