If you're in the process of defining your repayment rate, it's important to know the difference between on time and late payments. It can be tempting to assume that all loans should have a 100% on-time rate, but there are certain cases when this may not be the case.
On-time repayment rate
An on-time repayment rate is a measure of borrowers' success in repaying their student loans. It is calculated by determining the percentage of borrowers who have made at least ninety percent of their required payments. The threshold does not include late payments, deferments, or discretionary forbearances. For example, if a borrower is in school and has paused his or her loan for one year but later resumes it, the borrower is considered successful if they are able to make at least ninety percent of their payments.
repaymentrate.comRepayment performance is important to international funding agencies, and to many financial institutions. High repayment rates are a strong indicator of an institution's ability to offer its customers excellent service. On the other hand, low repayment rates may indicate that an institution is not providing its customers the services they need to keep their debt in line with their income. Financial institutions with lower repayment rates will use strategies to raise their performance. In addition, high repayment rates can limit the risk of cross subvention, where two borrowers with similar debts receive a single payment from the same lender.
The College Affordability Act, a proposed reauthorization of the Higher Education Act, would create a second measure of student loan success: an on-time repayment rate. This rate, like status-based repayment rates, measures borrowers' progress in meeting the 90-percent requirement. But on-time repayment rates are more comprehensive than status-based rates, focusing on on-time payments and other forms of loan success.
The on-time repayment rate can help donors identify borrowers who are likely to succeed in repaying their loans. However, it is also important to recognize that this measure does not address all of the factors that lead to a borrower's failure to meet their payments.
Address subsequent enrollment at another institution
A student who fails to achieve the SAP benchmark will not qualify for financial aid in the future. However, there are some other benefits of being a SAP recipient, such as an extended time frame to complete your degree and a repayment rate for subsequent enrollment at another institution. For example, a SAP recipient can qualify for federal student loans, including Perkins and Stafford loans, as long as the student complies with federal loan eligibility requirements. This includes taking a minimum of 12 credits each semester, completing an internship or study abroad program, and maintaining a minimum 2.5 GPA. Additionally, a SAP recipient may be eligible for certain scholarships, fellowships, and grants, provided the student qualifies for those programs and meets the minimum financial need requirement.
Pooled approach is better for judging repayment based on dollars
Pooled repayment is a type of policy that gives credit to students who pay off a large amount of debt. This is a method that is more effective for policymakers and taxpayers, but it is less useful for consumers. A pooled approach does not require that borrowers make a certain percentage of the debt or that an acceptable share of default is set. However, both approaches offer benefits. While both have their merits, public data is needed to determine which type of repayment is more effective.
Using a pooled approach to determine repayment rates allows the school to determine the maximum percentage of students who can successfully pay off their debt. Unlike the other approach, which requires a fixed percentage of debt that can be paid off, the pooled approach allows policymakers to define a level of repayment based on the dollars. For example, if a school has $100,000 in total outstanding principal balance, the institution would need to show that the cumulative remaining balance will not be more than a certain percent after a certain number of years.
