Loan Servicing & Loan Default

Presented by Dan WeigleManager, School Support Services

FedLoan Servicing

dweigle@pheaa.org

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Agenda

• Role of the servicer• Communication milestones• Servicer support activities• Default statistics• School involvement

Federal Loan Servicers

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Comply with legislative regulatory requirements and provide unique services to borrowers and schools

For Borrowers:• 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

For Schools:• Offer dedicated services to schools

• Help schools to manage delinquency activities and cohort default rates

“TIVAS”

Title IV Additional Servicers

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“TIVAS” An acronym used by FSA which stands for the Title IV Additional Servicers. In communications with schools, borrowers, and the financial aid community, FSA uses the term “federal loan servicers.”

Federal Loan Servicers - TIVAS

Servicers

Direct Loan Servicing

Center (ACS)

FedLoan Servicing (PHEAA)

Great Lakes Educational

Loan Services, Inc.

Nelnet

Sallie Mae

COD LDE • Origination• Disbursement • Loan Allocation• Servicer Assignment • Customer Service

COD

SERVICING

LDE : Loan Distribution Engine: interface to assign loans to the federal loan servicers.

“Booked” Loan: occurs when the COD system accepts an origination record; links p-note to the record and accepts actual disbursement.

The federal loan servicer is assigned upon “booking” of loan.

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Not-For-Profit Servicers

“Not-For-Profit awarded federal loan servicing contracts under the HCERA/SAFRA Not-For-Profit (NFP) Servicer Program

solicitation.

• Federal loan servicing contracts awarded under the HCERA/SAFRA Not-For-Profit (NFP) Servicer Program solicitation

• Federal loan servicer team will continue to expand as the loan portfolio grows

• Whether individual or team award, borrowers will know and face one servicer

Not-For-Profit Servicers

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Not-For-Profit Servicers

NFP Servicer NSLDS Name NSLDS Code

Aspire Resources Inc. DEPT OF ED/ASPIRE RESOURCES INC.-ISL 503

COSTEP DEPT OF ED/COSTEP 510

CornerStone DEPT OF ED/CORNERSTONE-UHEAA 502

EDGEucation Loans DEPT OF ED/EDGEUCATION LOANS 509

EdManage DEPT OF ED/EDMANAGE 505

ESA/Edfinancial DEPT OF ED/ESA-EDFINANCIAL 501

Granite State – GSMR DEPT OF ED/GRANITE STATE-GSMR-NH 504

KSA Servicing (Kentucky) DEPT OF ED/KSA SERVICING 508

MOHELA DEPT OF ED/MOHELA 500

OSLA Servicing DEPT OF ED/OSLA SERVICING 506

VSAC Federal Loans DEPT OF ED/VSAC SERVICING 511

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Borrower Satisfaction

School Satisfaction

FSA and Partner

Satisfaction

Default Prevention Measures

Servicer Performance

Score

Measuring Performance

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Allocation Methodology

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• Allocations are based on rankings • Survey results • Default statistics• Most points for first place• One point for last place• Percent of new loans = percent of points

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Due Diligence Requirements

StageFedLoan Servicing

ActionRequired Action

Early 1-120

Up to 8 calls5 letters5 emails

1 Communication Attempt

Mid121-240

Up to 8 calls2 reference calls

Up to 3 letters4 emails

1 Communication Attempt

Late241-360

Up to 6 calls2 letters5 emails

1 Communication Attempt

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On-Boarding In-School Grace Repayment Delinquent Repayment

Servicer Role - Loan Lifecycle

Establish CustomerRelationship Contact information Online acct set-up Tools available “We’re here to help”

Maintain Contact Obligation reminders Financial Literacy NSLDS Update/exchange Answer questions “We’re here to help”

Prepare for SuccessfulTransition to Repayment Early intervention Repayment options Repay plan modeling Reminder to set up acct “We’re here to help”

