Since 2013, the National Student Loan Cohort Default Rate has been trending down. The official 2018 rate is now 7.3%, down from last year’s (2017) rate of 9.7%

According to Federal Student Aid’s National Default Briefing, the highest Defaults are still coming from the proprietary school sector which has an average Default Rate of 11.2% for the 2018 CDR. Public institutions fared much better at 7.0%, followed by private institutions with just 5.27% of students defaulting on their loans. Still, within each sector there are interesting outliers. For example, Public 2–3-year institutions came in at 11.5% roughly the same as the average of the Proprietary sector. Private, less than 2 years were 11.9% and private 2–3-year schools came in at 12.1%.

The Fiscal Year 2018 Three-Year CDR is calculated by dividing the number of borrowers who entered repayment in 2018 by the number of borrowers who entered repayment in 2018 and defaulted in 2018, 2019 or 2020. A school with a high default rate will face sanctions and may lose its eligibility to participate in Federal Student Aid Programs or expand their scope of participation with ED. Schools with Three-year CDRs of 30% or greater for three consecutive years or with CDRs greater than 40% for one year are subject to federal sanctions.

The official Three-Year rates were sent to all schools via their Student Aid Internet Gateway (SAIG) mailbox. Federal Student Aid’s Operations Performance Management Services calculates the rates which measure the ratio of students who enter repayment during a cohort year and who later default on those loans. Since the data isn’t always right, schools can challenge and appeal their CDR calculation to have their rates adjusted. Schools may begin submitting challenges and appeals on, October 6, 2021, though this year FSA is instructing schools that wish to file the following appeals via email:

• Participation Rate Appeal
• Economically Disadvantaged Appeal
• Erroneous Data Appeal

Uncorrected Data Adjustments and New Data Adjustments may still be filed through the eCDR Appeals website. The deadline to file FY 2018 Official Cohort Default Rate Appeals is November 4, 2021. For more information, including the special email address for the appeals mentioned above, check out this electronic announcement from Federal Student Aid.

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• Social Security number
• Alien Registration number (if they aren’t a U.S. citizen)
• 2020 Federal income tax returns, W-2s, and other records of money earned.
• Bank statements and records of investments (if applicable)
• Records of untaxed income (if applicable)
• An FSA ID (one for the student and if needed, one for their parent) to electronically sign the FAFSA form.

Remember, students can complete their application online or on the mobile app to access more than 150 billion in Financial Aid and Federal Student Loans.

There are a few notable changes this year, so be sure to update your publications, policies, and procedures.

First, students who did not register with Selective Service Registration System will now qualify for Federal Financial Aid. Additionally, students who have been convicted of possessing or selling illegal drugs are no longer prohibited from accessing Federal Student Aid funds. The Department will not be publishing the Drug Conviction worksheet for Question 23.

The Department changed the required verification items for the 2022-2023 award year too. High School Completion status has been removed for V4 and V5 verification tracking groups and as a result, institutions are no longer required to obtain high school completion documentation to complete verification. Students in the V4 tracking group will only need to provide a statement of educational purpose and identity statement.  However, unlike the adjustments the Department made for the 2021-2022 award year, institutions must verify all the items from Verification Tracking Group V1 such as financial and tax information, household size and number in college as well as student identity and statement of educational purpose for the V5 tracking group.

Federal Student Aid also announced that because of the American Rescue Plan the first $10,200 of unemployment benefits were considered non-taxable income for each taxpayer with incomes less than $150,000.00. As a result, tax filers who received unemployment benefits and filed their Federal Income Tax Returns before March 11, 2021, will have a higher Adjusted Gross Income than taxpayers who filed after the ARP went into effect, which may reduce their eligibility for Federal Student Aid. FSA is encouraging schools to use professional judgment to adjust affected aid applicants’ AGI to help students access financial aid if appropriate to do so.

Finally, an issue originally announced in March affecting some applicants that have completed a 2021-2022 FAFSA form, used the IRS Data Retrieval Tool (IRS DRT) to transfer their tax return information, and had their adjusted gross income (AGI) inaccurately reported as $1 for Title IV purposes will continue to be an issue for the 22-23 FAFSA cycle. Affected applicants are primarily those who used the IRS’s “Enter Payment Info Here Tool” for Non-Filers who attempted to claim stimulus checks. FSA is asking Financial Aid Administrators to identify all instances of $1 AGIs, for the 2022-23 FAFSA cycle, and work with applicants to resolve the conflicting information. To resolve the issue, applicants should obtain a Record of Account from the IRS to verify whether the $1 value is correct and adjust the student’s financial aid package if needed.

