patrick kennedy and david hammond | nov. 2012 u.s. department of education 2012 fall conference...

Patrick Kennedy and David Hammond | Nov. 2012

U.S. Department of Education

2012 Fall Conference

Default Aversion Activities

Session 13

Today’s Agenda• The Landscape• Tools and Resources

• CDR resource materials• NSLDS tools and data• Financial Awareness Counseling• Federal Loan Servicers

• School-based default aversion strategies• High level considerations• Traditional- and Student Success-based activities

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The Landscape

• Loan default rates increasing for most schools• Educational costs continue to rise• More students borrowing more money • One-in-five household hold student loan debt• Increasing loan delinquency rates • Regulatory transition to 3-year Cohort Default

Rate calculation

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National Cohort Default Rates

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National Cohort Default Rates

2-Year CDR

FY 08 = 7.0%

FY 09 = 8.8 % (+25.7%)

FY 10 = 9.1% (+3.4%)

Borrowers

FY 08 = 238,853

FY 09 = 320,194 (+34%)

FY 10 Official = 374,940 (+17%)

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National Cohort Default Rates

3-Year CDR

FY 09 = 13.4 %

Borrowers

FY 09 = 489,040

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Default Implications: Borrower/Student

• Credit report damage (7-year minimum)• Wage garnishment• Seizure of federal and state tax refunds• Seizure of portion of any federal payment• Legal action in federal district court• Title IV ineligible

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Default Implications: Borrower/Student

• May lose state occupational license• No mortgage loans• May have difficulty obtaining car loans• May be unable to rent an apartment• May be turned down for jobs• Collection costs

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Default Implications: Schools

• The CDR is a measure of a school’s administrative capability

• High CDRs can:• Negatively reflect on perceived school quality • Result in provisional certification• Result in loss of Title IV eligibility• Threaten access to private loan funds

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CDR Transition By Year

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CDR Denominator:Enter Repayment

NumeratorDefault

Publish Rates Cohorts used for Sanctions

FY 2009(3-year)

10/1/08-9/30/09 10/1/08-9/30/11 September 2012 No Sanction

FY 2010(2-year)

10/1/09-9/30/10 10/1/09-9/30/11 September 2012 FY 08, FY 09, FY 10

FY 2010(3-year)

10/1/09-9/30/10 10/1/09-9/30/12 September 2013 No Sanction

FY 2011(2-year)

10/1/10-9/30/11 10/1/10-9/30/12 September 2013 FY 09, FY 10, FY 11

FY 2011(3-year)

10/1/10-9/30/11 10/1/10-9/30/13 September 2014 FY 09, FY 10, FY 11

2014 is the first year schools will be subject to sanction for FY 2011 3-Year

cohort default rates

2014 - Transition Period Completed

• Third year of 3-year rates released

• Two-year rates end

• Sanction threshold for loss of program eligibility becomes 3 years equal to or greater than 30%

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3-Year CDR Corrective Actions

• First year at 30% or more• Default prevention plan and task force• Submit plan to FSA for review

• Second consecutive year at 30% or more– Review/revise default prevention plan– Submit revised plan to FSA– FSA may require additional steps to promote student

loan repayment

• Third consecutive year at 30% or more• Loss of eligibility: Pell, DL• School has appeal rights

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Session # 12: Default Plans

Cohort Default Rate Guide

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Challenges• Incorrect Data

Challenge (IDC)

• Participation Rate Index Challenge (PRI)

Adjustments• Uncorrected

Data Adjustment (UDA)

• New Data Adjustment (NDA)

Appeals• Loan Servicing

Appeal (LS)• Erroneous Data

Appeal (ER)• Economically

Disadvantaged Appeal (EDA)

• Participation Rate Index Appeal (PRI)

Challenges, Adjustments, and Appeals

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NSLDS Reports for Default/Delinquency Prevention

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NSLDS Reports for Schools

• Reports for Data Accuracy• Date Entered Repayment Report• School Repayment Info Loan Detail • School Cohort Default Rate History • Enrollment Reporting Summary

• Reports for Default Prevention • School Loan Portfolio Report • Date Entered Repayment Report• Borrower Default Summary • Exit Counseling • Delinquent Borrower Report

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Main Menu – How to request a report

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School Loan Portfolio (SCHPR2)

The School Portfolio Report provides details on borrowers and loans in your current loan portfolio

• Based on loan repayment begin date• If your school has merged, previous school codes

are included• Available in Extract only

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Delinquent Borrower Data (DELQ01)

Use the Delinquent Borrower Report (DELQ01) to assist with default prevention.

