oversight

Change in the Computation of Cohort Default Rates Would Make Rates More Accurate.

Published by the Department of Education, Office of Inspector General on 2000-03-31.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

 CHANGE IN THE COMPUTATION OF
 COHORT DEFAULT RATES WOULD
  MAKE RATES MORE ACCURATE


                           FINAL AUDIT REPORT




                                 Control Number ED-OIG/A06-70006
                                            March 2000




Our mission is to promote the efficient                            U.S Department of Education
and effective use of taxpayer dollars                                Office of Inspector General
in support of American education                                                   Dallas, Texas
                        NOTICE
Statements that management practices need improvement, as
well as other conclusions and recommendations in this
report, represent the opinions of the Office of Inspector
General. Determinations of corrective action to be taken
will be made by appropriate Department of Education
officials.

In accordance with the Freedom Information Act (5 U.S.C.
§552), reports issued by the Office of Inspector General are
available, if requested, to members of the press and general
public to the extent information contained therein is not
subject to exemptions in the Act.
                               TABLE OF CONTENTS

EXECUTIVE SUMMARY ..............................................................................................................1

AUDIT RESULTS ...........................................................................................................................3

 Higher Education Act Requires Cohort Default Rate Calculation.......................................................3
 Claims Processing Time...................................................................................................................4
 Effect of Not Counting Borrower Defaults .......................................................................................5
 Analysis of 1994 Cohort Default Rate Data .....................................................................................6
 Additional Schools Subject to Administrative Action........................................................................7
 Analysis of 1996 Cohort Default Rate Data .....................................................................................8

RECOMMENDATIONS.................................................................................................................8

OTHER MATTERS .........................................................................................................................9

DEPARTMENT RESPONSE TO DRAFT REPORT.......................................................................9

OIG COMMENTS ........................................................................................................................10

BACKGROUND...........................................................................................................................14

OBJECTIVES, SCOPE, AND METHODOLOGY........................................................................14

STATEMENT ON MANAGEMENT CONTROLS ......................................................................15

APPENDIX I

APPENDIX II

APPENDIX III
                      EXECUTIVE SUMMARY
Based on the Department of Education’s longstanding interpretation and implementation of the default
provisions of the Higher Education Act, official cohort default rates are understated. As a result,
schools with high default rates are not being identified because not all of the borrowers who meet the
statutory definition of a defaulter during the cohort period are included in the default rate computation.
Our analysis of loans included for the 1994 cohort period calculation disclosed that an additional 115
schools would have reached the 25 percent cohort default rate threshold if claims paid during the three
months following the end of the cohort period were considered. The 115 schools include 16 schools
that would have reached or exceeded a 25 percent rate for three consecutive years and lost eligibility to
participate in the Federal Family Education Loan and the Direct Loan Programs, subject to the appeals
process. The 16 schools disbursed about $18.2 million annually in Federal loan funds. Based on a 25
percent default rate, we conclude that $4.6 million could have been better used annually. The remaining
99 schools would have reached or exceeded a 25 percent 1994 cohort default rate for one or two of
the previous three years.

The Department considers a 25 percent or higher cohort default rate to be an indication of a lack of
administrative capability and places schools on provisional certification to participate in the Title IV
programs if that threshold is reached for a single year. Cohort default rates are also a key performance
indicator in the Department and Student Financial Assistance performance plans. Therefore, it is
important that the rates be accurate.

By statute, a default is included in the rate calculation only if the Secretary or a guaranty agency pays a
lender’s claim for reimbursement. The understated rates occur because the Department does not
capture the default date or count reported defaults unless the claim is paid within the cohort period.
Because of claims processing time, borrowers who default near the end of the cohort period are never
considered in any cohort rate computation. This has been the interpretation and practice of the
Department since default rates were first published in 1989.

Since the practice was instituted, technological advances and use of the National Student Loan Data
System (NSLDS) have improved the Department’s ability to calculate default rates. When the
Department first computed cohort default rates, student loan data was available only on the annual
guaranty agency tape dump. The NSLDS replaced the tape dump in January 1995 and is updated
monthly.

We are recommending that the Chief Operating Officer (COO) for Student Financial Assistance
capture the default date in the NSLDS and use that date in calculating cohort default rates for schools.
We also are recommending that the Assistant Secretary for the Office of Postsecondary Education, with
appropriate consultation with the public, modify the current cohort default rate computation method to
include defaults that occurred within the cohort period but were subsequently paid during the first three
months following the cohort period.
The COO agreed that it was necessary to support strong student default prevention measures to protect
the government from the costs associated with high rates of default. However, the COO did not agree
with our recommendations for changes in computing default rates. The COO stated: 1) A change in the
calculation method would reduce the usefulness of the data to perform comparative analysis; 2) some of
the loans we based our analysis on may have defaulted outside of the cohort period; 3) the scope of our
analysis was too limited to be applied universally; 4) a change in the default calculation methodology
would require major changes to the NSLDS system which are not an investment priority; and 5) adding
another quarter to the cohort period would not allow the Department enough time to release the default
rates by the required deadline.

To address the COO’s comments, we performed additional audit work and made appropriate changes
to the data presented in the report. Based on the totality of our work, we find that the recommended
modification would not require major changes to NSLDS or prevent publishing the default rates within
required deadlines. Based on a random sample review and a statistically valid sample projection, we
estimate that 80 percent of the default claims paid in the first quarter of a cohort period were for loans
that defaulted in the prior cohort period. As a result, there was no evidence collected to cause us to
change our recommendations.

We have paraphrased the COO’s comments and provided additional OIG comments after the Other
Matters section of this report. The full text of the COO’s response is included as Appendix III.
Control Number: ED-OIG/A06-70006                      FINAL                                                  Page 3

                                         AUDIT RESULTS
Cohort default rates are understated because not all of the borrowers who meet the statutory definition
of a defaulter are included as a default in the cohort default rate computation. The missing defaults are
the result of the Department’s longstanding interpretation and implementation of the default provisions of
the Higher Education Act of 1965, as amended (HEA). Based on an analysis of the loans used to
compute the fiscal year (FY) 1994 cohort default rates, 115 schools in addition to the schools identified
by the Department would have reached at least a 25 percent cohort default rate. The 115 schools
included 16 schools that would have reached at least a 25 percent rate for three consecutive years. The
remaining 99 schools included 19 schools that would have reached at least a 25 percent rate for two
consecutive years and 80 schools that would have reached at least a 25 percent rate for the latest year.


The 16 schools would have lost eligibility, subject to the appeals process, to participate in the Federal
Family Education Loan Program (FFELP) and the Federal Direct Loan Program. They disbursed
about $18.2 million in FFELP and Direct Loan funds annually. The 99 schools would have been placed
on provisional certification and monitored.1

 Higher Education Act                        According to the HEA, section 435(l), a default occurs when no
Requires Cohort Default                      payments have been made on a loan for 180 days (currently 270
   Rate Calculation                          days) for a loan repayable in monthly installments or for 240
                                             days (currently 330 days) for a loan repayable in less frequent
                                             installments. The HEA, section 435(m), sets forth the
                                             requirements for computing the cohort default rate. With certain
                                             exceptions, the HEA states that the cohort default rate is the: . .
                                             . percentage of those current and former students who enter
                                             repayment on such loans received for attendance at that
                                             institution in that fiscal year who default before the end of
                                             the following fiscal year.

                                             The HEA, section 435(m), also states: In determining the
                                             number of students who default before the end of such fiscal
                                             year, the Secretary shall include only loans for which the
                                             Secretary or a guaranty agency has paid claims for
                                             insurance, and, in calculating the cohort default rate,
                                             exclude any loans which, due to improper servicing or
                                             collection, would result in an inaccurate or incomplete
                                             calculation of the cohort default rate.


         1
         The Department had already provisionally certified 35 of the schools as a result of current policies and
procedures.
Control Number: ED-OIG/A06-70006                      FINAL                                                   Page 4

                                             The Department implemented the statutory requirements for
                                             determining cohort default rates. Under the Department’s
                                             longstanding interpretation, a default is not counted unless the
                                             claim is paid within the 2-year cohort period. As a result,
                                             defaults that occur near the end of the cohort period are not
                                             counted because of the time it takes to process and pay claims.
                                              The HEA, section 435 (m), and implementing regulations, Title
                                             34, Code of Federal Regulations (CFR), section 668.17
                                             (d)(1)(C) do not specify that only claims paid during the 2-year
                                             cohort period need to be counted.


Claims Processing Time                       Title 34, CFR 682.406 (a)(5) and (8), allows lenders 90 days
                                             to file a default claim with the guaranty agency (GA) and an
                                             additional 90 days for the GA to pay the lender for the default
                                             claim, a total of 180 days.

                                             The regulations also contain incentives to complete claims
                                             processing in a total of 120 days [34 CFR 682.406 (a)(5) and
                                             (6)]. At the Texas Guaranteed Student Loan Corporation, it
                                             took an average of between 120 and 130 days 2 to process and
                                             pay a default claim.

                                             If the 120 day incentive processing time was representative of
                                             all GAs, borrower defaults which occur after early June of the
                                             second year of the cohort period most likely will not be
                                             considered in a cohort default computation. The defaults that
                                             are not included will never be included in future cohort default
                                             rate computation because only borrowers with loans that enter
                                             repayment status in the base year of cohort periods are used in
                                             the rate computation process.

                                             At the time the Department first computed cohort default rates
                                             for FY 1987, student loan data was available only on the old
                                             annual GA tape dump. The tape dump contained information
                                             GAs provided to the Department on all of their FFELP loans.
                                             However, the tape dump data did not include


         2
         A GA official told us that it took between 30 and 40 days for lenders to send the claim to the GA. We
determined that it took about 90 days for the GA to process the claim. This results in an average of 120 to 130 days.
Control Number: ED-OIG/A06-70006       FINAL                                            Page 5

                               all of the information necessary to compute the rates based on
                               the actual default dates. The NSLDS replaced the tape dump
                               in January 1995 and it contains additional data that is updated
                               monthly. However, the defaults on the NSLDS are recorded
                               as the date the default claim was paid.

                               Default rates would be more accurate if the Department’s
                               calculation considered all defaults that occurred within the
                               cohort period, including those default claims that were paid in
                               the quarter after the cohort period ended. This would give the
                               Department nine months rather than a full year to meet the
                               statutory September 30th deadline to publish the cohort default
                               rates. The Department advised us that it takes a minimum of
                               nine months to publish the cohort default rates.


Effect of Not Counting         Not including defaults where claims are paid after the end of the
  Borrower Defaults            cohort period in the rate computation reduces the Department’s
                               ability to identify, monitor, or take administrative action for
                               schools when necessary. For example, 34 CFR 668.16
                               (m)(1)(i) states: . . . a school is administratively capable if
                               default rates are under 25 percent over a three-year period.


