There’s good reason for schools to keep their default rates low. Schools with low default rates enjoy special benefits such as the ability to disburse loans without delaying the disbursement date for 30 days for first time borrowers and the ability to make single loan disbursements for students in study abroad programs.
On the other hand, schools with Three-Year CDRs of 30% or greater for three consecutive years or with CDRs greater than 40% for one year may face federal sanctions.
Some schools have a small number of borrowers entering repayment which can really make their rates look awful. At other schools only a small portion of the student body takes out student loans. If only three students chose to borrow loans, and one defaults, a school’s default rate would be 33% and subject to sanctions.
If a school is facing sanctions, schools with a low loan “participation rate” may be able to appeal sanctions through the Participation Rate Index Appeal. To qualify a school can’t have more than 21% of students borrowing loans in a cohort.
To determine if your school might qualify check out the Templates and Spreadsheets section of FSA’s Default Management website and navigate to the Participation Rate Index Worksheet. This worksheet is intended to help schools understand whether their student loan volume is low enough to meet the criteria of a PRI Challenge or Appeal.