When you’re looking at colleges in your junior or senior year of high school, contemplating a transfer to a new school or planning to go back to college, there are a number of factors to consider. Cost is, of course, a huge concern, as is geography if a school you’re looking at charges out-of-state tuition. You may be looking at what majors are offered, what distinguished alumni have come out of the school or what their NCAA stats are. But what you may not have considered (at all, ever, for any reason) is what the school’s cohort default rate is. And yet, it may be the most important number you’ve never thought about.
What is a cohort default rate?
The cohort default rate measures what percentage of graduates with federal student loans have defaulted on their debt after entering repayment. Currently, the government tracks the two year and three year cohort default rate (CDR) of colleges across the country. If a college has a high CDR, it’s a sign that things are not right for some reason and that you may be putting your financial future in peril if you choose that school.
What is a default rate?
To understand the CDR, you have to understand the underlying terminology. Default occurs when a borrower has gone 270 or more days without making a loan payment. This is not to be confused with delinquency, which occurs as soon as even one payment is late. It’s pretty dire when a graduate doesn’t make a payment for more than nine months, so you should be able to see that it doesn’t speak well for a school to have a preponderance of alumni unable to pay their student loan debt.
What college characteristics drive cohort default rates?
There will always be outliers of grads that can’t afford to pay their debt, but when it’s a trend, you have to look beyond the individual debtors and dig into whether there are problems with the school. For-profit schools have the most troubling default rates and account for 46% of defaulters despite accounting for only 13% of enrolled students. Non-profit colleges have the lowest CDR followed by public institutions.
Why should cohort default rate factor into your college choice?
Higher than average CDR indicates there may be something wrong with the institution. It could be that the school isn’t properly equipping graduates to pass needed certification exams, has a lackluster placement program or otherwise fails to prepare graduates for successful employment after they leave school. Alternately, the grad may be able to find a job, but the tuition was so onerous that student loan debt far outstrips the ability to pay. Either way, a school with a high CDR should be red flagged.
You can click here to search the federal government’s cohort database to see how the school or schools you’re considering are performing when it comes to their grads’ ability to service their debt. And to make sure you’re not setting yourself up for a default scenario, it’s important that you always keep track of how much you’re borrowing and what this will translate to in monthly payments. Sign up for Tuition.io’s free student loan tool to always know what your debt is so you can make sure you’ll be able to pay it back when your loans come due.