                               Further, 34 CFR 668.16 (m)(2)(i) states: Except that, if the
                               Secretary determines that the institution is not
                               administratively capable solely because the institution fails
                               to comply with paragraph (m)(1) of this section, the
                               Secretary will provisionally certify the institution.

                               The Department places schools on provisional certification after
                               the first year that a 25 percent default rate is computed. In a
                               response to our audit report, “Review of the Effectiveness of
                               Provisional Certification Administered by the U.S. Department
                               of Education,” Audit Control
                               Number A07-70008, the Department stated: A default rate in
                               excess of 25 percent is considered a lack of administrative
                               capability.
Control Number: ED-OIG/A06-70006                   FINAL                                               Page 6

                                          Title 34 CFR 668.17 outlines default rate thresholds where the
                                          Department may initiate a proceeding to limit, suspend, or
                                          terminate the participation of the institution in the Title IV
                                          programs. For example, the Secretary may take termination
                                          action if a school exceeds a 40 percent default rate for a single
                                          year.

                                          Cohort default rates also are a key performance indicator in the
                                          Department and Student Financial Assistance performance
                                          plans.3 Therefore, it is important that default rates be accurate.


Analysis of 1994 Cohort                   The NSLDS contains the date a default claim was paid, but it
  Default Rate Data                       does not contain the date a borrower defaulted on a loan. As a
                                          result, we could not determine the number of defaults that
                                          actually fell within the 1994 cohort period. As an alternative,
                                          we identified all borrowers with paid claim dates that occurred
                                          in the quarter following the end of the cohort period, and
                                          considered them to have actually defaulted during the cohort
                                          period. We did not include schools that had less than 30
                                          borrowers. This process identified the 115 schools in addition
                                          to the 351 schools that were identified by the Department as
                                          discussed in this report and shown in the table on the following
                                          page.

                                          Our analysis at the Texas Guaranteed Student Loan
                                          Corporation for four schools reviewed, disclosed that all claims
                                          paid during the quarter after the end of the 1994 cohort period
                                          were related to borrowers who defaulted during the 1994
                                          cohort period

                                          The following table compares the number of schools reaching
                                          the 25 percent default threshold based on the Department’s
                                          published 1994 rates and the number that would have reached
                                          the threshold if default claims paid in the quarter after the cohort
                                          period ended were considered.



        3
         The U.S. Department of Education 1999 Performance Reports and 2001 Plans and the Performance Plan for
Student Financial Assistance for FYs 2000 through 2004.
Control Number: ED-OIG/A06-70006                FINAL                                                Page 7

           NUMBER OF INSTITUTIONS REACHING 25 PERCENT
                           THRESHOLD

                                                      RATES CONSIDERING CLAIMS
    PUBLISHED 94 COHORT RATE                       PAID IN THE SUBSEQUENT QUARTER
                                      94 Rate   Number Over 25%
        Type of           Number       Over      W/3 Additional          Number             Percent
       Institution       Reviewed      25%      Months Claim Data        Increase          Increase

  Public                   1411          37             72                  35              94.6 %

  Private                  1376          43             50                   7              16.3 %

  Proprietary              1202         271             344                 73              26.9 %

                 Total     3989         351             466                115              32.8 %


Appendix I and II of this report detail our recalculated 1994 rates for the 16 schools that would have
potentially lost eligibility and the remaining 99 schools that would have been placed on provisional
certification and monitored. These results are conservative because we used the published rates
computed by the Department for cohort years 1992 and 1993 in the evaluation of the three-year
period.


  Additional Schools                    Our analysis of the 1994 cohort default rates also disclosed an
     Subject to                         additional 13 schools that would have reached the 40 percent
 Administrative Action                  threshold if default claims paid in the quarter after the cohort
                                        period ended were considered. The Department could have
                                        initiated a proceeding to limit, suspend, or terminate the
                                        participation of the 13 schools in the Title IV programs [34
                                        CFR 668.17 (a)(2)]. Default rates for the 13 schools ranged
                                        from 40.0 to 45.7 percent when default claims paid in the
                                        quarter after the cohort period ended were considered. The 13
                                        schools received about $24.7 million in Title IV funds annually.

                                        The Department’s practice has been to refer schools with
                                        default rates of 40 percent or more to the Administrative
                                        Actions and Appeals Division. The Administrative Actions and
                                        Appeals Division considers each school’s default rate, number
                                        of borrowers, and other factors in determining whether to
                                        initiate a proceeding to limit, suspend, or terminate the school’s
                                        Title IV participation.
Control Number: ED-OIG/A06-70006                 FINAL                                               Page 8

Analysis of 1996 Cohort                  We performed additional work after our draft audit report was
  Default Rate Data                      issued to address comments received by the Chief Operating
                                         Officer (COO) for Student Financial Assistance. The additional
                                         work included analysis of the 1996 cohort data that further
                                         supports our conclusion that the majority of claims paid during
                                         the first quarter of a cohort period are for loans that defaulted in
                                         the previous period.

                                         We identified 23,278 borrowers from NSLDS records as of
                                         September 24, 1999, who had claims paid during the quarter
                                         after the 1996 cohort period ended. Our statistically valid
                                         projection based on a random sample review of 100 of the
                                         23,278 borrowers disclosed that 80 percent had defaulted
                                         within the 1996 cohort period. For each of the 100 sample
                                         borrowers, we provided the lender loan data obtained from the
                                         NSLDS on the borrower’s loan(s) and asked the lender to
                                         provide documentation of the actual default date for the loan(s).
                                          Lenders provided documentation for 97 of the 100 borrowers.
                                          Based on the sample results, we are 90 percent confident that
                                         18,622 (plus or minus 1,528) of the 23,278 borrowers
                                         defaulted during the 1996 cohort period.



                               RECOMMENDATIONS
We are recommending that the COO for Student Financial Assistance capture the statutory default date
in the NSLDS and use that date to calculate cohort default rates for schools.

We are recommending that the Assistant Secretary for the Office of Postsecondary Education, with
appropriate consultation with the public, amend the cohort default rate computation method to include
defaults that occurred within the cohort period but were subsequently paid in the first quarter following
the cohort period.
Control Number: ED-OIG/A06-70006                 FINAL                                            Page 9

                                   OTHER MATTERS
The reauthorization of the HEA, enacted on October 7, 1998, contains several provisions that will have
an impact on the computation of cohort default rates. One important change made was in the definition
of a default. The default date, which previously occurred after 180 days of delinquency, was extended
to 270 days for borrowers who have a monthly payment schedule. The change highlights the need to
consider the amount of time required for processing default claims to ensure that the cohort default rates
capture all of the borrowers who have in fact defaulted during the cohort period. For example,
borrowers who enter repayment between early July and September 30th of the base year of the cohort
period may never be included as a default in any cohort rate calculation. This failure to be included as a
default occurs because it can take 450 days for the default to be recognized. The borrower must be
delinquent for 270 days and the lender and GA are allowed 180 days to process and pay the claim.
Another important change with the reauthorization was that the Secretary is now required to publish the
cohort default rate report by September 30 of each year.



       DEPARTMENT RESPONSE TO DRAFT REPORT
The COO agreed that it was necessary to support strong student default prevention measures to protect
the government from the costs associated with high rates of default, but did not agree with our
recommendations for changing the way default rates are computed. The COO stated:

-       The current cohort default rate calculation method has achieved the desired objective of
        identifying institutions that have extremely high current default rates, 1,180 schools have been
        removed from the loan programs, and the national default rate has declined from 22.4 percent in
        1991 to the present 9.6 percent.

-       The current reporting practices are better than those in effect during the audit period which
        spanned the time that the Department was changing the way it calculated default rates. Changes
        during this time period included a new transmission mechanism (NSLDS), new data elements,
        additional data, and a new contractor.

-       Changing the calculation method would reduce the usefulness of data when comparative analysis
        is performed because the analysis would no longer be a consistent benchmark.

-       To determine how many additional defaulted loans would have been included, the OIG analysis
        assumes that all default claims paid within three months of the end of the cohort period were for
        loans that defaulted within that cohort period. However, some of these loans may actually have
        defaulted outside of the cohort period. The net effect of any erroneously included defaulted
        loans would be to inflate the revised cohort default rate.
Control Number: ED-OIG/A06-70006                FINAL                                            Page 10

-      The scope of the OIG’s analysis of the claim payment process after the loan defaults, which was
       based on only one GA’s experience with four schools, is too limited to be applied universally to
       approximately 4,000 schools across the country. Based on experience with lenders and GAs,
       the Department believes the claim payment process is generally completed much more quickly
       than indicated in the OIG report.

-      It is questionable whether implementation of OIG recommendations would increase the
       Department’s ability to take administrative action and result in the savings anticipated. The
       COO concluded that only 16 schools would have lost eligibility because of high default rates
       instead of the 22 schools identified by the OIG. In addition the COO stated that 35 of the
       remaining 99 schools (over 1/3 of the schools) are provisionally certified under current policies
       and procedures.

-      Changing the methodology would require major changes to the NSLDS system that is not an
       investment priority and the effect of the change would only result in a small change in the national
       default rate.

-      The NSLDS system is not currently programmed to use the date of default that is maintained in
       the system to calculate cohort default rates.

-      Adding three months to the calendar for computing default rates, which would be necessary to
       include the additional quarter of data, would only leave seven months, and nine months are
       needed, to comply with the current law which requires the Department to release the official
       rates by September 30 each year.

-      Analysis shows that the recent statutory change to the definition of default from 180 days to 270
       days of delinquency will result in only a 1.1 percent decline in the cohort default rate. In
       addition, the change will result in only a 0.19 percent reduction in the number of schools that are
       subject to loss of loan program eligibility due to three years of rates over 25 percent and only a
       0.02 percent reduction in the number of schools that are subject to loss of Title IV program
       eligibility due to one rate over 40 percent.

The COO also stated: “As we reevaluate methods, we will keep in mind that data collection dates can
make a difference. If we determine the computation of the cohort default rate could be improved, I
would then recommend that the Secretary either change the default rate calculation or recommend that
Congress change the definition, as appropriate.” A copy of the COO’s full response is included as
Appendix III to this report.
Control Number: ED-OIG/A06-70006                  FINAL                                            Page 11

                                     OIG COMMENTS
To address the COO’s comments, we updated our findings based on additional data provided. We
also performed additional analysis to test our conclusion that default claims paid during the quarter after
the end of the cohort default period were for borrowers who defaulted within the cohort period. Our
analysis of the COO’s response and our additional audit work did not cause us to change our
recommendations.

Current Success

We agree that the current cohort rate has identified schools that have high cohort default rates. We also
believe it is important to identify all schools that exceed the statutory threshold for default rates. Based
on our additional analysis and statistically valid projection, schools that are not identified continue to
operate and the students are harmed because one out of four (25 percent) or more of them likely will
default on their loans and their credit standing will reflect the default. The default status will also block
access to future Title IV assistance.

