Posted Date: February 25, 2011

Author:  William Leith, Service Director, Program Management, Federal Student Aid

Subject: Definition of Default for Student Eligibility and Cohort Default Rate Calculations

We take this opportunity to clarify the definition of default as it applies for the purposes of student eligibility and cohort default rate calculations.

Student Eligibility

Under section 435(l) of the Higher Education Act of 1965, as amended (HEA), a borrower who is 270 or more days past due in repaying a Federal Family Education Loan (FFEL) Program loan or a William D. Ford Federal Direct Loan (Direct Loan) Program loan is considered to be in default. Such borrowers are not eligible to receive additional Title IV federal student aid unless the borrower has made satisfactory arrangements with the holder of the loan to repay the loans.

Cohort Default Rate Calculations

Under section 435(m) of the HEA, for purposes of calculating a cohort default rate, a FFEL loan held by a FFEL lender is considered in default on the date the default claim is paid by the guaranty agency to the lender (Claim Paid Date). However, since neither Direct Loans nor FFEL loans held by the Department of Education (purchased from FFEL lenders) have a guaranty agency to pay a default claim, an alternate default date for cohort default rate calculations was developed. The regulations provide that for both a Direct Loan and a FFEL loan held by the Department of Education, the date of default is when the loan is 360 days past due - a date that approximates the average time a default claim is paid by a guaranty agency on a FFEL loan held by a FFEL lender.

In summary, the chart below describes when the various types of loans are considered to be in default for the calculation of a school’s cohort default rate.

If the loan is a... The holder is the... The loan is included as a defaulted loan in the school’s CDR calculation when the...
FFEL Loan FFEL Lender Default Claim is Paid by the Guaranty Agency
FFEL Loan Department of Education Loan is 360 Days Past Due
Direct Loan Department of Education Loan is 360 Days Past Due


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