an overview. building student success an overview dana kelly, national trainer nelnet loan servicing

An Overview

Building Student Success

An Overview

Dana Kelly, National TrainerNelnet Loan Servicing

Agenda

1. Its all about Loan Repayment

2. The importance of loan repayment

3. Results from FSA survey of borrowers in grace

4. Resources for repayment

5. A Focus on the Data

3

Context: Student Loan Repayment

• 37 million federal student loan borrowers

• The median amount owed by new borrowers is $10,000 and the average is $20,000

• Debt levels for graduate borrowers are significantly higher: a median of $31,000 and an average of $51,000

• The majority of new borrowers will choose the standard ten-year repayment plan

4

Cohort Default Rates are Increasing

SOURCE: NCES, Condition of Education 2013, Table 400, Number of postsecondary students who entered the student loan repayment phase, number of students who defaulted, and 2-year student loan cohort default rates, by level and control of institution: Fiscal years 2007 through 2010; IFAP, September 30, 2013, National Default Rate Briefings for FY 2011 2-Year Rates and FY 2010 3-Year Rates.

2011

2010

2009

2008

2007

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

10.0

9.2

8.8

7.1

6.7

14.7

13.4

Two and Three Year Cohort Default Rates

Three-year CDRTwo-year CDR

5

Characteristics of Defaulters

• Older (median age of 38 years old)

• Pell recipient/low-income

• Undergraduate loans only

• Median loan balance: $5,800

• Poor financial literacy

• Did not complete degree

SOURCES: NSLDS, as of June 30, 2013; The Student Loan Default Trap: Why Borrowers Default and What Can Be Done About It, National Consumer Law Center, July 2012; What Matters in Student Loan Default: A Review of the Research Literature, Jacob P. K. Gross, Osman Cekic, Don Hossler, and Nick Hillman; Journal of Student Financial Aid, 2009; Calculating the Contribution of Demographic Differences to Default Rates, Mark Kantrowitz, May 2010.

6

7

What do we know about

new borrowers

who are just about to begin

repaying their loans?

Characteristics of Borrowers in Grace

8

SOURCE: NSLDS, as of June 30, 2013.

First-generation

Pell recipient

Undergraduate loans only

Borrowers with at least one loan in grace

0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000

1.2m (44%)

1.8m (69%)

1.9m (73%)

Total: 2.6m

Number of borrowers in grace

Characteristics of Borrowers in Grace

Median loan balance for graduate students in grace

9

$0 $50K$25K

$6,000Median loan balance for undergraduate students in grace

$0 $50K$25K

$14,500

SOURCE: NSLDS, as of June 30, 2013.

Typical Borrower in Grace

• 26 years old

• Graduated with a Bachelor’s degree

• Family income: $25,000

• Pell recipient

• Five loans in grace

• Undergraduate loans only

• Has not consulted any resources about loan repayment

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NOTE: Loan balance is the median for both undergraduates and graduates combined SOURCE: NSLDS, as of June 30, 2013; CFI, Customer satisfaction survey of borrowers in grace, June 2013.

Most Choose Standard Repayment

• Nearly half of borrowers in grace plan to choose standard repayment.• A large number do not know enough or are undecided.

Source: CFI, Customer satisfaction survey of borrowers in grace, June 2013.

Standard

repaym

ent

Gra

duated re

payment

Extended re

payment

Inco

me-c

ontingent r

epayment

Inco

me-b

ased re

payment

Inco

me-s

ensitive

repaym

ent

Don´t kn

ow/not e

nough info

rmatio

n

Undecided

0%5%

10%15%20%25%30%35%40%45%50% 46%

5%1% 0%

9%4%

18% 17%

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Reason for Choosing Plan

Plan I w

as put in

to automati

cally

Monthly pay

ment I

can aff

ord

Allows m

e to pay

off my l

oans a

s fast

as possi

ble

Paymen

ts in plan

qualify

me for p

ublic loan

forgi

veness

Recommen

ded by s

ervice

r

Recommen

ded by f

amily

or frie

ndsOther

0%

10%

20%

30%

40%

50%

60%

46%

53%

37%

6% 7% 8%4%

Source: CFI, Customer satisfaction survey of borrowers in grace, June 2013.

