Nation's largest guarantor reports preliminary default rate is its lowest ever

USA Funds projects significant default-rate decrease

INDIANAPOLIS — USA Funds®, the nation’s leading education-loan guarantor, expects to record a significant decline in its student-loan default rate. Preliminary cohort default-rate figures released by the U.S. Department of Education project that USA Funds' default rate will drop to below 4.6 percent for the 2001 cohort of student-loan borrowers. The preliminary rate would represent a 25-percent decline from USA Funds' 2000 cohort rate of 6.1 percent, as well as the lowest cohort rate ever recorded by USA Funds.

The U.S. Department of Education will release final 2001 cohort default rates later this year.

The announcement follows USA Funds' recent report that its 2002 annual default rate fell below 2 percent. 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 annual default rate compares the dollars in default on loans guaranteed by USA Funds against the dollar value of all USA Funds-guaranteed loans in repayment.

"We are delighted by these indications of a substantial decrease in USA Funds' default rate," said Carl C. Dalstrom, USA Funds president and CEO. "This preliminary figure reflects 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. Default-aversion activities undertaken on behalf of USA Funds prevent default on nearly 93 percent of seriously past-due education-loan accounts. During fiscal 2002, these efforts contributed to the aversion of nearly $10.7 billion in potential loan defaults.

  • Support to postsecondary institutions. USA Funds' team of debt-management consultants offers assistance and support to help postsecondary institutions bolster their default-prevention efforts. Last year, USA Funds' Debt-Management Team conducted more than 1,200 meetings with representatives of postsecondary institutions to focus on curbing student-loan defaults. USA Funds' debt-management consultants also provided individual assistance to 150 schools and presented 62 debt-management workshops.

  • Innovative financial-literacy program. Life SkillsSM, USA Funds' innovative financial-literacy program, is at various stages of implementation at nearly 300 schools nationwide. Life Skills helps schools teach their students time and money-management skills and prepare student-loan borrowers for successful repayment of their loans.

  • Best practices in default prevention. 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 USA Funds' debt-management consultants to create the Best Practices Manual, which financial-aid professionals may access on the USA Funds Web site — www.usafunds.org — to learn strategies from schools that have implemented successful student-loan default-prevention programs.

"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.