Federal Student Aid and Loan Default Rates at Postsecondary Institutions

Faculty: Tod Mijanovich
Team: Leslie Cook, Sharon Fuchs, Nick Klagge, Derek Rury, Vasundhara Vats
Year: 2013

Tuition costs at colleges and universities have risen dramatically in recent years, due in part to state and federal higher education funding cuts. As a result, students are taking on heavy debt burdens to fund the high cost of a college degree, amounting to roughly $1 trillion in outstanding federal student loans with over $120 billion of those loans currently in default. Previously, postsecondary institutions with 2-year default rates above 25% could lose eligibility for federal aid. After Congress demanded more disclosure, a new measure will take effect in 2014 that requires institutions to be held to a 3-year default rate standard. This study explores the recently released data by the Department of Education on 2- and 3-year federal student loan default rates, and the strategic behavior on the part of postsecondary institutions to extend default rates in order to continue receiving federal loans.