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Consideration of IBR

16%

54%

13%

16%

Chart TitleYes, considered in-come-based re-payment, but chose another plan

No, not enough in-formation

No, not interested

No, I do not qualify

Source: CFI, Customer satisfaction survey of borrowers in grace, June 2013.

• The majority (54%) did not consider income-based repayment (IBR) because they did not have enough information

13

Understanding of Borrower in Grace• New borrowers

who completed their degree program rated their understanding of student loan options higher than borrowers who did not complete their degree

• There is a 14-point difference in confidence in their ability to manage their loans

Understan

ding Studen

t Loan

Options

Repay

ment

Deferm

ent

Forb

earan

ce

Consolid

ation

Understan

ding Rep

aymen

t Options

Standard

repay

ment

Graduate

d repay

ment

Exten

ded re

paymen

t

Income-c

ontingent r

epay

ment

Income-b

ased re

paymen

t

Pay As Y

ou Earn

repay

ment

Confidence

in Ability t

o Man

age S

tudent L

oans

40

45

50

55

60

65

70

Graduated within the last 6 months with a degree

Qua

lity

attrib

ute

ratin

g

Source: CFI, Customer satisfaction survey of borrowers in grace, June 2013.

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Borrower in Grace – by Balance• Borrowers with a

high balance (+$50K) were more likely to consolidate their loans and begin repayment than those who owed less

• They were also more likely to choose income-based repayment

Plan to begin re

payment

Plan to co

nsolid

ate student lo

ans and begin re

payment

Chose st

andard re

payment

Chose in

come-base

d repaym

ent0%

10%

20%

30%

40%

50%

60%

70%

Owe less than $25,000Owe $25,000 - $50,000Owe $50,000 or more

Source: CFI, Customer satisfaction survey of borrowers in grace, June 2013; Questions 21: “At the end of your grace period, what action will you take related to your student loan(s)? and 29: “What repayment plan have you chosen, or do you plan to choose at the end of your grace period?”

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Borrower in Grace - Repayment

44% report not being contacted at all about their loans going into repayment

34% report not being aware of their repayment options

26% are undecided about what action they will take on their loans at the end of their grace period

35% of those planning to go into repayment at the end of their grace period, either don’t know or are undecided about their repayment plan

Source: CFI, customer satisfaction survey of borrowers in grace, June 2013.

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Borrower in Grace - ResourcesGone to find out information from… % of

RespondentsOnline loan servicer account management 40%Studentloans.gov website 25%Talking with friends or family 21%NSLDS website 18%Exit counseling at my school 18%Not used any of these sources of information 17%Studentaid.gov website 15%Phone number for loan servicer 14%Talking with staff at my school 12%Other online government resources 4%Online non-government resources 4%Other 4%Mobile phone apps 1%Social media resources 1%

Source: CFI, customer satisfaction survey of borrowers in grace, June 2013, Question 12: Where have you gone to find out information about your repayment options, your grace period, or how to manage your student loan(s)? – check all that apply.

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18

Resources

for Repayment

StudentLoans.gov

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FACT Tool

20

Loan Repayment Estimator

21

Available at Studentloans.gov.

Loan Repayment Estimator

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Repayment plans and loan payment calculators are available at: http://studentaid.ed.gov/repay-loans/understand/plans#estimator

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Your Data is Your Key To

Building Successful Students

DID YOU KNOW???

Borrowers who did not receive their full

6-month grace period due to late or inaccurate

enrollment notification by the school are at a higher

risk of default.

DID YOU KNOW?

Borrowers who withdrew without completing their

academic programs are also at a much higher risk of

default.

DID YOU KNOW???

There is a strong correlation between increased financial literacy and decreased default!

Nelnet Trends in Borrower Repayment

• Borrowers who get into good early repayment habit less likely to default. For these borrowers, delinquency more likely due to life event change, if delinquency occurs at all.

• Intervention efforts more successful within the first 90 days of delinquency. From then on, there is a higher likelihood of eventual default.

