building bridges for a better tomorrow masfaa 2005 late stage delinquency assistance: a bridge over...

Building Bridges for a Better Tomorrow MASFAA 2005

Late Stage Delinquency Assistance:

A Bridge Over Troubled Water

Mark Walsh Amy KerwinFSA Default Prevention Team Great Lakes Higher Education

U.S. Department of Education Guaranty Corporation

MASFAA 2005 Building Bridges for a Better Tomorrow

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What We’ll Talk About

• The Big Picture

• Reducing delinquent loans through LSDA– Why should I get involved?– What should I do?


3

Student Loan Statistics

• Approximately $400 billion in outstanding federal student loans

• Nearly 30 million borrowers

• More than 50% of the outstanding FFEL and DL balance is in consolidation

• The average outstanding loan balance in consolidation is $18,240


4

Composition of the OutstandingLoan Portfolio

Type of Loans Number of loans% to Total

Total Principal & Interest

% to Total

Stafford Sub. 39,048,155 49.1% $107,325,080,770 26.7%Stafford Unsub. 22,036,060 27.7% $75,908,037,857 18.9%Consolidation 10,432,719 13.1% $190,301,070,660 47.4%PLUS 2,978,623 3.7% $16,245,320,583 4.0%SLS 803,898 1.0% $3,321,484,742 0.8%Refinanced 56 0.0% $205,809 0.0%FISL 324,974 0.4% $274,390,715 0.1%Perkins 3,867,933 4.9% $8,461,713,993 2.1%Total 79,492,418 100.0% $401,837,305,129 100.0%

Average per Consolidated Loan 18,241$ Average per Non-Consolidated Loan 3,063$

Combined Title IV Loans

Source: NSLDS and Common Services for Borrowers (CSB) Data Mart (July 31, 2005)


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Type of Loans Number of loans% to Total


% to Total

Stafford Sub. 24,953,347 50.2% 65,789,040,209$ 24.1%Stafford Unsub. 15,405,457 31.0% 53,731,132,895$ 19.7%Consolidation 7,123,780 14.3% 141,896,541,085$ 52.0%PLUS 1,984,025 4.0% 10,605,833,577$ 3.9%SLS 203,078 0.4% 624,594,911$ 0.2%Refinanced 20 0.0% 60,842$ 0.0%Total 49,669,707 100.0% 272,647,203,519$ 100.0%


FFELP LoansNon-defaulted

Source: NSLDS (July 31, 2005)


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Type of LoansNumber of

loans% to Total


% to Total

Stafford Sub. 8,367,739 48.8% 24,198,134,843$ 28.0%Stafford Unsub. 5,265,757 30.7% 17,742,313,004$ 20.5%Plus 803,704 4.7% 4,663,194,125$ 5.4%Consolidation 2,719,901 15.9% 39,930,285,841$ 46.1%Total 17,157,101 100.0% 86,533,927,813$ 100.00%


Direct LoansNon-defaulted

Source: CSB Data Mart (July 31, 2005)


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Comparisons

• 1989-1990: 21% of undergraduates received Title IV financial aid

• 2003-2004: 46% of undergraduates received Title IV financial aid


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Comparisons

Average Defaulted Loan as of 9/30/03:

$3,830


$3,940


$4,130


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Cohort Default Rates

• All-Time High?

1990 CDR 22.4%

• All-Time Low?

2003 CDR 4.5%


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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1997 1998 1999 2000 2001 2002 2003

4 Year Private

4 Year Public

2 Year Public

2 Year Private

CareerRepresents Direct Loan & FFEL Portfolio

Cohort Default Contribution by School Type


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Defaulter Characteristics• 84% did not receive their full 6 month grace

period due to late enrollment notification

• 71% withdrew without completing studies

• 56% had bad phone numbers

• 83% were not successfully contacted by phone during the 360-day collection effort during delinquency

Represents Direct Loan Portfolio Only


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Delinquency Management: Should I Be Concerned?