Current Reporting Practices

We agree that there have been changes since our audit of the 1994 cohort data. However, those
changes have not resulted in the changes we are recommending to more accurately reflect the cohort
default rate. This was confirmed by our additional analysis that included the 1996 cohort period and is
discussed below.

Inconsistent Bench Mark

We do not agree that changing the calculation methodology would reduce the usefulness of default data
or cause difficulties when performing comparative analysis. Since the HEA amendments of 1998
extended defaults by 90 days, Congress has already altered the year-to-year comparability of the
default rates. Adding another quarter of defaults paid outside the cohort period would not distort
comparative analysis in the future. Including the additional 90 days of defaults may improve
comparability.

Default Claims Paid in the Quarter after the Cohort Period Ends

In a meeting held after the COO’s comments were received, Department officials stated that their
comments regarding the time it takes to process default claims were based on their experience with GAs
and lenders. However, no data was provided to support their comments. We performed additional
analysis using the 1996 cohort period to confirm that the majority of default claims paid in the quarter
after a cohort period ended were for defaults that occurred within that cohort period.
Control Number: ED-OIG/A06-70006                 FINAL                                            Page 12

The additional analysis included a review of a valid random sample of 100 borrowers from the
population of 23,278 borrowers who had claims paid during the quarter after the 1996 cohort period
ended on September 30, 1997. This review disclosed that 80 percent of the borrowers had reached
the 180th day of non-payment (i.e., defaulted) within the 1996 cohort period. As a result, the
Department’s 1996 cohort default rate calculations did not consider an estimated 18,622 borrowers
(based on our statistically valid projection) who had defaulted in the 1996 cohort period. Additional
details of this analysis are provided in the Audit Results section of this report.

Questionable Better Use of Funds

We agree with the Department that only 16 rather than 22 schools should have been cited in our report.
 The 22 schools included two that successfully appealed their rates and four that would not have been
excluded from the loan programs (one Historically Black College and University and three schools that
had voluntarily dropped out of the loan programs). The 16 schools received about $18.2 million in
FFELP and Direct Loan funds annually. The schools would have reached a default rate of 25 percent
or more for three consecutive years. Based on a 25 percent default rate, we conclude that $4.6 million
annual better use of funds is significant. Moreover, it adds to the overall efficiency of the Title IV
programs by allowing the Department to focus its resources on true problem schools.

Systems Modification

The COO indicated that changes in the NSLDS system used to calculate cohort default rates were not
a priority, and that the changes would be costly and the effect on the cohort rate would be small. The
COO stated that inclusion of an additional quarter of data could jeopardize compliance with the
requirement to publish cohort rates by September 30 of each year because of the time it takes to
complete the process. We conclude that a small change in the percentage of the national default rate
represents a significant amount of money that could be better used as illustrated by our identification of
the 16 schools and the associated $4.6 million that could be better used annually. In addition, students
attending the schools are harmed as discussed above.

We do not agree that the cost of our recommended changes would be prohibitive or that the amount of
time required to complete the cohort process would be appreciably extended. The system contains
provisions for reporting changes in loan status and the effective date. There would be no need to
modify the system beyond adding another two-letter status code definition to the choices already
available for reporting loan status. The change would also require some direction to the lenders and
GAs to include the data in their normal reporting. GAs and lenders do have this information. Out of our
sample of 100 borrowers, lenders provided the actual default date on 97 borrowers. We conclude that
the funds available for better use would more than offset the cost of the action.
Control Number: ED-OIG/A06-70006                  FINAL                                            Page 13

The 1994 and 1995 draft rates were computed in mid-April and at the end of March, respectively. We
were advised that delays were caused by programming problems. The 1998 draft rates were calculated
on December 18, 1999. Since NSLDS is required to be updated monthly, future draft rates could be
calculated in January or early February following the end of the cohort period. As a result, the start of
the process would only be delayed by a short period.

Default Date

The COO stated that the system already contains data to identify the default date. We agree that the
system contains a number of status codes and the related dates for defaulted loans. However, our
review of status codes available for defaulted loans disclosed no status code defined as an initial default,
specifically the 180th (now 270th) day of non-payment as default is defined by the HEA. During a
meeting with Department officials held after we received the COO’s written comments, we learned that
the default date in the system that the COO referred to was actually the default paid claim date.
Control Number: ED-OIG/A06-70006                  FINAL                                            Page 14

                                       BACKGROUND
The Default Management Division within Student Financial Assistance calculates cohort default rates
annually from information obtained from the NSLDS. In November 1994, GAs began reporting data to
the NSLDS. Lenders were required to collect and report data to the GAs not less than once a quarter
starting in July 1995. These new processes were implemented to enhance the procedures for collecting,
calculating, and verifying the accuracy of the data used to calculate official cohort default rates.

The cohort default reduction initiative was designed to monitor the default rate of schools and to remove
schools with high default rates from the various loan programs. The first cohort default rates released
were the FY 1987 rates that were released in 1989. The first year that schools were subject to
sanctions due to their cohort default rates was 1991, when the FY 1989 cohort default rates were
released. Approximately 1,065 schools have lost eligibility to participate in the FFELP and/or the
Direct Loan Program since 1991 due to cohort default rates that exceeded the statutory threshold for
loan program participation.



         OBJECTIVES, SCOPE, AND METHODOLOGY
An original audit objective was to determine whether cohort rates were being manipulated by
participating schools, and if so, whether controls can be implemented to reduce manipulation. Based on
our analysis of four schools and one GA, we found no evidence that schools were manipulating cohort
default data. However, we found that the default rates were understated and expanded our objectives
to include a review of the methods for calculating and the accuracy of the 1994 cohort default rates.

We also evaluated management controls related to actions taken by the Department for schools with
cohort default rates exceeding those stipulated by law. In order to accomplish these objectives, we
analyzed the data used to compute the 1994 cohort rates, interviewed Default Management employees,
and employees at Texas Guaranteed Student Loan Corporation. We also reviewed and tested data
pertaining to four schools that utilized the Texas Guaranteed Student Loan Corporation as a guarantor.

Our audit dealt primarily with the data for the 1994 official cohort default rates and our recalculation of
those rates considering additional claim/default data not considered by the Department. We used
computerized back-up data provided by the Department and FFELP default claims paid during the
period October 1, 1995 through September 30, 1996.

FFELP default claim data related to borrowers that entered repayment during the period October 1,
1993 through September 30, 1994 were obtained from NSLDS. The Department in computing the
1994 cohort default rates did not consider direct loan data because the Direct Loan Program did not
begin until July 1, 1994.
Control Number: ED-OIG/A06-70006                   FINAL                                             Page 15

The 1992 and 1993 official cohort rates published by the Department were considered to analyze the
effects of the recalculated 1994 cohort rates. In total, our calculations and comparisons involved 3,989
institutions. Institutions with less than 30 borrowers that entered repayment during the base year
(October 1, 1993 through September 30, 1994) were excluded from our review.

After receiving the COO’s response to our draft report, we expanded our audit to include analysis of
the 1996 cohort period. We reviewed a random sample of 100 borrowers from a universe of 23,278
borrowers who had a default claim paid during the quarter after the end of the 1996 cohort period (i.e.,
September 30, 1997), to determine if the default occurred within the 1996 cohort period. We are 90
percent confident that 18,622 (plus or minus 1,528) of the 23,278 borrowers defaulted within the 1996
cohort period.

For purposes of our analysis, we relied on the claim data that we extracted from NSLDS. Our analysis
of this data was based on the assumption that all claims paid during the first three months after the
cohort period were for borrowers that defaulted during the cohort period. We performed
“completeness tests” for the 1994 back-up data provided by the Department. We also performed
limited tests of the output of computer processes to verify results. Based on the results of the tests
described, we concluded that the computerized data was sufficiently reliable to formulate conclusions
associated with the objectives described above.

We conducted fieldwork from August 1997 through August 1998. Additional fieldwork was
conducted from October 1999 through January 2000. All audit work was conducted in accordance
with generally accepted government auditing standards appropriate to the scope described above.



         STATEMENT ON MANAGEMENT CONTROLS
As part of our review, we assessed the system of management controls, policies, procedures, and
practices applicable to the Department’s management of the cohort default rates. Our assessment was
performed to determine the level of control risk for determining the nature, extent, and timing of our
substantive tests to accomplish the audit objectives. For the purposes of this report, we assessed and
classified the significant controls into the following categories: 1) calculation of cohort default rates; 2)
monitoring of default rates; and 3) inclusion of schools in the cohort default rates.

Because of inherent limitations, a study and evaluation made for the limited purpose described above
would not necessarily disclose all material weaknesses in management controls. The Department has
appropriate controls in place to ensure that proper action is taken when schools exceed a 25 percent
cohort rate for three consecutive years or exceed 40 percent for any year as the rates are currently
computed. Our review did, however, disclose that cohort default rates are understated because not all
of the borrowers who meet the statutory definition of a defaulter are included as a default in the cohort
default rate computation. This weakness is discussed in the AUDIT RESULTS section of this report.
                                                                                  APPENDIX I


          COHORT DEFAULT RATE DATA
for 16 schools that would have exceeded the 25 percent threshold for three consecutive years had the
Department considered three additional months of claim payments in computing the 1994 Cohort
Default Rate.