• Setting up auto-pay good determinant of repayment success, as well as signing up for services like Manage My Account.

Nelnet Trends in Borrower Repayment

• Good contact information on borrowers critical. Students in skip-trace status much more likely to default. Schools who collect updated contact information after entrance or exit encouraged to share with servicers.

• Much of default or late delinquency group is made up of borrowers with small balances.

• Late Stage Delinquency – Borrowers in this category very difficult for servicers to reach since they have avoided contact from us for so long.

Nelnet: Trends in Borrower Repayment

Many borrowers have a knowledge gap when they go into repayment. They are unaware of:

– What a servicer does– Who Nelnet is– That they have options in addition to standard ten-year payment, – What deferments/forbearances are– That servicers can assist them if they run into repayment

difficulties

Please help servicers convey these messages.

Importance of School-based data

Benefits of School-based Defaulter Analysis

• Enables you to develop specific strategies to help students avoid default.

• Allows you to correct ineffective practices throughout your

institution. • Enables you to identify high risk students. • Helps you identify the relationship between loan default

and student success.

What Prevents Student Success?o Finances/need

o Relationship issues

o Physical & mental health challenges

o Dependent-care

o Transportation

o Housing

o Transition difficulties

o Poor study habits

o Under-prepared, basic skill needs

o Language barriers

o Feel unwelcome, no “campus connection”

o First generation, no role models or family support

• Does your school have an “early warning” system?– Take attendance?– Issue mid-term grades which provide clues as to whether or not

student will persist?– Alerts from faculty members, student support staff: who has missed

classes? failed tests? had adjustment challenges?

• Don’t allow academic or social problems to become default risk

Identifying Students in Trouble

• Reach out immediately• Help them remain in school• If they’ve already left, help them to return

– May involve help to overcome obstacles • If they will not return, help them to understand their repayment

obligations as some think they don’t owe anything because they left• Learn what you can about their experiences and use this information

to help other students stay in school

Helping Students in Trouble

Engaging At-Risk BorrowersSchool engagement can help reduce risk at any stage of the borrowing cycle.

Questions:• Who are my at-risk borrowers?

– Learning to identify risk factors

• When should I intervene, and how?– The right time and the right strategy

Engaging At-Risk Borrowers

Identifying at-risk borrowers• Determine, using available data, which students have defaulted in the past• At what point are you most likely to be able to contact and influence these

particular borrowers?In school?In grace?In repayment?

Engaging At-Risk BorrowersExample: While In School

Target at-risk borrowers with early/extra exit loan counseling, financial literacy training, and collect additional contact information.

Which at-risk borrowers?• Students on academic probation• Students who express intention to withdraw• Students currently enrolled in programs producing a disproportionate

number of defaulters

Engaging At-Risk BorrowersExample: While In Grace

Steps to take:• Validate contact information• Re-enrollment assistance• Transfer assistance• Prepare borrower for repayment• Provide employment counseling and search preparation• Job placement assistance

Engaging At-Risk BorrowersExample: While In Repayment

Reach out to at-risk borrowers and facilitate the critical contact with the loan servicer to prevent default.

• Early in repayment: Target borrowers who did not complete• Late in repayment: Target borrowers who are 240+ days delinquent

Evaluating your default prevention readiness

1. Do I have the right team in place to develop and execute my default prevention strategies?

2. What was my FY 10 CDR? Draft 11? Am I likely to hit 30% in September 2014?

3. What is the source of my default risk?4. What default prevention strategies are in my plan

that address the source of my default risk? How will they work? Are they measureable?

5. What ‘traditional’ strategies are included in my plan?6. What ‘student success-focused’ strategies are

included in my plan?

Exercise: Getting To Where You Are…

• Global default risk isn’t going away…it will only get worse over the next several years

• While outside servicers can help, reducing specific borrower risk is an ‘inside job’

• School leadership must be prepared to devote internal resources to solve this problem

Leadership Buy-in

Thank You!

Dana KellyNational TrainerNelnet Loan Servicingdana.kelly@nelnet.net336-848-6441