College Policies And Practices Can Reduce Student Loan Defaults

Washington D.C.—Colleges across the nation are struggling to confront a growing problem in higher education: student debt. As more students borrow more money than ever before, and recent graduates enter the worst job market in a generation, students are increasingly unable to pay back their loans.

In a new Education Sector report, Lowering Student Loan Default Rates: What One Consortium of Historically Black Institutions Did to Succeed, co-authors Erin Dillon and Robin V. Smiles analyze why students default on their student loans and find that institutions play a significant role in helping students avoid default.

The authors discuss how a small group of historically black colleges and universities (HBCUs) in Texas successfully lowered their “cohort default rates,” or CDRs. CDRs are calculated annually for every college and university in the country that participates in the student aid program, and colleges with high CDRs risk losing eligibility for federal student aid. These minority-serving institutions are a good source of ideas for better serving students at risk of defaulting. They can also serve as models of best practice for colleges and universities across the country.

The report provides new statistical analysis of CDRs that also emphasizes that institutions play a role in reducing default. Dillon and Smiles examine the widespread argument that an institution’s CDR has more to do with the students it enrolls than its practices. This new analysis shows that while student demographics are a significant predictor of an institution’s CDR, they are not the sole predictor, or even the primary one. Institutional characteristics, or in some cases, unmeasured factors, are important to predicting whether an institution has a high or low default rate and potentially whether it runs afoul of federal sanctions.

“The experience of the Texas HBCUs, along with this new statistical analysis, proves that institutions play a significant role in making sure their students do not default. We must hold schools accountable for keeping rates low,” say Dillon and Smiles.

Read Lowering Student Loan Default Rates: What One Consortium of Historically Black Institutions Did to Succeed.

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