  SCHOOL                          RECOM.             DEPT.         DEPT.          DEPT.
                                  94 RATE         94 RATE       93 RATE        92 RATE
  1           IN DEFAULT:                 60              54            54            56
           IN REPAYMENT:                 227             227            12           193
                    RATE:               26.4            23.8          25.5          29.0

  2.          IN DEFAULT:                 35              32           145           198
           IN REPAYMENT:                 140             140           451           501
                    RATE:               25.0            22.9          32.2          39.5

  3.          IN DEFAULT:                 33              30            30            22
           IN REPAYMENT:                 123             123           118            81
                    RATE:               26.8            24.4          25.4          27.2

  4.          IN DEFAULT:                 67              63           118           149
           IN REPAYMENT:                 267             267           362           508
                    RATE:               25.1            23.6          32.6          29.3

  5.          IN DEFAULT:                234             214           281           331
           IN REPAYMENT:                 883             883           932         1,091
                    RATE:               26.5            24.2          30.2          30.3

  6.          IN DEFAULT:                 15              11            24            25
           IN REPAYMENT:                  52              52            75            85
                    RATE:               28.8            21.2          32.0          29.4

  7.          IN DEFAULT:                 88              81           157           138
           IN REPAYMENT:                 337             337           494           498
                    RATE:               26.1            24.0          31.8          27.7

  8.          IN DEFAULT:                 83              71           102            90
           IN REPAYMENT:                 297             297           340           290
                    RATE:               27.9            23.9          30.0          31.0

  9.          IN DEFAULT:                137             129           240           232
           IN REPAYMENT:                 531             531           817           820
                    RATE:               25.8            24.3          29.4          28.3
                                                         APPENDIX I


SCHOOL                 RECOM.       DEPT.      DEPT.      DEPT.
                       94 RATE   94 RATE    93 RATE    92 RATE

10.      IN DEFAULT:       102         85         84         61
      IN REPAYMENT:        351        351        284        224
               RATE:      29.1       24.2       29.6       27.2

11.      IN DEFAULT:        34         30         41         58
      IN REPAYMENT:        127        127        123        183
               RATE:      26.8       23.6       33.3       31.7

12.      IN DEFAULT:        34         31         32         27
      IN REPAYMENT:        129        129        124         89
               RATE:      26.4       24.0       25.8       30.3

13.      IN DEFAULT:        33         31         44         60
      IN REPAYMENT:        131        131        169        238
               RATE:      25.2       23.7       26.0       25.2

14.      IN DEFAULT:        43         39         63         94
      IN REPAYMENT:        166        166        237        285
               RATE:      25.9       23.5       26.6       33.0

15.      IN DEFAULT:        52         45         59         60
      IN REPAYMENT:        204        204        212        229
               RATE:      25.5       22.1       27.8       26.2

16.      IN DEFAULT:        15         13         14         33
      IN REPAYMENT:         59         59         44         73
               RATE:      25.4       22.0       31.8       45.2
                                                                                  APPENDIX II

           COHORT DEFAULT RATE DATA
for 99 schools that would have exceeded the 25 percent threshold for two consecutive years (19
schools), two non-consecutive years (18 schools), or for the first time (62 schools), had the Department
considered three additional months of claim payments in computing the 1994 Cohort Default Rate
(school names and OPEID numbers have been omitted).



                                      RECOM            DEPT.         DEPT.         DEPT.
      SCHOOLS                         94 RATE       94 RATE       93 RATE       92 RATE

      1.          IN DEFAULT:                 43            36            43            26
               IN REPAYMENT:                 165           165           159           158
                        RATE:               26.1          21.8          27.0          16.5

      2.          IN DEFAULT:                230           211           236           218
               IN REPAYMENT:                 894           894           853           898
                        RATE:               25.7          23.6          27.7          24.3

      3.          IN DEFAULT:                206           187           205           234
               IN REPAYMENT:                 779           779           712           954
                        RATE:               26.4          24.0          28.8          24.5

      4.          IN DEFAULT:                126           117           119           160
               IN REPAYMENT:                 479           479           438           651
                        RATE:               26.3          24.4          27.2          24.6

      5.          IN DEFAULT:                 50            48            47            40
               IN REPAYMENT:                 195           195           168           184
                        RATE:               25.6          24.6          28.0          21.7

      6.          IN DEFAULT:                 12            10            21            11
               IN REPAYMENT:                  48            48            59            46
                        RATE:               25.0          20.8          35.6          23.9

      7.          IN DEFAULT:                 39            38            83            50
               IN REPAYMENT:                 154           154           220           234
                        RATE:               25.3          24.7          37.7          21.4

      8.          IN DEFAULT:                 76            68            89            89
               IN REPAYMENT:                 278           278           338           375
                        RATE:               27.3          24.5          26.3          23.7

      9.          IN DEFAULT:                 25            19            40            18
               IN REPAYMENT:                  81            81           119            79
                        RATE:               30.9          23.5          33.6          22.8
                                                        APPENDIX II

                       RECOM        DEPT.      DEPT.      DEPT.
SCHOOLS                94 RATE   94 RATE    93 RATE    92 RATE

10.      IN DEFAULT:       109        103        144        107
      IN REPAYMENT:        425        425        452        458
               RATE:      25.6       24.2       31.9       23.4

11.      IN DEFAULT:        41         38         21          7
      IN REPAYMENT:        153        153         84         29
               RATE:      26.8       24.8       25.0       22.2

12.      IN DEFAULT:        51         42         43         22
      IN REPAYMENT:        185        185        170        169
               RATE:      27.6       22.7       25.3       13.0

13.      IN DEFAULT:       102         97        136        135
      IN REPAYMENT:        394        394        494        565
               RATE:      25.9       24.6       27.5       23.9

14.      IN DEFAULT:       190        167        183        193
      IN REPAYMENT:        701        701        712        793
               RATE:      27.1       23.8       25.7       24.3

15.      IN DEFAULT:        85         76         88         66
      IN REPAYMENT:        336        336        291        300
               RATE:      25.3       22.6       30.2       22.0

16.      IN DEFAULT:        29         25         42         32
      IN REPAYMENT:        101        101        167        140
               RATE:      28.7       24.8       25.1       22.9

17.      IN DEFAULT:       148        131        127         61
      IN REPAYMENT:        592        592        509        282
               RATE:      25.0       22.1       25.0       21.6

18.      IN DEFAULT:        67         60         21          6
      IN REPAYMENT:        248        248         75         35
               RATE:      27.0       24.2       28.0       17.1

19.      IN DEFAULT:        20         17         22        120
      IN REPAYMENT:         73         73         73        562
               RATE:      27.4       23.3       30.1       21.4

THE PRECEDING 19 SCHOOLS WOULD HAVE HAD RATES
EXCEEDING 25 PERCENT FOR TWO CONSECUTIVE YEARS  1994
AND 1993
                                                        APPENDIX II

                       RECOM        DEPT.      DEPT.      DEPT.
SCHOOLS                94 RATE   94 RATE    93 RATE    92 RATE

20.      IN DEFAULT:        81         66         55         55
      IN REPAYMENT:        290        290        233        193
               RATE:      27.9       22.8       23.6       28.5

21.      IN DEFAULT:       246        231        222        366
      IN REPAYMENT:        965        965        900      1,199
               RATE:      25.5       23.9       24.7       30.5

22.      IN DEFAULT:        11          8          9         14
      IN REPAYMENT:         41         41         40         37
               RATE:      26.8       19.5       22.5       37.8

23.      IN DEFAULT:        10          7          7         16
      IN REPAYMENT:         36         36         40         34
               RATE:      27.8       19.4       17.5       47.1

24.      IN DEFAULT:        11          9          8         14
      IN REPAYMENT:         43         43         44         41
               RATE:      25.6       20.9       18.2       34.1

25.      IN DEFAULT:        53         46         60        145
      IN REPAYMENT:        205        205        242        544
               RATE:      25.9       22.4       24.8       26.7

26.      IN DEFAULT:        15          9          8         27
      IN REPAYMENT:         51         51         41         70
               RATE:      29.4       17.6       19.5       38.6

27.      IN DEFAULT:        13         11          8         14
      IN REPAYMENT:         48         48         59         51
               RATE:      27.1       22.9       13.6       27.5

28.      IN DEFAULT:       160        141        122        123
      IN REPAYMENT:        614        614        506        491
               RATE:      26.1       23.0       24.1       25.1

29.      IN DEFAULT:        64         59         47         89
      IN REPAYMENT:        248        248        260        283
               RATE:      25.8       23.8       18.1       31.4

30.      IN DEFAULT:        36         34         24         26
      IN REPAYMENT:        140        140        112         77
               RATE:      25.7       24.3       21.4       33.8
                                                        APPENDIX II

                       RECOM        DEPT.      DEPT.      DEPT.
SCHOOLS                94 RATE   94 RATE    93 RATE    92 RATE

31.      IN DEFAULT:        23         20         54        167
      IN REPAYMENT:         91         91        220        392
               RATE:      25.3       22.0       24.5       42.6

32.      IN DEFAULT:       101         93        107         86
      IN REPAYMENT:        388        388        481        299
               RATE:      26.0       24.0       22.2       28.8

33.      IN DEFAULT:       136        116         82        169
      IN REPAYMENT:        503        503        526        672
               RATE:      27.0       23.1       15.6       25.1

34.      IN DEFAULT:        24         23         12         26
      IN REPAYMENT:         93         93         79        100
               RATE:      25.8       24.7       15.2       26.0

35.      IN DEFAULT:        24         21         22         32
      IN REPAYMENT:         94         94         91        113
               RATE:      25.5       22.3       24.2       28.3

36.      IN DEFAULT:        10          8          7         12
      IN REPAYMENT:         40         40         34         43
               RATE:      25.0       20.0       20.6       27.9

37.      IN DEFAULT:       149        139         85         89
      IN REPAYMENT:        574        574        359        340
               RATE:      26.0       24.2       23.7       26.2

THE PRECEDING 18 SCHOOLS (#20 - #37) WOULD HAVE HAD
RATES EXCEEDING 25 PERCENT FOR TWO NON-CONSECUTIVE
YEARS  1994 AND 1992

38.      IN DEFAULT:        10          7          3         4
      IN REPAYMENT:         35         35         42        29
               RATE:      28.6       20.0        7.1      13.8

39.      IN DEFAULT:       121        113         84        93
      IN REPAYMENT:        470        470        379       432
               RATE:      25.7       24.0       22.2      21.5

40.      IN DEFAULT:        35         30         27         9
      IN REPAYMENT:        138        138        132        54
               RATE:      25.4       21.7       20.5      16.7
                                                        APPENDIX II

                       RECOM        DEPT.      DEPT.      DEPT.
SCHOOLS                94 RATE   94 RATE    93 RATE    92 RATE

41.      IN DEFAULT:        48         45         24        34
      IN REPAYMENT:        182        182        129       171
               RATE:      26.4       24.7       18.6      19.9

42.      IN DEFAULT:        47         43         28         17
      IN REPAYMENT:        182        182        194       183
               RATE:      25.8       23.6       14.4        9.3

43.      IN DEFAULT:        10          9         10         4
      IN REPAYMENT:         39         39         52        38
               RATE:      25.6       23.1       19.2      10.5

44.      IN DEFAULT:       137        119        102        86
      IN REPAYMENT:        520        520        468       587
               RATE:      26.3       22.9       21.8      14.7

45.      IN DEFAULT:        18         16          9         8
      IN REPAYMENT:         69         69         59        42
               RATE:      26.1       23.2       15.3      19.0

46.      IN DEFAULT:        10          7          4         5
      IN REPAYMENT:         37         37         31        38
               RATE:      27.0       18.9       12.9      13.2

47.      IN DEFAULT:        19         18         22        20
      IN REPAYMENT:         76         76         89       101
               RATE:      25.0       23.7       24.7      19.8

48.      IN DEFAULT:        18         16         21        16
      IN REPAYMENT:         68         68         98        73
               RATE:      26.5       23.5       21.4      21.9

49.      IN DEFAULT:        15         10          7         7
      IN REPAYMENT:         53         53         61        49
               RATE:      28.3       18.9       11.5      14.3

