AWC’s federal loan default rate drops

The rate at which Arizona Western College borrowers default on their federal loans has dropped below 20 percent for the first time in several years, according to data from the federal government.

Known in financial aid circles as the Cohort Default Rate (CDR), AWC’s rate for 2014 is 17.1 percent. AWC’s rate for 2013 was 24.5 percent; 2012’s was 27 percent. The school’s 2009 rate was 29.1 percent.

An institution’s cohort default rate is the percentage of borrowers who enter repayment within the cohort fiscal year and default within a three-year period, according to the Financial Aid Student CDR reference book. Cohorts used to be two years, but Congress increased the time period several years ago. To stay in good standing with the U.S. Department of Education, a school’s CDR must remain below 30 percent.

Ana English, AWC director of financial aid, explained that AWC has been working to lower its CDR for several years through financial education, hiring a dedicated student loans specialist, using a third-party financial aid agency, increasing loan counseling and other efforts.

“We set a goal that in the next two to three years, we want our CDR to be at least 15 percent,” English said. “And that’s what we’re working really hard for.”

All schools that offer federal financial aid have a CDR, she explained, but that 30 percent threshold triggers the inability ability to offer federal loans.

“When a school reaches 30 percent, that’s when the Department of Education kind of puts you on a plan. You have to form a committee, you have to form a plan to start lowering your cohort default rate.”

It is imperative that students entering repayment stay up on their payments, English noted, because it affects AWC. If students borrow

more than they can repay and fail to make loan payments, AWC is penalized by the federal government.

“(People) really don’t understand that if you’re late or you don’t pay back, it really affects the school,” English said. “We can lose our Title IV funding if we reach the 30 three years in a row. We really want to keep it down and encourage the students to borrow what they need, or if they don’t need it, to really look elsewhere.”

Title IV, which is federal funding, provides monies for Pell grants, student loans, the Supplemental Educational Opportunity Grant, and federal workstudy.

The CDR is only calculated on the defaulting on federal loans, not private, bank-made loans, English noted. Arizona Western offers two types of federal Stafford loans — subsidized and unsubsidized.

“Those are the only two federal loans that we deal with. So the subsidized loan is the one that you don’t have to pay anything until six months after you’re done with school, but if you take out the unsubsidized, they want you to pay the interest while you’re in school. If you don’t pay it, then they charge you interest on the interest you didn’t pay.”

English said lowering the CDR takes educating students and the public on student loans.

Students must request loans from AWC, English said, and the school does not offer prepackaged loans automatically, as some institutions may. Students are required to fill out a loan request form, and go through entrance counseling which requires students to consider how they will repay the loan and get an idea of their monthly payment.

“Our student loans specialist, Alejandro Dominguez, also talks to the students and explains it to them one-on-one when he can,” she said. “He’ll email them, say, ‘Hey, come in, let’s go over this. Do you really need this much? Why don’t you borrow only what you need, not the maximum amount?’ A lot of the times he has been able to convince the student to either not get a student loan or apply just for what you need.”

Loans are deposited in a student’s AWC account, and all school expenses such as tuition, fees, room and board and others are paid before any excess is issued to the student, English said.

Depending on the type of loan, funds may need to be paid back during school year, or may be deferred until after graduation.

AWC’s third-party financial aid agency, Inceptia, helps students entering repayment and those defaulting or on the cusp of doing so.

“They do a lot of our calls and emails to all the students who are getting ready to go into default or are late on their payments, they start making those calls for us. So they’ve really helped. They’ve helped a lot.”

English said another reason for its higher default rate is that calls from unknown numbers (which may be a lender seeking payment) go unanswered.

“A lot of times, they think, ‘Oh, it’s a collections agency. I’m not going to answer or deal with them.’ But they’re not a collection agency. They’re there to

help you,” she said.

Not answering a lender’s phone call has consequences for the student borrower, English said.

“It ruins your credit and then they’ll garnish your wages; they’ll take your tax refunds away.”

Students entering repayment can get help if they or their families are under financial hardships, English said, either through the financial aid office or the student’s lender.

“There are so many ways that they can help you. Don’t be afraid to answer the phone and don’t be afraid to call them or talk to them.”