In advance of the release of the official FY2011 Cohort Default Rate (CDR) data, the U.S. Department of Education (Department) announced that the Department has “adjusted how it calculates CDRs for any institution that otherwise would have been subject to potential loss of eligibility with the release of the FY 2011 rates.”  The Department, in response to the increased “incidence of borrowers with loans held by multiple lenders and serviced by more than one servicer” (“Split Servicing”) attempted to remove any penalty to institutions occasioned by Split Servicing.  The Department explained:

The adjustment to the calculation excludes from the CDR numerator certain borrowers who defaulted on a loan but who had one or more other Direct or FFEL Program loans in a repayment, deferment, or forbearance status for at least 60 consecutive days and that did not default during the applicable CDR monitoring period. The 60 consecutive days must have been between the date the loan on which the borrower defaulted entered repayment and the date when the borrower defaulted on that loan.  A borrower was only excluded from a CDR numerator if there were one or more non-defaulted loans that met the above criteria for each of a borrower’s defaulted loans.

The Department has made these Split Servicing adjustments for all “three of the most recent official three-year official CDRs (FY 2009, FY2010, FY2011) for any institution that otherwise would have been subject to potential loss of eligibility with the release of the FY 2011 CDRs.”  While these adjustments apparently allowed institutions that would have lost Title IV eligibility due to high CDRs, it is not apparent just how many institutions were effected or what type of institutions most benefited.

This adjustment – which is seen as a boost for two-year colleges – will become less meaningful over time.  This is because the loans relevant to the CDR calculation are increasingly comprised of loans serviced by one Federal loan servicer.  Thus it is doubtful whether this adjustment will be provided in future years, or whether any such adjustment will have a positive effect for institutions.