50.      IN DEFAULT:       105        101         64        95
      IN REPAYMENT:        415        415        328       382
               RATE:      25.3       24.3       19.5      24.9

51.      IN DEFAULT:         9          8          0         8
      IN REPAYMENT:         34         34         28        36
               RATE:      26.5       23.5       14.0      22.2
                                                        APPENDIX II

                       RECOM        DEPT.      DEPT.      DEPT.
SCHOOLS                94 RATE   94 RATE    93 RATE    92 RATE

52.      IN DEFAULT:        48         42         30        35
      IN REPAYMENT:        172        172        159       168
               RATE:      27.9       24.4       18.9      20.8

53.      IN DEFAULT:        16         13          9        12
      IN REPAYMENT:         61         61         64        63
               RATE:      26.2       21.3       14.1      19.0

54.      IN DEFAULT:        64         54         12        89
      IN REPAYMENT:        244        244         74       370
               RATE:      26.2       22.1       16.2      24.1

55.      IN DEFAULT:        40         36         25        26
      IN REPAYMENT:        156        156        144       134
               RATE:      25.6       23.1       17.4      19.4

56.      IN DEFAULT:        10          8          5         5
      IN REPAYMENT:         36         36         32        46
               RATE:      27.8       22.2       15.6      10.9

57.      IN DEFAULT:        38         33         32        46
      IN REPAYMENT:        148        148        156       257
               RATE:      25.7       22.3       20.5      17.9

58.      IN DEFAULT:         9          8          4         0
      IN REPAYMENT:         35         35         24         4
               RATE:      25.7       22.9       14.3       0.0

59.      IN DEFAULT:        17         15          5         5
      IN REPAYMENT:         66         66         40        26
               RATE:      25.8       22.7       12.5      22.9

60.      IN DEFAULT:        65         60         46        48
      IN REPAYMENT:        246        246        230       290
               RATE:      26.4       24.4       20.0      16.6

61.      IN DEFAULT:        20         18         64        61
      IN REPAYMENT:         73         73        257       258
               RATE:      27.4       24.7       24.9      23.6

62.      IN DEFAULT:        43         37         23        31
      IN REPAYMENT:        159        159        133       126
               RATE:      27.0       23.3       17.3      24.6
                                                        APPENDIX II

                       RECOM        DEPT.      DEPT.      DEPT.
SCHOOLS                94 RATE   94 RATE    93 RATE    92 RATE

63.      IN DEFAULT:        86         78         68        58
      IN REPAYMENT:        314        314        279       241
               RATE:      27.4       24.8       24.4      24.1

64.      IN DEFAULT:        59         54         16         0
      IN REPAYMENT:        228        228         75         2
               RATE:      25.9       23.7       21.3       0.0

65.      IN DEFAULT:       173        160        155          6
      IN REPAYMENT:        664        664        677       622
               RATE:      26.1       24.1       22.9        1.0

66.      IN DEFAULT:       221        202        206       233
      IN REPAYMENT:        864        864        947     1,177
               RATE:      25.6       23.4       21.8      19.8

67.      IN DEFAULT:       102         90        111       109
      IN REPAYMENT:        394        394        462       560
               RATE:      25.9       22.8       24.0      19.5

68.      IN DEFAULT:       128        114        102       113
      IN REPAYMENT:        506        506        476       572
               RATE:      25.3       22.5       21.4      19.8

69.      IN DEFAULT:       114         91         74       127
      IN REPAYMENT:        395        395        444       561
               RATE:      28.9       23.0       16.7      22.6

70.      IN DEFAULT:        48         46         29         7
      IN REPAYMENT:        187        187        122        97
               RATE:      25.7       24.6       23.8       7.2

71.      IN DEFAULT:        19         18         14        13
      IN REPAYMENT:         74         74         92        70
               RATE:      25.7       24.3       15.2      18.6

72.      IN DEFAULT:       168        158        100        60
      IN REPAYMENT:        656        656        481       423
               RATE:      25.6       24.1       20.8      14.2

73.      IN DEFAULT:        97         86         96        90
      IN REPAYMENT:        388        388        418       464
               RATE:      25.0       22.2       23.0      19.4
                                                        APPENDIX II

                       RECOM        DEPT.      DEPT.      DEPT.
SCHOOLS                94 RATE   94 RATE    93 RATE    92 RATE

74.      IN DEFAULT:        49         44         30        12
      IN REPAYMENT:        187        187        122        68
               RATE:      26.2       23.5       24.6      17.6

75.      IN DEFAULT:        14          9          1         4
      IN REPAYMENT:         43         43          7        19
               RATE:      32.6       20.9       19.7      15.7

76.      IN DEFAULT:        22         19         12        15
      IN REPAYMENT:         86         86         49        68
               RATE:      25.6       22.1       24.5      22.1

77.      IN DEFAULT:        12         10          6         7
      IN REPAYMENT:         47         47         49        29
               RATE:      25.5       21.3       12.2      21.7

78.      IN DEFAULT:        14         11         13        15
      IN REPAYMENT:         48         48         61        69
               RATE:      29.2       22.9       21.3      21.7

79.      IN DEFAULT:        30         26         21        19
      IN REPAYMENT:        106        106        103        78
               RATE:      28.3       24.5       20.4      24.4

80.      IN DEFAULT:        92         83         80        86
      IN REPAYMENT:        336        336        368       382
               RATE:      27.4       24.7       21.7      22.5

81.      IN DEFAULT:        34         26         39        46
      IN REPAYMENT:        129        129        188       266
               RATE:      26.4       20.2       20.7      17.3

82.      IN DEFAULT:        71         62         63        83
      IN REPAYMENT:        268        268        330       367
               RATE:      26.5       23.1       19.1      22.6

83.      IN DEFAULT:        48         39         30        38
      IN REPAYMENT:        165        165        181       206
               RATE:      29.1       23.6       16.6      18.4

84.      IN DEFAULT:        30         26         11        19
      IN REPAYMENT:        114        114         94        91
               RATE:      26.3       22.8       11.7      20.9
                                                        APPENDIX II

                       RECOM        DEPT.      DEPT.      DEPT.
SCHOOLS                94 RATE   94 RATE    93 RATE    92 RATE

85.      IN DEFAULT:       114         97         58        76
      IN REPAYMENT:        456        456        334       315
               RATE:      25.0       21.3       17.4      24.1

86.      IN DEFAULT:       132        116        103        62
      IN REPAYMENT:        524        524        415       358
               RATE:      25.2       22.1       24.8      17.3

87.      IN DEFAULT:       190        178        149       147
      IN REPAYMENT:        737        737        698       647
               RATE:      25.8       24.2       21.3      22.7

88.      IN DEFAULT:       154        140        128       119
      IN REPAYMENT:        612        612        544       602
               RATE:      25.2       22.9       23.5      19.8

89.      IN DEFAULT:        54         51         41        52
      IN REPAYMENT:        212        212        213       258
               RATE:      25.5       24.1       19.2      20.2

90.      IN DEFAULT:       245        207        213       161
      IN REPAYMENT:        876        876        867       915
               RATE:      28.0       23.6       24.6      17.6

91.      IN DEFAULT:        17         15          7         3
      IN REPAYMENT:         66         66         63        43
               RATE:      25.8       22.7       11.1       7.0

92.      IN DEFAULT:       117        105         49        58
      IN REPAYMENT:        435        435        280       296
               RATE:      26.9       24.1       17.5      19.6

93.      IN DEFAULT:        84         75         45        34
      IN REPAYMENT:        331        345        361       180
               RATE:      25.4       22.7       12.5      18.9

94.      IN DEFAULT:        27         22         23        26
      IN REPAYMENT:         98         98        133       151
               RATE:      27.6       22.4       17.3      17.2

95.      IN DEFAULT:         9          7          4         3
      IN REPAYMENT:         31         31         21        21
               RATE:      29.0       22.6       11.9       6.7
                                                        APPENDIX II

                       RECOM        DEPT.      DEPT.      DEPT.
SCHOOLS                94 RATE   94 RATE    93 RATE    92 RATE

96.      IN DEFAULT:        64         59         35        42
      IN REPAYMENT:        246        246        266       259
               RATE:      26.0       24.0       13.2      16.2

97.      IN DEFAULT:        30         26         15        21
      IN REPAYMENT:        114        114         84        85
               RATE:      26.3       22.8       17.9      24.7

98.      IN DEFAULT:       360        335        137       135
      IN REPAYMENT:      1,360      1,360        774       650
               RATE:      26.3       24.6       17.7      20.8

99.      IN DEFAULT:       192        175        184       175
      IN REPAYMENT:        764        764        817       965
               RATE:      25.1       22.9       22.5      18.1

THE PRECEDING 62 SCHOOLS (#38 - #99) WOULD HAVE REACHED
THE 25 PERCENT THRESHOLD FOR THE FIRST TIME IN THREE
YEARS
                                                                                     APPENDIX III



                                           APPENDIX I

Analysis of Cohort Rate Data and Finding:

Official cohort default rates are understated and schools with high default rates are not being
identified because not all of the borrowers that meet the statutory definition of a defaulter during
the cohort period are included in the default rate computation. The OIG analysis identified 22
schools that would have reached or exceeded a 25 percent rate for 3 consecutive years. Subject
to appeals, the 22 schools could have lost eligibility for participation in the federal loan
programs. The 22 schools received about $26.8 million annually that could have been better
used.

On page five of the report, there is a statement that the date of a borrower’s default is not
recorded in NSLDS.

Response:

Problems Identified with Data Analysis and Conclusions

We believe that your estimate of the effect of your proposed recommendations is inflated. We
reached this conclusion based on the following reasons:

•   Current data indicates that schools’ average default rates have declined (i.e., improved) each
    year since this data analysis was performed. Therefore, any changes to cohort default rate
    calculations today could produce a lesser effect than those seen on schools during the study
    period.

•   Current reporting practices are better than those in effect during the study period. We note
    that we believe there is a serious problem with the study period because it spans the time that
    OSFA was changing its way of calculating rates. Changes during this time period included: a
    new transmission mechanism (NSLDS), new data elements, additional data, and a new
    contractor.

•   To determine how many additional defaulted loans would have been included, your analysis
    assumes that all default claims paid within three months of the end of the cohort period were
    for loans that defaulted within that cohort period. However, some of these loans may
    actually have defaulted outside of the cohort period. The net effect of any erroneously
    included defaulted loans would be to inflate the revised cohort default rates.

•   The scope of the OIG’s analysis of the claim payment process after the loan defaults, which
    was based on only one guaranty agency’s experience with four schools, is too limited to be
    applied universally to approximately 4,000 schools across the country. Based on our
                                                  1
                                                                                         APPENDIX III

    experiences with lenders and guaranty agencies, we believe the claim payment process is
    generally completed much more quickly than indicated in your report.