Use Web Page under Aid tab “Delinquent Borrowers” for current up-to-date data.

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Exit Counseling on NSLDS (EXTC01)

NSLDS Exit Counseling covers FFEL and Direct

Loan Programs.

• Student Access at www.nslds.ed.gov• Uses student actual loan data• Educates borrowers about their loan obligation, grace period, repayment, and deferment options

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Financial Awareness Counseling

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Financial Awareness Counseling

• COD July 2012 implementation • Voluntary – not mandatory• Undergraduate and Graduate students• Intent is to educate borrowers about their current

indebtedness and manage their student loans• Log-in to display real time data

• Responses sent to schools via SAIG or COD Newsbox

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Financial Awareness Counseling

Financial Awareness Counseling on StudentLoans.gov was developed to:

• Provide a centralized, online source of financial literacy information for students

• Assist borrowers in making informed postsecondary funding decisions

• Provide schools with educational resources about federal student aid

• Support the government-wide efforts to improve financial capability in the U.S. through the Financial Literacy Education Commission

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Financial Awareness Counseling Functional Overview

On July 7, 2012, the Financial Awareness Counseling (FAC) was made available on StudentLoans.gov

• Available whether signed in or not• Signed-in students view their financial information

from NSLDS• Disbursement of funds cannot be tied to FACT

session completion• Does not replace Entrance Counseling requirement

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Financial Awareness Counseling

Each module has been designed to communicate key financial management concepts to increase students’ financial literacy.

Your Student LoansLoan BasicsFree Money First Types of Student

Loans

Manage Your Spending while in School

Live Within Your Means

Borrow Smart

Estimate What You will Owe, Spend & Earn• Monthly Expenses• Monthly Income

Understand Repayment

Avoiding DefaultPostpone or Lower

Your PaymentsForgive or Cancel

Your DebtsDelinquency &

Default

Plan for the FutureYour Income &

TaxesYour Credit &

IdentityCredit Cards &

Other Borrowing

Understand Your Loans

Manage Your

Spending

Plan to Repay

Avoid Default

Make Finances a

Priority

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Focused on …

FAC - Module 1: Understand Your Loans

The ”Understand Your Loans” module will show a customized breakdown of the student’s loans, cover basic loan terminology, the most effective ways to pay for school, and the different types of student

loans.

Their outstanding debt and loan details

That they must repay the money they have received

with interest

The differences between federal and private loans

Ways to maximize their aid/minimize their loans

Common loan terms and concepts

Jane Doe,

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FAC - Module 2: Manage Your SpendingThe “Manage Your Spending” module will help students budget for school, live within their budget,

and borrow smart.

Focused on …

The difference between educational and other

expenses

How to identify all sources of funding

The benefits of paying interest while in school and reducing

interest costs

The benefits of reducing debt and avoiding additional debt

Budgeting basics and factors they can control to make their

budget work

Students will be able to input their own expense information and the graphs will dynamically update.

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FAC - Module 3: Plan to Repay

The “Plan to Repay” module has tools to help students navigate their repayment options and forecast post-graduation loan commitments.

Focused on …

How to compare repayment plans and estimate their

repayment amount

Their post-graduation expenses and when repayment begins

That their repayment term can impact the total amount of

interest paid

Who their servicer is, what they do, how to contact them,

and how to change a repayment plan

How their projected monthly income compares to their loan

expenses

Different tabs allow students to explore the relationship between their loan

payments, anticipated expenses and projected monthly income.

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FAC - Module 4: Avoid Default

The “Avoid Default” module helps students understand how to avoid delinquency and default, how to postpone or lower payments, and the terms of loan forgiveness and cancellation.

Focused on …

Delinquency, default and the related consequences

How to reduce the likelihood of default

Loan cancellation and forgiveness terms

Deferment and forbearance options

Who to contact about different payment options

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FAC - Module 5: Make Finances a Priority

The “Make Finances a Priority” module is designed to explain the basics of income and taxes, how to protect their credit and identity, and how to develop a sound financial plan.