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ED reminded institutions of their authority to make adjustments to reduce a student’s and/or parent’s Adjusted Gross income on the FAFSA. Under this authority to use Professional Judgment, a financial aid administrator can use recent documentation of unemployment, such as an unemployment verification letter, online unemployment insurance account records from the state unemployment agency, or other supporting records, to set to zero the income earned from work for a student and/or parent and to make other needed adjustments to Adjusted Gross Income, allowing students and families to receive maximum Pell Grant funding.

Remember to adequately document your PJ decisions and keep supporting documents on file.

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Updated the order of return (for both institution and student returns) to require returns of Iraq-Afghanistan Service Grants prior to returns of Federal Supplemental Educational Opportunity Grant (FSEOG) and Teacher Education Assistance for College and Higher Education (TEACH) Grant funds;

Expanded the approved leave of absence (LOA) definition to incorporate subscription-based programs;

Expanded the definitions of “academic attendance” and “attendance at an academically-related activity” to refer to the new definition of “academic engagement” found under 34 CFR 600.2;

Updated the definition of a “program offered in modules” to apply only to standard and nonstandard term programs that are not subscription-based;

Amended the timeframe associated with when a student is considered withdrawn if not scheduled to begin a new course in a non-term or subscription-based program;

Amended the written confirmation timeframe associated with when a student is scheduled to resume attendance later in the period for students in non-term or subscription-based programs;

Exempted students who graduate or complete all requirements for graduation from the R2T4 requirements;

Exempted students in term-based programs that do not use subscription periods from R2T4 requirements if they cease attendance after successfully completing a module or combination of modules that include 49 percent or more of the number of days in the payment period;

Exempted students in term-based programs that do not use subscription periods from R2T4 requirements if they cease attendance after successfully completing coursework equal to or greater than the coursework required for the institution’s definition of a half-time student under 34 CFR 668.2;

Amended the requirements for establishing the total number of days in the payment period or period of enrollment (denominator) of the R2T4 calculation to only include the days in a module if the student attended the module or the student’s coursework in that module was used to determine the amount of the student’s eligibility for Title IV, HEA funds for the payment period or period of enrollment; and

Allowed institutions to use an “R2T4 Freeze Date” to establish the number of days in the denominator of the R2T4 calculation based on the student’s enrollment on a specific date.

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Institutions will have through June 30, 2022 to either assign or purchase loans that have been in default for more than two years. If an institution determines that borrowers who have defaulted Perkins Loans are making payments, the institution may notify the Department that documentation showing an acceptable collection record is available upon request. If the documentation is requested and reviewed by the Department, the institution will be notified whether these loans are required to be assigned, purchased, or if the institution may continue collecting on these loans.

The Department plans to assess all active Perkins loan assignment activity to ensure that institutions are making sufficient effort to service their outstanding loans. To that end, they said that if an institution has shown insufficient effort assigning, purchasing, or providing acceptable collection records to the Department for review, a warning letter will be sent to the institution’s President, reminding them take action on these loans by the June 30, 2022 deadline.

Institutions must maintain documentation of their collection efforts for defaulted loans. According to the EA, schools that don’t maintain acceptable records, may be required to assign the loans to the Department “without recompense”. In the Department’s view, “the fact that a loan has been in default for more than two years suggests a lack of compliance with the collection procedure criteria established by regulation.” Thus, unless an institution can demonstrate with adequate documentation that they have tried to collect on a defaulted loan in accordance with the HEA’s requirements, they will be required to assign those loans to the Department.

Although institutions can now voluntarily assign Perkins loans, including those loans that have an acceptable collection record or are not in default, at any time, there are specific rules to follow when pursuing collection themselves.

If the institution, or the firm it engages, pursues collection activity for up to 12 months and is not successful in converting the account to regular repayment status, or the borrower does not qualify for deferment, postponement, or cancellation on the loan, the institution shall:  

• Litigate in accordance with the procedures in § 674.46;
• Make a second effort to collect the account as follows:
• If the institution first attempted to collect the account using its own personnel, it shall refer the account to a collection firm.
• If the institution first attempted to collect the account by using a collection firm, it shall either attempt to collect the account using institution personnel, or place the account with a different collection firm; or
• Submit the account for assignment to the Secretary in accordance with the procedures set forth in § 674.50.
• If an institution is unsuccessful in its efforts to place a loan in repayment after extensive collection efforts, it must continue to service the loan by making yearly attempts to collect from the borrower until the loan is
• recovered through litigation;
• assigned to the Department; or
• written off only if the outstanding principal, accrued interest, collection costs and late charges are within the allowable thresholds as prescribed under § 674.47(h) (loans with a balance of less than $25; or loans with a balance of less than $50 if the borrower has been billed for this balance for at least 2 years).