•   The total number of schools listed in your report as schools that would have lost eligibility as
    a result of the revised cohort default rate calculation is also overstated. Our review found
    that only 16 of the 22 schools would have been lost eligibility just by changing the period
    during which data were gathered because--

    -- 1 school is an HBCU and at the time of the analysis was exempt from the loss of loan
    program eligibility due to cohort default rates;
    -- 3 are schools that subsequently lost loan program and/or institutional eligibility as a result
    of the Department’s current policies and procedures; and
    -- 2 schools successfully appealed their cohort default rates below any applicable thresholds.
    (Your report did acknowledge that you did not take the affect of appeals into account; our
    research confirms that this limitation did have an effect on the potential number of schools
    affected.)

•   We note also that 35 of the remaining 99 schools (over 1/3 of the schools) included in your
    report are provisionally certified currently as a result of current policies and procedures. And
    one school has closed and another school has withdrawn from the loan programs.

•   The potential harm to the government and taxpayers would be significantly less than a
    “better-use-of-funds” figure, such as you computed, based on annual loan volume.

Finally, though NSLDS is not currently programmed to use the date of default in the calculation
of cohort default rates, there is a date of default in the system: the “date of loan status” for a loan
that has defaulted.

OIG Recommendations

We recommend that the Chief Operating Officer of the OSFA capture the default date in the
National Student Loan Data System (NSLDS) and modify the current cohort default rate
computation method to include defaults that occurred within the cohort period, but were
subsequently paid during the first quarter following the cohort period.

Response

In addition to the concerns raised above with respect to the support for the recommendations, and
the fact that we are not making major changes to our legacy systems, we are concerned about
both the cost effectiveness of the changes and the difficulty of meeting the new statutory
deadline for publishing rates.



                                                   2
                                                                                        APPENDIX III


Cost Effectiveness

As noted above, NSLDS is not currently programmed to use the date of default to calculate
cohort default rates. The cost to change the current formula would be significant. As the date of
loan status includes the date for every loan status ever recorded, and there could be more than
one default date, we would need to revise the logic in the system to select the proper date.

We note that the 16 schools that could have lost eligibility as a result of the revised cohort
default rate calculation represent only 0.26 percent of the postsecondary school population and
account for only 0.02 percent of the total defaulted dollars within the student loan programs. It is
unclear what appeals these schools might submit if they were subject to loss of participation in
the loan programs, or institutional eligibility. In addition, our analysis of the FY 1994, FY 1995,
and FY 1996 rates shows the national rate would only increase between 1.2 and 1.4 percent if the
revised cohort default rate calculation were used. Consequently, at this time, we question
whether there are sufficient potential cost savings to warrant implementation.

Effect on Program Efficiency and Compliance with Current Law

We also have serious concerns about the impact implementation of your recommendations would
have on our ability to comply with the new statutory provision that requires OSFA to release
official cohort default rates by September 30 each year.

Your report states that the additional time needed to determine if a claim has been paid will not
significantly impact the timely release of the cohort default rates. However, adding three months
to the calendar, which would be necessary to include data from the first quarter following the
cohort period, would not provide OSFA with any room for minor adjustments or slips in the
schedule. To comply with current law, the longer collection period would only leave us with
seven months to complete the full cohort default rate calculation cycle, which requires, at a
minimum, two months to complete the calculation and mailing of draft cohort default rates to
schools after the end of the collection period, followed by 45 days for schools to review their
draft data, 105 days for the guaranty agencies to review the challenges and submit corrected data
to NSLDS, and another two months to calculate and mail official cohort default rates to schools.

Other Matters

Your report stated that the recent statutory change to the definition of default from 180 days to
270 days of delinquency will lessen the likelihood that a borrower will be included in the cohort
default rate calculation as a defaulted borrower. However, OSFA’s analysis shows that the
definition of default will result in only a 1.1 percent decline in the cohort default rate. In
addition, this change will result in only a 0.19 percent reduction in the number of schools that are
subject to loss of loan program eligibility due to three years of rates over 25.0 percent and only a
0.02 percent reduction in the number of schools that are subject to loss of Title IV program
eligibility due to one rate over 40.0 percent.

                                                 3
                                          APPENDIX II – REVISED COHORT DEFAULT RATE DATA

This appendix contains OSFA’s comments and data on the 22 schools that would have exceeded the 25 percent threshold for three consecutive years had
OSFA considered three additional months of claim payments in computing the 1994 cohort default rates.


                                                 NEW DEFAULT                         REC.     DEPT.       DEPT.       DEPT.
          OPE ID                                                                 94 CDR      94 CDR      93 CDR    92 CDR     COMMENTS
                              SCHOOL               DOLLARS
1                                                    10,636
                                                                         DFLT:         60        54          54         56
                                                                   IN RPYMNT:         227       227          12        193
                                                                        RATE:         26.4      23.8        25.5       29.0
                                                     117,396
2.                                                                       DFLT:        260       211         251        180
                                                                   IN RPYMNT:         916       916         860        674       HBCU
                                                                        RATE:         28.4      23.0        29.2       26.7
                                                      7,000
3.                                                                       DFLT:         35        32         145        198
                                                                   IN RPYMNT:         140       140         451        501
                                                                        RATE:         25.0      22.9        32.2       39.5
                                                      7,875
4.                                                                       DFLT:         33        30          30         22
                                                                   IN RPYMNT:         123       123         118         81
                                                                        RATE:         26.8      24.4        25.4       27.2
                                                     10,500
5.                                                                       DFLT:         67        63         118        149
                                                                   IN RPYMNT:         267       267         362        508
                                                                        RATE:         25.1      23.6        32.6       29.3
                                                      5,250                                                                    Out of Loan
6.                                                                       DFLT:         20        18          23         27
                                                                                                                                Programs
                                                                   IN RPYMNT:          76        76          72         64
                                                                        RATE:         26.3      23.7        31.9       42.2
                                                     43,967
7.                                                                       DFLT:        234       214         281         331
                                                                   IN RPYMNT:         883       883         932       1,091




                                                                                                                                                      APPENDIX III
                                                                        RATE:         26.5      24.2        30.2       30.3
                                                     13,125                                                                   94 CDR 24.5%
8.                                                                       DFLT:         17        12          14         15
                                                                   IN RPYMNT:          49        49          48         56     Appealed to
                                                                        RATE:         34.7      24.5        29.2       26.8      19.6%
                        APPENDIX II – REVISED COHORT DEFAULT RATE DATA

                            NEW DEFAULT                     REC.    DEPT.     DEPT.       DEPT.
      OPE ID                                            94 CDR     94 CDR    93 CDR    92 CDR     COMMENTS
               SCHOOL         DOLLARS
                                10,475
9.                                              DFLT:        15        11        24         25
                                          IN RPYMNT:         52        52        75         85
                                               RATE:        28.8      21.2      32.0       29.4
                               11,998                                                             94 CDR 23.6%
10.                                             DFLT:        44        38        79         68
                                          IN RPYMNT:        161       161       250        264    Appealed to
                                               RATE:        27.3      23.6      31.6       25.8      22%
                                3,200
11.                                             DFLT:        20        18        60         45
                                          IN RPYMNT:         75        75       137         93
                                               RATE:        26.7      24.0      43.8       48.4

                               18,375
12.                                             DFLT:        88        81       157        138
                                          IN RPYMNT:        337       337       494        498
                                               RATE:        26.1      24.0      31.8       27.7
                               30,946
13.                                             DFLT:        83        71       102         90
                                          IN RPYMNT:        297       297       340        290
                                               RATE:        27.9      23.9      30.0       31.0
                               18,375
14.                                             DFLT:       137       129       240        232
                                          IN RPYMNT:        531       531       817        820
                                               RATE:        25.8      24.3      29.4       28.3
                                950                                                               Out of Title IV
15.                                             DFLT:        14        13          0       198
                                                                                                    Programs
                                          IN RPYMNT:         54        54          0       501
                                               RATE:        25.9      24.1      34.7       39.5
                               44,197
16.                                             DFLT:       102        85        84         61
                                          IN RPYMNT:        351       351       284        224




                                                                                                                    APPENDIX III
                                               RATE:        29.1      24.2      29.6       27.2
                                                 APPENDIX II – REVISED COHORT DEFAULT RATE DATA

                                                         NEW DEFAULT                              REC.      DEPT.     DEPT.       DEPT.
           OPE ID                                                                             94 CDR       94 CDR    93 CDR    92 CDR      COMMENTS
                                   SCHOOL                  DOLLARS
                                                             8,750
17.                                                                                 DFLT:            34        30        41         58
                                                                              IN RPYMNT:            127       127       123        183
                                                                                   RATE:            26.8      23.6      33.3       31.7
                                                               5,250                                                                      Out of the Loan
18.                                                                                 DFLT:            34        31        32         27
                                                                                                                                            Programs
                                                                              IN RPYMNT:            129       129       124         89
                                                                                   RATE:            26.4      24.0      25.8       30.3
                                                               6,125
19.                                                                                 DFLT:            33        31        44         60
                                                                              IN RPYMNT:            131       131       169        238
                                                                                   RATE:            25.2      23.7      26.0       25.2
                                                               9,086
20.                                                                                 DFLT:            43        39        63         94
                                                                              IN RPYMNT:            166       166       237        285
                                                                                   RATE:            25.9      23.5      26.6       33.0
                                                              12,877
21.                                                                                 DFLT:            52        45        59         60
                                                                              IN RPYMNT:            204       204       212        229
                                                                                   RATE:            25.5      22.1      27.8       26.2
                                                               5,250
22.                                                                                 DFLT:            15        13        14         33
                                                                              IN RPYMNT:             59        59        44         73
                                                                                   RATE:            25.4      22.0      31.8       45.2

OSFA’S DATA ANALYSIS

q Only 16 schools may have exceeded 25% threshold for three years
   -   2 of 22 schools submitted a cohort default rate appeal that brought the rate below 25.0%
   -   3 of 22 schools lost eligibility to participate in loan programs and/or all Title IV programs




                                                                                                                                                            APPENDIX III
   -   1 of 22 schools is an HBCU that would not have been subject to loss of loan program eligibility
q Dollar Amounts
   -   22 schools represent $401,603 in defaulted dollars
   -   16 schools represent $247,634 in defaulted dollars
                                           APPENDIX III- REVISED COHORT DEFAULT RATE DATA



This appendix contains OSFA’s comments and data on the 99 schools that would have exceeded the 25 percent threshold for two consecutive years (19
schools), two non-consecutive years (18 schools), or for the first time (62 schools), had OSFA considered three additional months of claim payments in
computing the 1994 cohort default rates.



