As part of an agreement with for-profit college lobbyists to allow the cohort default rate measurement to increase from two to three years, the new formula requires schools to record three consecutive years of default rates above 30 percent in order to face sanctions—a 5 percentage point increase over the previous threshold. An analysis of the new trial three-year rates shows that 97 institutions should be sending generous holiday cards to those who successfully negotiated this agreement.

Under the three year rates, beginning in 2014, schools that recorded three consecutive years of default rates above 30 percent can be subject to sanctions. While this means institutions have a few years to implement new default management policies, an analysis of the data shows that were that standard applied today, 40 institutions would find themselves running afoul of the law. (A spreadsheet listing them can be found here.) These represent 36 for-profit institutions four private not-for-profit schools. Among the worst actors are nine institutions that had a three-year average default rate of 40 percent or more. The school with the highest three year average in the sample is the Sawyer School, a for-profit institution located in Pawtucket, R.I., which offers programs in Allied Health and Business, and apparently really likes to tinge things green. That institution also had the highest single-year cohort default rate among these schools, with 53.9 percent of its borrowers in the 2006 cohort defaulting on their debt.

What these new results shows is that the three-year cohort default rate formula will catch more schools than the older calculation. According to the press release for the 2007 data, which was calculated under the old formula, no schools were at risk of losing federal aid eligibility due to three years of high defaults and only two were in trouble for having one year with a default rate above 40 percent.

At the same time, moving the penalty threshold from 25 percent to 30 percent could help a number of schools avoid sanctions in the future. Had that formula been left unchanged, an additional 97 institutions would have faced penalties. These include 80 for-profits, 11 private, not-for-profits, and six publics. (A spreadsheet of these schools can be found here.) Included in this list are 13 branches of Everest Colleges and several campuses of popular for-profit chains such as Kaplan, Lincoln Technical Institute, and ATI Career Training Center.

Setting aside the political reasons for the change, what message does this increased sanction threshold say about the federal interest in college quality? Most people would not go in for surgery with a mortality rate of 25 percent. No one would drive cars if the accident rate were 25 percent. In no field (except sports) would a failure rate of one in four be acceptable, yet that is OK when it comes to the millions of students who are running serious financial risks by taking on large amounts of debt.

Those defending the higher threshold may claim that it is necessary to keep thousands of institutions in business so they can provide opportunities for low-income students. But a return to the 25 percent standard would not suddenly put thousands of schools out of business. Rather, it would punish roughly 100 institutions that one could plausibly argue represent the worst of the worst in higher education. Kicking them out of the federal aid program would not suddenly deny opportunities to huge groups of students—the biggest school here enrolls just under 26,000 and most have less than 1,000 students.

And while these institutions are predominantly for-profits, there are plenty of similar institutions that seem to have no problem with their default rates. The University of Phoenix, for example, has three-year rates of 16.0, 10.4, and 11.5 percent and it enrolls two and a half times more students than all 97 of those institutions combined.

Just like unemployment, it seems reasonable to expect that there are always going to be some group of students that for whatever reason will not able to repay their debt. But allowing that number to be as high as 30 percent not only sets incredibly low expectations for borrower success, but also does a disservice to the thousands of students who would benefit from being dissuaded from attending institutions with such poor outcomes.

Next up: who saw the biggest changes in their default rates by going from two years to three?