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Normally, any such returns would be offset by a downward adjustment in the student’s Pell Grant, Direct Loan, and/or TEACH Grant record in the COD System. However, once a school has assigned the Coronavirus Indicator to a Pell Grant, Direct Loan, or TEACH Grant disbursement, the school is unable to modify the disbursement amount. In these situations, a downward adjustment to the student’s COD records is not required, and the school is instead directed to return the funds using the G5 Miscellaneous Refund process.

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The announcement gives schools flexibility to choose their own verification policies and make their own determination as to how to implement these changes, but FSA reminded schools to review subsequent ISIR transactions and to be sure to resolve any conflicting information. This waiver may apply no matter where institutions are in the verification process, e.g., if documents have been collected or requested, but verification has not been completed, or if an institution has not started the verification process. However, this does not exempt institutions from reviewing all documents for conflicting information concerning a student’s eligibility.

FSA also reminded schools that the in-person submission and notary requirements have been removed temporarily due to the pandemic. To complete verification for Identity and Statement of Educational Purpose, institutions can accept:

• copies of the required verification documents electronically. This may occur by uploading a photo of the documents (including from a smartphone), PDF, or other similar electronic document through a secure portal at the institution, by email, etc.
• an electronic signature using a stylus or finger to sign the statement, or an image of the individual’s signature affixed to the statement in lieu of obtaining a wet signature.

The Department hinted that additional adjustments to the verification process may be made in the future to ensure the verification process is “robust and equitable”. That’s something o look forward to.

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The Coronavirus Indicator will be accepted for any qualifying disbursement with a payment period start date between January 8, 2018, and July 1, 2022, if all other requirements are met. The deadline is applicable only for the 2020-2021 award year. There is no change to the December 31, 2020, deadline to add the Coronavirus Indicator for disbursements from the 2019-2020 award year, but FSA is allowing schools that become aware of withdrawals with qualifying disbursements to add the Coronavirus Indicator as soon as possible.

The extension is applicable to all award years for funds not returned for R2T4 purposes due to Cares Act relief.

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According to an electronic announcement from FSA, under the previous formula, schools were required to use a ratio of 37.5 in-class clock hours to each semester/trimester credit hour, or 25 in-class clock hours to each quarter hour, except that institutions could include “work outside of class” (out-of-class) hours as long as the in-class hours met a lower ratio – 30 clock hours to one semester hour or 20 clock hours to one quarter hour and the institution’s accrediting agency had not identified any problems with the institution’s establishment of credit hours. But under the new rules, out of class work time has been eliminated for the purposes of determining the number of Title IV credits in an eligible program.

Beginning on July 1, 2021the new conversion formula must be applied unless:

• The program is at least two academic years in length and provides an associate degree, a bachelor’s degree, a professional degree, or an equivalent as determined by the Department (Note that this does not permit an institution to ask for a determination that a non-degree program is equivalent to a degree program); or
• Each course within the program is acceptable for full credit toward a single associate degree, bachelor’s degree, or professional degree provided by that institution, or equivalent degree as determined by the Department, provided that the institution’s degree requires at least two academic years of study and the institution can demonstrate that students enroll in, and graduate from the degree program.

Make a note – if these changes affect your programs, you will need to report the change to ED on your E-App.

• If the new calculations result in a change in the number of Title IV credit hours in a program, the institution must submit an E-App immediately at https://eligcert.ed.gov to update both the number of clock hours and Title IV credit hours in the program; or
• If the new calculation does not change the number of Title IV credit hours in the program, the institution should update the E-App to change the number of clock hours reported for the program when the next update or recertification application is submitted.

Several other changes to regulatory requirements that were also part of the Distance Education and Innovation Final Regulations released on September 9, 2020, take effect on July 1, 2021, unless an institution decided to implement them early, including:

• Satisfactory Academic Progress
• Return to Title IV Funds
• Distance Education
• Institutional Eligibility
• Subscription-Based Programs

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The final regulations define “student,” for purposes of the phrases “grants to students,” “emergency financial aid grants to students,” and “financial aid grants to students” as used in the HEERF programs, as any individual who is or was enrolled (as defined in 34 CFR 668.2) at an eligible institution of higher education (IHE as defined in 34 CFR 600.2) on or after March 13, 2020, the date of declaration of the national emergency concerning the novel coronavirus disease. This definition enables an IHE to appropriately determine which individuals currently or previously enrolled at an institution are eligible to receive emergency financial aid grants to students under the HEERF programs, as originally enacted under the CARES Act and continued through the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSAA) (Pub. L. 116-260) and American Rescue Plan Act of 2021 (ARP) (Pub. L. 117-2).

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