                                                                              96       95       REV          REC           DEPT.         DEPT.     COMMENTS
                                                  NEW DEFAULT
             OPE ID                                                          CDR      CDR     94 CDR       94 CDR         94 CDR        93 CDR
                              SCHOOL                DOLLARS
                                                      18,375                                                                                       Provisional
     1.                                                               DF:                                         43           36            43
                                                                      RP:                                        165          165           159
                                                                     CDR:                                        26.1         21.8          27.0
                                                      44,797
     2.                                                               DF:                                        230          211           236
                                                                      RP:                                        894          894           853
                                                                     CDR:                                        25.7         23.6          27.7
                                                      48,562                                                                                       Provisional
     3.                                                               DF:                                        206          187           205
                                                                      RP:                                        779          779           712
                                                                     CDR:                                        26.4         24.0          28.8
                                                      22,750                                                                                       Provisional
     4.                                                               DF:                                        126          117           119
                                                                      RP:                                        479          479           438
                                                                     CDR:                                        26.3         24.4          27.2
                                                       3,625                                                                                       Provisional
     5.                                                               DF:                                         50           48
                                                                      RP:                                        195          195
                                                                     CDR:                                        25.6         24.6
                                                       3,500
     6.                                                               DF:                                         12           10            47
                                                                      RP:                                         48           48           168




                                                                                                                                                           APPENDIX III
                                                                     CDR:                                        25.0         20.8          28.0
                        APPENDIX III- REVISED COHORT DEFAULT RATE DATA




                                                  96    95    REV       REC       DEPT.     DEPT.    COMMENTS
                            NEW DEFAULT
      OPE ID                                     CDR   CDR   94 CDR   94 CDR     94 CDR    93 CDR
               SCHOOL         DOLLARS
                                2,625                                                                Provisional
7.                                         DF:                             39        38        83
                                           RP:                            154       154       220
                                          CDR:                            25.3      24.7      37.7
                               18,375
8.                                         DF:                             76        68        89
                                           RP:                            278       278       338    Closed
                                          CDR:                            27.3      24.5      26.3
                               13,845
9.                                         DF:                             25        19        40    Provisional
                                           RP:                             81        81       119
                                          CDR:                            30.9      23.5      33.6
                               14,000
10.                                        DF:                            109       103       144
                                           RP:                            425       425       452
                                          CDR:                            25.6      24.2      31.9
                               7,875
11.                                        DF:                             41        38        21
                                           RP:                            153       153        84
                                          CDR:                            26.8      24.8      25.0
                               14,125
12.                                        DF:                             51        42        43
                                           RP:                            185       185       170
                                          CDR:                            27.6      22.7      25.3
                               13,125                                                                Provisional
13.                                        DF:                            102        97       136
                                           RP:                            394       394       494
                                          CDR:                            25.9      24.6      27.5




                                                                                                              APPENDIX III
                        APPENDIX III- REVISED COHORT DEFAULT RATE DATA




                                                  96    95    REV       REC       DEPT.     DEPT.    COMMENTS
                            NEW DEFAULT
      OPE ID                                     CDR   CDR   94 CDR   94 CDR     94 CDR    93 CDR
               SCHOOL         DOLLARS
                                51,909                                                               Provisional
14.                                        DF:                            190       167       183
                                           RP:                            701       701       712
                                          CDR:                            27.1      23.8      25.7
                               20,663                                                                Provisional
15.                                        DF:                             85        76        88
                                           RP:                            336       336       291
                                          CDR:                            25.3      22.6      30.2
                               10,500
16.                                        DF:                             29        25        42
                                           RP:                            101       101       167
                                          CDR:                            28.7      24.8      25.1
                               41,635
17.                                        DF:                            148       131       127
                                           RP:                            592       592       509
                                          CDR:                            25.0      22.1      25.0
                               14,930                                                                Provisional
18.                                        DF:                             67        60        21
                                           RP:                            248       248        75
                                          CDR:                            27.0      24.2      28.0
                               7,575                                                                 Provisional
19.                                        DF:                             20        17        22
                                           RP:                             73        73        73
                                          CDR:                            27.4      23.3      30.1
                               28,830
20.                                        DF:                             81        66        55
                                           RP:                            290       290       233
                                          CDR:                            27.9      22.8      23.6




                                                                                                           APPENDIX III
                        APPENDIX III- REVISED COHORT DEFAULT RATE DATA




                                                  96    95    REV       REC       DEPT.     DEPT.    COMMENTS
                            NEW DEFAULT
      OPE ID                                     CDR   CDR   94 CDR   94 CDR     94 CDR    93 CDR
               SCHOOL         DOLLARS
                                39,204                                                               Provisional
21.                                        DF:                            246       231       222
                                           RP:                            965       965       900
                                          CDR:                            25.5      23.9      24.7
                               7,875                                                                 Provisional
22.                                        DF:                             11          8         9
                                           RP:                             41        41        40
                                          CDR:                            26.8      19.5      22.5
                               7,875                                                                 Provisional
23.                                        DF:                             10          7         7
                                           RP:                             36        36        40
                                          CDR:                            27.8      19.4      17.5
                               5,250
24.                                        DF:                             11          9         8
                                           RP:                             43        43        44
                                          CDR:                            25.6      20.9      18.2
                               17,063                                                                Provisional
25.                                        DF:                             53        46        60
                                           RP:                            205       205       242
                                          CDR:                            25.9      22.4      24.8
                               9,926
26.                                        DF:                             15          9         8
                                           RP:                             51        51        41
                                          CDR:                            29.4      17.6      19.5
                               4,375
27.                                        DF:                             13        11          8
                                           RP:                             48        48        59
                                          CDR:                            27.1      22.9      13.6




                                                                                                           APPENDIX III
                        APPENDIX III- REVISED COHORT DEFAULT RATE DATA




                                                  96    95    REV       REC       DEPT.     DEPT.    COMMENTS
                            NEW DEFAULT
      OPE ID                                     CDR   CDR   94 CDR   94 CDR     94 CDR    93 CDR
               SCHOOL         DOLLARS
                                49,875                                                               Provisional
28.                                        DF:                            160       141       122
                                           RP:                            614       614       506
                                          CDR:                            26.1      23.0      24.1
                               12,448                                                                Provisional
29.                                        DF:                             64        59        47
                                           RP:                            248       248       260
                                          CDR:                            25.8      23.8      18.1
                               4,616
30.                                        DF:                             36        34        24
                                           RP:                            140       140       112
                                          CDR:                            25.7      24.3      21.4
                               6,325                                                                 Provisional
31.                                        DF:                             23        20        54
                                           RP:                             91        91       220
                                          CDR:                            25.3      22.0      24.5
                               14,875
32.                                        DF:                            101        93       107
                                           RP:                            388       388       481
                                          CDR:                            26.0      24.0      22.2
                               45,488                                                                Provisional
33.                                        DF:                            136       116        82
                                           RP:                            503       503       526
                                          CDR:                            27.0      23.1      15.6
                               2,406                                                                 Provisional
34.                                        DF:                             24        23        12
                                           RP:                             93        93        79
                                          CDR:                            25.8      24.7      15.2




                                                                                                         APPENDIX III
                        APPENDIX III- REVISED COHORT DEFAULT RATE DATA




                                                  96    95    REV       REC       DEPT.     DEPT.    COMMENTS
                            NEW DEFAULT
      OPE ID                                     CDR   CDR   94 CDR   94 CDR     94 CDR    93 CDR
               SCHOOL         DOLLARS
                                5,540
35.                                        DF:                             24        21        22
                                           RP:                             94        94        91
                                          CDR:                            25.5      22.3      24.2
                               3,937                                                                 Provisional
36.                                        DF:                             10          8         7
                                           RP:                             40        40        34
                                          CDR:                            25.0      20.0      20.6
                               20,629
37.                                        DF:                            149       139        85
                                           RP:                            574       574       359
                                          CDR:                            26.0      24.2      23.7
                               7,750
38.                                        DF:                             10          7         3
                                           RP:                             35        35        42
                                          CDR:                            28.6      20.0       7.1
                               21,000
39.                                        DF:                            121       113        84
                                           RP:                            470       470       379
                                          CDR:                            25.7      24.0      22.2
                               11,900
40.                                        DF:                             35        30        27
                                           RP:                            138       138       132
                                          CDR:                            25.4      21.7      20.5
                               7,875                                                                 Provisional
41.                                        DF:                             48        45        24
                                           RP:                            182       182       129
                                          CDR:                            26.4      24.7      18.6




                                                                                                         APPENDIX III
                        APPENDIX III- REVISED COHORT DEFAULT RATE DATA




                                                  96    95    REV       REC       DEPT.     DEPT.    COMMENTS
                            NEW DEFAULT
      OPE ID                                     CDR   CDR   94 CDR   94 CDR     94 CDR    93 CDR
               SCHOOL         DOLLARS
                                7,012
42.                                        DF:                             47        43        28
                                           RP:                            182       182       194
                                          CDR:                            25.8      23.6      14.4
                               2,625                                                                 Provisional
43.                                        DF:                             10          9       10
                                           RP:                             39        39        52
                                          CDR:                            25.6      23.1      19.2
                               42,437
44.                                        DF:                            137       119       102
                                           RP:                            520       520       468
                                          CDR:                            26.3      22.9      21.8
                               5,250                                                                 Provisional
45.                                        DF:                             18        16          9
                                           RP:                             69        69        59
                                          CDR:                            26.1      23.2      15.3
                               7,550
46.                                        DF:                             10          7         4
                                           RP:                             37        37        31
                                          CDR:                            27.0      18.9      12.9
                               2,625
47.                                        DF:                             19        18        22
                                           RP:                             76        76        89
                                          CDR:                            25.0      23.7      24.7
                               5,250
48.                                        DF:                             18        16        21
                                           RP:                             68        68        98




                                                                                                           APPENDIX III
                                          CDR:                            26.5      23.5      21.4
                        APPENDIX III- REVISED COHORT DEFAULT RATE DATA




                                                  96    95    REV       REC       DEPT.     DEPT.    COMMENTS
                            NEW DEFAULT
      OPE ID                                     CDR   CDR   94 CDR   94 CDR     94 CDR    93 CDR
               SCHOOL         DOLLARS
                                8,751
49.                                        DF:                             15        10          7
                                           RP:                             53        53        61
                                          CDR:                            28.3      18.9      11.5
                               8,394
50.                                        DF:                            105       101        64
                                           RP:                            415       415       328
                                          CDR:                            25.3      24.3      19.5
                               2,625
51.                                        DF:                               9         8         0
                                           RP:                             34        34        28
                                          CDR:                            26.5      23.5      14.0
                               15,375                                                                Provisional
52.                                        DF:                             48        42        30
                                           RP:                            172       172       159
                                          CDR:                            27.9      24.4      18.9
                               7,350
53.                                        DF:                             16        13          9
                                           RP:                             61        61        64
                                          CDR:                            26.2      21.3      14.1
                               25,375
54.                                        DF:                             64        54        12
                                           RP:                            244       244        74
                                          CDR:                            26.2      22.1      16.2
                               10,500
55.                                        DF:                             40        36        25
                                           RP:                            156       156       144