Focused on …

Financial planning, saving, and spending wisely

Taxes and its impact on income

How to prevent identity theft

Credit scores and credit basics

Educational tax benefits for parents and students

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Schools can choose to receive Financial Awareness Counseling acknowledgements via the “Options” screen on the COD website.

• “Y” or “N”

• Daily or on-demand

• “Y” and Daily are the default settings

FAC School Functionality - Responses

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The existing Entrance Counseling Report was modified to include Financial Awareness Counseling data

• Renamed the “Counseling Report”

- Posted weekly to school’s COD Reporting NewsBox in CSV format

• New Counseling Type Indicator differentiates counseling type

• There can be multiple Entrance Counseling or FAC records per borrower

FAC – COD Counseling Report

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Federal Loan Servicers

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• Educate and inform borrowers regarding the tools and options available to assist in the management of their student loans

• Offer multiple repayment options tailored to borrower preferences (i.e. online payments, ACH, check, etc.)

• Provide self-service tools for borrowers and options to receive bills and/or correspondence electronically

• Offer dedicated services to schools to help manage cohort default rates

• Comply with legislative regulatory requirements and provide unique services

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Federal Loan Servicers:

Servicer Default Prevention Activities

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• Provide outbound targeted calling campaigns along with inbound call center representatives to help borrowers become current

• Utilize electronic communication methods, such as e-mail, to keep borrowers informed about account status

• Work with schools to obtain current available contact information - Utilize a variety of tools to get the most current data to contact borrowers (skip tracing on delinquent accounts)

• Work in partnership with the school community to assist borrowers in the later states of delinquency

Servicer Repayment Counseling

• Establishes a relationship with the borrower• Ensures the correct repayment status• Discusses the appropriate repayment plan• Promotes self-service through the web • Updates and enhances borrower contact information• Discusses consolidation options

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During the grace period a loan servicer:

Servicer Tools for Borrowers

Websites designed to assist the borrower: Understand the various repayment plans and options

Understand Options• Deferments• Forbearances• Discharges• Forgiveness Programs• Loan Consolidation

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Communication Channels for Borrowers

• All servicers have toll free numbers for borrowers to contact (phone, fax, and e-mail)

• Use IVR (integrated voice response) systems• Allow self service-for those that prefer• Make payments over the phone• Includes option to speak to a representative

• All servicers have a dedicated staff to assist borrowers

• Financial literacy (budgeting, credit tips, etc.)

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School – Servicer Partnership

All servicers work to gather feedback and find

ways to partner with schools on default prevention• Face to face meeting on school campuses• Financial aid conference attendance • Presentations at conferences• Proactive phone calls• E-mail communication

Partner with the servicers!

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Individual Servicer Reports

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• Provide greater level of detail

• Offer customization options

• Include only loans serviced by that organization

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School-Based Default Aversion Strategies

Reducing Default Risk - High Level Considerations

Strategies for reducing default risk –

• Assist borrowers to have a better understanding of responsibilities, timelines and processes

• Assist borrowers to improve educational and employment outcomes

When? In school, In grace, In repayment

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• Form a Default Prevention Team

• Develop or adopt a default prevention plan

• Traditional financial aid office-based default prevention strategies

• Student success-based default prevention strategies

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Reducing Default Risk - High Level Considerations

Reducing Default Risk - the Team

• determine the source of your default risk• determine what steps your school will take to

reduce default risk• represent all parts of the institution (including

management), which will contribute to risk reduction activities

• allocate school resources to default reduction activities

• assess the effectiveness of default reduction activities over time: are they working?

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Default Prevention Team

• Team members may include • Senior school official ~ buy-in and sponsorship• Representatives from appropriate offices• Student representation

• Regularly scheduled meetings• Provide agenda/minutes, discussion of agreed upon assignments

• Training about default and prevention• Evaluate progress and adjust the plan• Celebrate and promote your successes

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Reducing Default Risk - the Action Plan

Conduct Risk Analysis:

• Understanding who is defaulting, and why• Create a picture of who is at-risk• Create a picture of what works

• Increase effectiveness of DP efforts• Reduce wasted time/resources• Aiming at the right targets

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• Review combined NSLDS (default and delinquency) data and school data about defaulters and non defaulters

