Federal Student Aid and Loan Default Rates at Postsecondary Institutions

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.