                                                                                                           APPENDIX III
                                          CDR:                            25.6      23.1      17.4
                        APPENDIX III- REVISED COHORT DEFAULT RATE DATA




                                                  96    95    REV       REC       DEPT.     DEPT.    COMMENTS
                            NEW DEFAULT
      OPE ID                                     CDR   CDR   94 CDR   94 CDR     94 CDR    93 CDR
               SCHOOL         DOLLARS
                                5,250
56.                                        DF:                             10          8         5
                                           RP:                             36        36        32
                                          CDR:                            27.8      22.2      15.6
                               13,275
57.                                        DF:                             38        33        32
                                           RP:                            148       148       156
                                          CDR:                            25.7      22.3      20.5
                               1,400                                                                 Provisional
58.                                        DF:                               9         8         4
                                           RP:                             35        35        24
                                          CDR:                            25.7      22.9      14.3
                               5,250
59.                                        DF:                             17        15          5
                                           RP:                             66        66        40
                                          CDR:                            25.8      22.7      12.5
                               9,951
60.                                        DF:                             65        60        46
                                           RP:                            246       246       230
                                          CDR:                            26.4      24.4      20.0
                               5,250
61.                                        DF:                             20        18        64
                                           RP:                             73        73       257
                                          CDR:                            27.4      24.7      24.9
                               14,427
62.                                        DF:                             43        37        23
                                           RP:                            159       159       133
                                          CDR:                            27.0      23.3      17.3




                                                                                                           APPENDIX III
                        APPENDIX III- REVISED COHORT DEFAULT RATE DATA




                                                  96    95    REV       REC       DEPT.     DEPT.    COMMENTS
                            NEW DEFAULT
      OPE ID                                     CDR   CDR   94 CDR   94 CDR     94 CDR    93 CDR
               SCHOOL         DOLLARS
                                20,125
63.                                        DF:                             86        78        68
                                           RP:                            314       314       279
                                          CDR:                            27.4      24.8      24.4
                               12,250
64.                                        DF:                             59        54        16
                                           RP:                            228       228        75
                                          CDR:                            25.9      23.7      21.3
                               31,263
65.                                        DF:                            173       160       155
                                           RP:                            664       664       677
                                          CDR:                            26.1      24.1      22.9
                               49,875
66.                                        DF:                            221       202       206
                                           RP:                            864       864       947
                                          CDR:                            25.6      23.4      21.8
                               31,500
67.                                        DF:                            102        90       111
                                           RP:                            394       394       462
                                          CDR:                            25.9      22.8      24.0
                               19,150                                                                Provisional
68.                                        DF:                            128       114       102
                                           RP:                            506       506       476
                                          CDR:                            25.3      22.5      21.4
                               59,535
69.                                        DF:                            114        91        74
                                           RP:                            395       395       444




                                                                                                           APPENDIX III
                                          CDR:                            28.9      23.0      16.7
                        APPENDIX III- REVISED COHORT DEFAULT RATE DATA




                                                  96    95    REV       REC       DEPT.     DEPT.    COMMENTS
                            NEW DEFAULT
      OPE ID                                     CDR   CDR   94 CDR   94 CDR     94 CDR    93 CDR
               SCHOOL         DOLLARS
                                5,250                                                                Provisional
70.                                        DF:                             48        46        29
                                           RP:                            187       187       122
                                          CDR:                            25.7      24.6      23.8
                               1,750
71.                                        DF:                             19        18        14
                                           RP:                             74        74        92
                                          CDR:                            25.7      24.3      15.2
                               26,250                                                                Provisional
72.                                        DF:                            168       158       100
                                           RP:                            656       656       481
                                          CDR:                            25.6      24.1      20.8
                               28,875                                                                Provisional
73.                                        DF:                             97        86        96
                                           RP:                            388       388       418
                                          CDR:                            25.0      22.2      23.0
                               8,548
74.                                        DF:                             49        44        30
                                           RP:                            187       187       122
                                          CDR:                            26.2      23.5      24.6
                               11,764                                                                Withdrew from
75.                                        DF:                             14          9         1   FFEL Program
                                           RP:                             43        43          7
                                          CDR:                            32.6      20.9      19.7
                               6,073
76.                                        DF:                             22        19        12
                                           RP:                             86        86        49
                                          CDR:                            25.6      22.1      24.5




                                                                                                           APPENDIX III
                        APPENDIX III- REVISED COHORT DEFAULT RATE DATA




                                                  96    95    REV       REC       DEPT.     DEPT.    COMMENTS
                            NEW DEFAULT
      OPE ID                                     CDR   CDR   94 CDR   94 CDR     94 CDR    93 CDR
               SCHOOL         DOLLARS
                                3,425
77.                                        DF:                             12        10          6
                                           RP:                             47        47        49
                                          CDR:                            25.5      21.3      12.2
                               7,875
78.                                        DF:                             14        11        13
                                           RP:                             48        48        61
                                          CDR:                            29.2      22.9      21.3
                               4,374                                                                 Provisional
79.                                        DF:                             30        26        21
                                           RP:                            106       106       103
                                          CDR:                            28.3      24.5      20.4
                               22,475
80.                                        DF:                             92        83        80
                                           RP:                            336       336       368
                                          CDR:                            27.4      24.7      21.7
                               17,602                                                                Provisional
81.                                        DF:                             34        26        39
                                           RP:                            129       129       188
                                          CDR:                            26.4      20.2      20.7
                               16,713
82.                                        DF:                             71        62        63
                                           RP:                            268       268       330
                                          CDR:                            26.5      23.1      19.1
                               18,765
83.                                        DF:                             48        39        30
                                           RP:                            165       165       181




                                                                                                           APPENDIX III
                                          CDR:                            29.1      23.6      16.6
                        APPENDIX III- REVISED COHORT DEFAULT RATE DATA




                                                  96    95    REV       REC       DEPT.     DEPT.    COMMENTS
                            NEW DEFAULT
      OPE ID                                     CDR   CDR   94 CDR   94 CDR     94 CDR    93 CDR
               SCHOOL         DOLLARS
                                7,252
84.                                        DF:                             30        26        11
                                           RP:                            114       114        94
                                          CDR:                            26.3      22.8      11.7
                               26,715                                                                Provisional
85.                                        DF:                            114        97        58
                                           RP:                            456       456       334
                                          CDR:                            25.0      21.3      17.4
                               39,755
86.                                        DF:                            132       116       103
                                           RP:                            524       524       415
                                          CDR:                            25.2      22.1      24.8
                               19,282
87.                                        DF:                            190       178       149
                                           RP:                            737       737       698
                                          CDR:                            25.8      24.2      21.3
                               28,168
88.                                        DF:                            154       140       128
                                           RP:                            612       612       544
                                          CDR:                            25.2      22.9      23.5
                               7,875
89.                                        DF:                             54        51        41
                                           RP:                            212       212       213
                                          CDR:                            25.5      24.1      19.2
                               92,727
90.                                        DF:                            245       207       213
                                           RP:                            876       876       867
                                          CDR:                            28.0      23.6      24.6




                                                                                                           APPENDIX III
                        APPENDIX III- REVISED COHORT DEFAULT RATE DATA




                                                  96    95    REV       REC       DEPT.     DEPT.    COMMENTS
                            NEW DEFAULT
      OPE ID                                     CDR   CDR   94 CDR   94 CDR     94 CDR    93 CDR
               SCHOOL         DOLLARS
                                3,247
91.                                        DF:                             17        15          7
                                           RP:                             66        66        63
                                          CDR:                            25.8      22.7      11.1
                               25,616
92.                                        DF:                            117       105        49
                                           RP:                            435       435       280
                                          CDR:                            26.9      24.1      17.5
                               16,578
93.                                        DF:                             84        75        45
                                           RP:                            331       345       361
                                          CDR:                            25.4      22.7      12.5
                               5,117
94.                                        DF:                             27        22        23
                                           RP:                             98        98       133
                                          CDR:                            27.6      22.4      17.3
                               3,937
95.                                        DF:                               9         7         4
                                           RP:                             31        31        21
                                          CDR:                            29.0      22.6      11.9
                               8,650
96.                                        DF:                             64        59        35
                                           RP:                            246       246       266
                                          CDR:                            26.0      24.0      13.2
                               7,120
97.                                        DF:                             30        26        15
                                           RP:                            114       114        84
                                          CDR:                            26.3      22.8      17.9




                                                                                                        APPENDIX III
                                           APPENDIX III- REVISED COHORT DEFAULT RATE DATA




                                                                                    96        95         REV           REC          DEPT.     DEPT.    COMMENTS
                                                  NEW DEFAULT
       OPE ID                                                                      CDR       CDR       94 CDR        94 CDR        94 CDR    93 CDR
                            SCHOOL                  DOLLARS
                                                      59,144                                                                                           Provisional
98.                                                                       DF:                                                360       335      137
                                                                          RP:                                              1,360     1,360      774
                                                                         CDR:                                               26.3      24.6      17.7
                                                        29,593                                                                                         Provisional
99.                                                                       DF:                                               192       175       184
                                                                          RP:                                               764       764       817
                                                                         CDR:                                               25.1      22.9      22.5

  OSFA’s Data Analysis

  q   35 (over 1/3 of the schools) are currently provisionally certified under the Department’s current policies and procedures
  q   1 school closed and 1 school withdrew from the FFEL program




                                                                                                                                                                APPENDIX III
                          DISTRIBUTION SCHEDULE
                             Control Number ED-OIG/A06-70006
                                                                            Copies

Action Officials

        Greg Woods, Chief Operating Officer
        Student Financial Assistance
        Department of Education
        ROB-3, Room 4004
        7th and D Streets, SW
        Washington, DC 20202-5132                                               1

        Lee Fritschler, Assistant Secretary
        Office of Postsecondary Education
        Department of Education
        Room 7113
        1990 K Street, NW
        Washington, DC 20006                                                    1

Other ED Offices

        General Manager for Schools Channel, Student Financial Assistance       1

        Chief Financial Officer, Student Financial Assistance                   1

        Director, Default Management, Schools
         Student Financial Assistance                                           1

        General Counsel, Office of the General Counsel                          1

        Assistant General Counsel, Postsecondary Education
         Office of the General Counsel                                          1

OIG

        Inspector General                                                       1
        Deputy Inspector General                                                1
        Assistant Inspector General for Investigation (A)                       1
        Assistant Inspector General for Audit (A)                               1
        Deputy Assistant Inspector General for Audit                            1
        Director, Student Financial Assistance                                  1
        Regional Audit Offices                                                  6
        Dallas Regional Office                                                  6