More than one million students default on loans each year with student loan debt reaching $1.5 trillion, according to a policy brief released by Higher Learning Advocates.
With the rise of student debt, the brief “Outcomes-Based Accountability: Holding Institutions Accountable for Successful Student Loan Repayment” recommended improvements to the current federal aid requirement system.
Each year, $120 billion in federal student aid goes through eligible higher education institutions to help students pay for college, according to the report.
The current federal requirements of cohort default rates (CDR), accreditation and financial responsibility scores are designed to hold institutions accountable.
CDR is a measurement that notes how many students default on federal student loans within three years of leaving school. Post-secondary institutions are required to maintain less than a 40% CDR for a single year or 30% for any three consecutive years to qualify for financial aid programs.
However, the research brief also found that CDR’s metric system has flaws when fully assessing student loan repayment outcomes. In general, only 21 of 6,000 eligible schools failed to meet the metric. Of those institutions that failed, many still remained eligible for federal student aid, the brief noted.
To solve this issue, the introduction of the the program-level cohort repayment rate (CRR) alongside CDR was recommended, which would allow institutions and policymakers to identify programs that don’t lead to successful repayment earlier. An institution must hold a CRR above 35% in order to be eligible for federal student aid.
