CDR: To Challenge or Not to Challenge…

Melissa Maichle ., Federal Student Aid Programs, General Issues in Financial Aid



Next month, colleges will receive draft Cohort Default Rates (CDR) for FY2016 and will have the opportunity to challenge the data if there are inaccuracies.  First let’s dive into what the CDR represents.  The Department of Education calculates the institution’s CDR each year to measure their success with administering federal student loans.  The CDR calculates the percentage of student borrowers that entered repayment in a given year and defaulted within the three-year monitoring period.

In the case of the upcoming draft rate, the following data and formula will be used.  The denominator includes all of the borrowers from your institution that entered repayment on their Stafford loans between October 1, 2015 and September 30, 2016 (this is the cohort). The numerator includes the borrowers in the cohort that defaulted during the monitoring period which ran October 1, 2015 through September 30, 2018.  The fewer students that defaulted during the monitoring period the lower the rate will be.


Borrowers from FY16 Cohort defaulting in FY16, FY17, FY18


Borrowers entering repayment in FY16 (FY16 Cohort)


How do you challenge the CDR?

There are two ways to lower the CDR through the challenge process: reduce the number of borrowers in the numerator or increase the number of borrowers in the denominator using the incorrect data challenge (IDC).  For those new to the world of CDR, the challenge process works quite a bit like a professional judgment adjustment; the only way to change the result is to adjust the underlying data used in the calculation—but it can only be changed if the data is inaccurate.

How do you do this?  Review a file the Department of Education provides called the Loan Record Detail Report (LRDR) which lists the loans for each member of the cohort along with enrollment and loan status data currently on file with the National Student Loan Data System (NSLDS) and look for mistakes.  Using Default Management’s online system, these mistakes (or challenges) are shared with the loan servicer (or guarantor for FFELP) and if the servicer is in agreement, corrections are made before the official CDR is calculated in the fall.  The draft period is the only time you will have the opportunity to do this.


Should you challenge the CDR?

If this sounds like a lot of work, it can be.  Plus, the period to do research and submit challenges is only 45 calendar days.  So why bother?  There are several good reasons why it is worth the effort.  For obvious reasons, institutions that are at or close to the threshold where sanctions may be imposed need to make sure they won’t be imposed based on incorrect information.  There is an additional challenge option for institutions at or close to the threshold, so understanding your options is important.  Sanctions include loss of eligibility to participate in the Direct Loan program or receiving provisional certification.  There are also benefits granted to low-CDR schools that may be lost such as being able to issue loans in a single disbursement to students enrolled for only one semester or being exempt from the requirement delaying first-time undergraduate disbursements.  Aside from the institutional ramifications, the cohort is made up of real people who may be experiencing difficulty obtaining affordable credit or returning to college due to this incorrect information.

To challenge or not to challenge, that is the question.  If your institution’s enrollment reporting is timely and accurate and/or doesn’t have a particularly large population of transfer students, there isn’t likely to be much if any erroneous information in the LRDR.  In which case, your resources may be better used elsewhere.  The Cohort Default Rate Guide contains very useful information for managing this process and monitoring CDR year-round, which in turn, may make the challenge process unnecessary.  For those choosing the challenge route, see part 2 of this blog next month for more details about how to conduct the research necessary to submit challenges and using the Default Management online process.

Contact us if you have question or would like help with the review.