The rate at which borrowers default on their student loans has dropped to new lows in 9 of the last 10 years. That news has led many government officials and college leaders to conclude that the default problems on student loans that raged in the late 1980s have been largely eradicated.

But a new report from the U.S. Education Department's investigative branch raises questions about that assumption.

The report, released last month by the department's Office of the Inspector General, states that the annual default rate that the government calculates each year does not provide "sufficient information" for policy makers to understand the extent of the problem.

The default rate measures the percentage of borrowers who have defaulted within 12 to 24 months of leaving college. In September, the department announced that the rate of default among borrowers who left college in 2001 was 5.4 percent. The 2001 rate represents a drop of 17 percentage points since 1990, when the default rate peaked at 22.4 percent (The Chronicle, September 3, 2003).

In addition to publishing the annual rate, the Education Department calculates default rates for all of the colleges that participate in the federal student-aid programs. Colleges with rates of more than 40 percent in one year or 25 percent or more for three consecutive years can be dropped from one or more of the programs.

Over the last decade, nearly 1,200 educational institutions have been barred from the programs. But this year, for the first time since the rates were first calculated, in 1989, not a single college had a default rate high enough to be barred from the programs.

The significant reduction in the default rates in recent years may have as much to do with changes in the government's definition of default and shifts in repayment practices as with borrower behavior, the inspector general's report states. While the report acknowledges that there has been a "downward trend" in the rate at which borrowers default, it says that the extent of that reduction may be overstated.

In 1998, Congress extended by three months -- to 270 days from 180 days -- the length of time before the government declares a delinquent borrower to be in default. That extension delays the moment at which the government must take responsibility for a bad loan and repay the bank that made the loan.

According to the inspector general's office, that change has "materially reduced" the overall annual default rate, as well as the rates of individual colleges.

"Because the change in the definition of default increased the number of days it takes for a borrower to default," the report states, "some borrowers may not be included as defaulters in the cohort-default-rate calculation, even though they never make a payment on their loans and default at the first opportunity."

To determine the effect of the change in the definition of default on the default rates, the inspector general's office identified borrowers who defaulted within the added 90-day period in 1998 and 1999 -- the first years after Congress extended the timetable -- and included them as defaulters in recalculating the rates.

The office found that the adjusted rate for 1998 was 7.7 percent, as compared with the official rate of 6.9 percent. For 1999, the adjusted rate was 6.6 percent, and the official rate was 5.7 percent.

Another reason that default rates are understated, the inspector general's office concludes, is that colleges are increasingly pushing their former students who are in danger of defaulting to seek deferments or forbearance from lenders. Those borrowers are not required to make payments on their loans, and are not in danger of defaulting while they remain in deferment or forbearance. Yet the Education Department counts such borrowers among those who are successfully repaying their loans when determining default rates.

According to the inspector general's office, the percentage of borrowers in deferment or forbearance more than doubled in the late 1990s, from 10.1 percent of those who went into repayment in 1996 to 21.7 percent of those who went into repayment in 1999.

When determining default rates, the department divides the number of borrowers who default in a given two years by the total number of borrowers who are making payments on their loans during that time. As a result of including borrowers in deferment and forbearance among those who are in repayment, the department may be artificially reducing the total default rate and that of individual colleges in a given year.

To test its theory, the inspector general's office recalculated the default rates for 1996 through 1999, omitting borrowers who received forbearance or deferments. The office found that the adjusted rate for 1996 was 10.7 percent, as compared with the official default rate of 9.6 percent. In 1999, the adjusted rate was 7.3 percent.

The report recommends that Education Department officials ask Congress to exclude from the default-rate calculations "borrowers who are not subject to a risk of default during the two-year cohort period, because their loans are in deferment or forbearance status." The report also recommends that those borrowers be included in a later "cohort default-rate calculation" once they are out of forbearance or deferment and "are subject to a risk of default."

In addition, the report recommends that lawmakers either return to the previous definition of default or direct the department to adjust the calculation to include defaults that occur in the 90-day period.

The inspector general's office also recommends that the department develop and publish every year an annual "life-of-cohort default rate." That new rate would be calculated in the same manner as the department determines rates now, "except that with the passage of each fiscal year, the rate would be recalculated using the cumulative number" of borrowers who left college in a given year and defaulted.

Such a rate "would serve as an additional, more comprehensive resource for the department, Congress, and other decision makers," so that they would have a more complete understanding of the extent of defaults in the government's loan programs.