• All schools contribute to the problem– It’s not just about CDR– Dollars and Accounts

• Unnecessary costs to:– Borrowers– Schools– Servicers– Department of ED– Guaranty Agency


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What Schools Can Do

Take advantage of the opportunities to minimize delinquent borrowers at three stages:

#1 While borrower is enrolled #2 Before borrower leaves school #3 After borrower is gone


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Secretary’s Sample DefaultPrevention and Management Plan

• Revised 9/30/05

• Useful information for all schools

• Promotes student and school success

• Available on IFAP


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Borrowers Who Leave Early

• Exit Counseling

• For those who leave early– Find out why they left and use this information!– Collect updated contact numbers and

addresses so you can reach them later


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After The Borrower Leaves

• Promptly update the enrollment change

Important Note:

• Most defaulters do not receive their full grace period– Why not?– Why is this important?– What is the solution?


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Borrowers in Late Stage Delinquency

• Who are these borrowers?

• My lender was unsuccessful – How can I make a difference?

• Late Stage Delinquency Assistance (LSDA) Why and how does it work?


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Why is Late Stage DelinquencyAssistance Working?

• Schools feel it is the right thing to do• Students respond well to schools• Minimal resources and effort required• The results are dramatic!


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Stafford Borrower Delinquency Pattern

12 Month Average

0%

5%

10%

15%

20%

25%

30%

35%

31-60 61-90 91-120 121-150 151-180 181-210 211-240 241-270 271-300 301-330 331-360

Days Past Due

Per

cen

tag

e o

f T

ota

l D

elin

qu

ency

Borrower Delinquency Pattern

Represents Direct Loan Portfolio Only


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Late Stage Delinquency Tools and Techniques

Amy KerwinGreat Lakes Higher Education

Guaranty Corporation


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Where to Start?

• What is the maximum number of defaults included in your target cohort default rate?

• How can you project your cohort default rate through the end of the cohort period?

• Which delinquent borrowers do you want to target?

• What default prevention activities can you perform?


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What is the maximum number of defaults included in your target cohort default rate?


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Target cohort default rate: 4.00%

Maximum number of defaults allowed: 200

Maximum Number of Defaults Allowed

Number of borrowers who entered repayment between 10-01-04 and 9-30-05:

Increase in 2005 cohort default rate for every borrower who defaults during the cohort period

5,000

0.02%


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How can you project your cohort default rate through the end of the current cohort period?


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Which delinquent borrowers do you want to target?


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Delinquent Borrower Segments

• Borrowers >= 320 days delinquent who can impact your current CDR

• Borrowers < 320 days delinquent who can impact your current CDR

• Borrowers who entered repayment before or after the start of the current cohort year

• PLUS borrowers


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Why a Late Stage Delinquency Focus?

• The segment of borrowers more than 320 days delinquent is the smallest and most manageable.

• Most delinquencies are resolved before the borrower becomes 150 days delinquent.

• Lenders and guaranty agencies try independently to reach delinquent borrowers until the claim is filed. At claim time, a new strategy is needed.


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What default prevention activities can you perform?


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Send Letters, Postcards or Emails• Customize your text to match the targeted

borrower segment. For late stage:– Indicate that a default will be reflected on the

borrower’s “permanent record”

– Describe the consequences of default

– Ask the borrower to contact you to learn about options available to avoid default.

• Provide your phone number and the number of your guarantor.

• Personalize each piece of correspondence.


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Make Phone Calls

• Enlist your guarantor’s support.– “Connecting With Delinquent Borrowers (A

Step-by-Step Guide to Making Default Aversion Calls)”

– “What Happens When a Borrower Defaults”– “Repayment Options for Student Loans”– Transfer calls to your guarantor or initiate a 3-

way call


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Take Advantage of Other Resources

• www.mapping-your-future.org

• Your guarantor’s website

• FSA Assessments– www.ifap.ed.gov/gamodule/Default

Management/DefaultManagement.html


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Thank You


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Contact Us:Mark WalshLead - FSA Default PreventionU.S. Department of Education(816) [email protected]

Amy KerwinChief Guaranty OfficerGreat Lakes Higher Education Guaranty [email protected]

building bridges for a better tomorrow masfaa 2005 late stage delinquency assistance: a bridge over...

Documents

better tomorrow masfaa

building bridges

ifap slide

school type slide

direct loan portfolio

title iv financial aid

student loan statistics

outstanding ffel