• ‘Why’ will require input of academic and student affairs professionals

• Knowing ‘why’ is necessary to create measureable and targeted interventions

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Reducing Default Risk - the Action Plan

• Identify intervention points to reduce default risk – be specific

• Leverage Intervention Opportunities• In-school/Grace/Repayment

• Make steps measureable• You need to know if interventions are working

• Create a written realistic executable plan

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Reducing Default Risk - the Action Plan

“Traditional” Approach

• Primarily involves the financial aid office• Focus is on helping borrowers to understand the

use of debt financing

• Understanding loan repayment

• Entrance and Exit Counseling

• Updating enrollment status changes

• Engaging at-risk borrowers

• Financial literacy program

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Financial Literacy

• Correlation exists between increased financial literacy and decreased defaults

• Schools can play an important role • Make it part of your first year curriculum• Offer a class for credit, if possible

• There are many free resources available• federal, non-profits, lenders, guarantors

• Consider online financial literacy programs• Counsel students on credit card usage

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Federal Financial Literacy Information

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Money Smart - A Financial Education Program

U.S. Federal Reserve System

Protecting the Grace Period

Of the borrowers who defaulted, most did

not receive their full 6-month grace period

due to late or inaccurate enrollment

notification by the school.

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Ensure Ongoing Borrower Contact

Some schools have reported great success by creating a separate form to collect additional borrower contact information.• Goal is to supplement what is obtained via the MPN• Collect info during admissions process• Inform borrowers that you may verify this info (to improve accuracy) and spot check if time permits

Important Note: Although you may collect this

information, you must not make a borrower’s receipt of

aid contingent upon providing it.

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Reducing Default Risk - Specific Actions

Borrower responsibilities and processes -

Examples:• Enhanced Entrance and Exit Counseling• Financial Literacy Education• Collecting Enhanced Contact Information• Early Stage Delinquency Outreach• Late Stage Delinquency Outreach • Promoting Loan Rehab for Defaulters

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“Student Success” Approach

• Focus is on helping borrowers academic and vocational success (student success solutions):• Increasing program completion rates• Right program for the right student• Decreasing program completion time• Helping non-completers find a job

• Successful students become successful borrowers• Leverage efforts to increase retention, graduation,

and employment

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School Reported Characteristics – Student at Risk

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• Finances/Need • Physical or health

challenges• Dependent-care• Transportation • Housing• Transition difficulties

• Poor study habits• Under-prepared, basic

study-skill needs• Language barriers• Missing “campus

connections”• First generation: No

role models or family support

Schools may have unique factors which must be identified and considered.

Borrowers Who Do Not Complete

• Did not achieve academic credential • May have reduced earning power • May not benefit from school job placement• Have one or more loans to repay• May not receive exit counseling• May not respond to communication attempts by their

loan servicer• May lose part or all of their grace period if they fail to

notify the financial aid office and NSLDS is not updated timely and accurately

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Identifying Students at Risk

• 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?

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Engaging At-Risk Borrowers

School 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

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Engaging At-Risk Borrowers - 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

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Engaging At-Risk Borrowers - 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

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Engaging At-Risk Borrowers - 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

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Reducing Default Risk - Specific Actions

Borrower educational and employment outcomes – Examples:

• Increase Student Success• Review Policies/Procedures • Reduce Program Completion Time• Strengthen Relationship with Potential

Employers• Career Placement for both Graduates and Non-

Graduates

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Resources

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Cohort Default Rate The Cohort Default Rate Guide

http://www.ifap.ed.gov/DefaultManagement/guide/CDRGuideMasterVersion.html

Delinquency and Default Management Electronic Announcement – Delinquency Prevention

Activities and Webinars -- Monitor IFAP for updates http://www.ifap.ed.gov/eannouncements/071411DefaultPreventionResourceInfoSite.html

Assessments FSA Assessments

http://www.ifap.ed.gov/qahome/qaassessments/defaultmanagement.html

FSA Contact Information

Patrick Kennedy

Patrick.Kennedy@ed.gov

Federal Loan School Support Team

214-661-9480

dlops@ed.gov

David Hammond

David.Hammond@ed.gov

FSA Default Prevention Team

404-974--9429

defaultpreventionassistance@ed.gov.

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QUESTIONS?

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