Nation's largest guarantor records a 16-percent drop in its student-loan default rate
USA Funds Posts Another Default-Rate Decrease
INDIANAPOLIS—USA Funds®, the nation's leading education-loan guarantor, has recorded another significant decline in its student-loan default rate. Final cohort default rate figures released by the U.S. Department of Education reveal that USA Funds' default rate dropped to 5.6 percent for the 1999-2000 cohort of student-loan borrowers.
USA Funds' 1999-2000 rate represents a 16-percent decline from the rate of 6.7 percent that the guarantor recorded for the 1998-99 cohort.
The Education Department reported a record-low national default rate of 5.6 percent for the 1999-2000 cohort, the ninth consecutive year in which the default rate has dropped.
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 education institutions' eligibility to participate in federal student-aid programs.
"We are pleased by this substantial decrease in USA Funds' default rate," said Carl C. Dalstrom, USA Funds president and CEO. "The latest default-rate figures reflect our strong commitment to helping borrowers successfully repay their education-loan debt and assisting postsecondary institutions in strengthening their default-prevention efforts."
Dalstrom reported that several factors contribute to USA Funds' strong default-prevention performance. These factors include the following:
- Successful default-aversion activities. So far in fiscal 2001, default-aversion activities undertaken on behalf of USA Funds prevented default on more than 90 percent of seriously past-due education-loan accounts.
- Cooperative efforts with postsecondary institutions. USA Funds' Debt-Management Team this year has conducted nearly 1,800 meetings with representatives of postsecondary institutions to focus on curbing student-loan defaults. USA Funds debt-management consultants have provided individual assistance to more than 400 schools and presented 28 debt-management workshops. The team is building on these efforts by offering Life SkillsSM, a training program that will be available to schools starting in 2002 for use in teaching students time- and money-management skills.
USA Funds also underwrites the activities of a Default-Prevention Council that brings together campus representatives and default-prevention experts to develop tactics for schools to use in lowering their default rates. The council worked with the Debt-Management Team to create the Best Practices Manual, which financial-aid professionals may access on the USA Funds Web site to learn strategies from schools that have implemented successful student-loan default-prevention programs.
- Student-aid law changes. The 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.
"Although USA Funds' default rate has shown impressive improvement, we will continue to strengthen our many partnerships in the education-loan community in an effort to further reduce the default rate in years to come," Dalstrom said.