Sallie Mae: FFELP Model Produces Lower Default Rates

A report issued by Sallie Mae discloses that the structure of the Federal Family Education Loan Program results in superior default prevention success compared with the model used in the direct loan program. The report found that cohort default rates for Sallie Mae borrowers were on average 30 percent lower than the rates for direct loan borrowers who attended comparable postsecondary institutions.

The report covered the last two years for which official cohort default rates are available and compared borrower default rates by institution type:

• Public two-year.
• Public four-year.
• Private, not-for-profit.
• For-profit postsecondary institutions.

The report concludes that “the structure of the Federal Family Education Loan Program, in which the lender owns the asset, assumes default risk and works in partnership with guaranty agencies, results in a 30-percent difference in default prevention success compared to the model used in the Direct Loan program.”

You will need Adobe Reader to access the report online.

Meanwhile, the U.S. Department of Education last week issued cohort default rates for the FFELP and direct loan program. The release marks the first time that the Department has disclosed preliminary cohort default rates by program. For the two most recent years for which final, official cohort default rates were disclosed by the Department, FFELP rates were lower than direct loan rates for seven of 12 categories of postsecondary institutions.