The CDR Iceberg

Is Your College in Danger of Hitting the CDR Iceberg?

Colleges across the country have seen 0% Cohort Default Rates (CDR) for the past several cycles. While it may seem like a reassuring sign for schools, the reality is far more complex. The recent 0% draft CDRs do not reflect what is happening with currently active student loan cohorts. Much like an iceberg, the real danger is beneath the surface and may not be immediately apparent to college leadership. Now is the time to take a closer look at borrower behavior and repayment statistics for your institution.

Why Now?

The current 0% CDR is largely a temporary consequence of the COVID-19 repayment pause and subsequent Federal On-Ramp period. Colleges and universities in all sectors are experiencing higher than normal delinquency rates. National statistics indicate that over 30% of borrowers aren’t making payments—and many have no intention to begin. Inaccurate information from various social media sites has added to borrower confusion about how and when to begin repayment. This issue is especially acute for the students in the FY2024 cohort. As repayment resumed, delinquencies skyrocketed, and colleges could see default rates exceed pre-COVID CDRs (Note: FY2017 was the last CDR that was unaffected by the federal repayment pause.)

The Risks of Increasing CDRs

• A CDR of 40% in any single year may result in immediate federal sanctions (i.e., loss of access to federal student loans).
• A CDR of 30% sustained over three consecutive years could lead to the loss of eligibility for Pell Grants and Direct Loans.
• A CDR of 15% triggers a transition from single to multiple disbursements for federal financial aid and may be flagged by certain accrediting organizations.