Do High Cohort Default Rates Affect Student Living Allowances and Debt Burdens? An Empirical Analysis

Abstract

The federal government holds colleges accountable for their students’ cohort default rates (CDRs), with colleges facing the potential loss of all federal financial aid dollars if their CDRs are too high for three consecutive years. Yet a sizable portion of student borrowing is for non-tuition living expenses—funds that the college does not get to keep. In this paper, I examine whether colleges at risk of federal sanctions due to high CDRs respond by reducing living allowances in an effort to limit borrowing and if student debt burdens decrease after a college receives a high default rate. Using data from public two-year and for-profit colleges for students who entered repayment between 1998 and 2011 matched with living allowances and student debt levels from subsequent years, I find no evidence that colleges are engaging in these types of strategic behaviors in an effort to preserve access to federal student financial aid funds.