Ensure SuccessfulTransition to Repayment Early intervention assistance Repayment options Promote auto-debit Repayment tools available Billing reminders Transaction updates Outreach to at risk borrowers Repayment counseling Self-service options “We’re here to help”

Focus on Healthy Repayment Predictive modeling/segmentation Reminders of repayment

solutions Proactive skip-tracing Increasing intensity of contact “We’re here to help”

Communication Channels USPS Email Phone Web Social media Text

Tools Available Financial Literacy Self service options Numerous payment options Repayment plan modeling Call center agents

Services Offered School default management assistance School access to borrower acct info School call center School webinars/relevant servicing info

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Communication Milestones

Welcome Letter & Email / Privacy

Notice

Disbursement Notification Email

Loan Summary Email

Interest Bill*

* To receive an Interest bill while in school, the borrower must contact us.

Outstanding Interest Email

Enrollment Change

Confirmation

FedLoan Servicing In School to In Grace Communications

Note: This is the FedLoan Servicing communication timeline. While other timelines may vary, most servicers will have similar milestones.

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Communication Milestones

Entering Grace Email

3-Month Grace Email Interest Notice

Repayment Obligation/ Schedule Disclosure Statement

Installment BillEntering Repayment Email

FedLoan Servicing In Grace to In Repayment Communications

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Servicer Support Activities

Federal Loan Servicers: • 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

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Servicer Support Activities

Cure Rates• Over 95% of delinquent contacts result in a cure

within 30 days of contact• 1/3 of borrowers that hit 30 days delinquent cure

before 60 days delinquent• 87% of borrowers that hit 270 Days delinquent

continue to fall delinquent

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Default Statistics

FedLoan Servicing 3 year 2010 Cohort Defaults

SCHOOL TYPEPROGRAM

LENGTH# BRWR

DEFAULT# DEFAULT BRWR

WITHDREW%

PRIVATE SCHOOL 2 YEAR 518 205 40%

PRIVATE SCHOOL 4 YEAR 10,318 5,104 49%

PROPRIETARY SCHOOL 2 YEAR 6862 2,143 31%

PROPRIETARY SCHOOL 4 YEAR 21,698 13,564 63%

PUBLIC SCHOOL 2 YEAR 21,859 10,310 47%

PUBLIC SCHOOL 4 YEAR 16,574 8,306 50%

FedLoan Servicing 3 year 2011 Cohort Defaults

SCHOOL TYPEPROGRAM

LENGTH# BRWR

DEFAULT# DEFAULT BRWR

WITHDREW%

PRIVATE SCHOOL 2 YEAR 528 332 63%

PRIVATE SCHOOL 4 YEAR 10,899 8,092 74%PROPRIETARY SCHOOL

2 YEAR 13,050 9,004 69%

PROPRIETARY SCHOOL

4 YEAR 29,321 25,456 87%

PUBLIC SCHOOL 2 YEAR 30,906 23,488 76%

PUBLIC SCHOOL 4 YEAR 19,911 15,393 77%

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Strategies for Targeting At-Risk Borrowers

Withdrawn Borrowers

Borrowers from Low-Income

Areas

High Balance Borrowers

Target Groups

Financial Aid Awareness Counseling

Understand Income Driven Repayment Plans

Sign-up for Account Access

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NSLDS Reports

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• The School Portfolio Report (SCHPR2) provides school users with information about all Direct Loan and/or FFEL program loans for a specified school

School Portfolio Report (SCHPR2)

• The Delinquent Borrower Report (DELQ01) provides school users a report of borrowers who have been reported as delinquent in making loan payments to one of the federal loan servicers

Delinquent Borrower Report

(DELQ01)

Use the NSLDS Delinquent Borrower Report to produce letters to delinquent borrowers who have loans serviced by any federal servicer.

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 BorrowersIn 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• Assist in establishing a relationship with servicer

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Engaging At-Risk BorrowersIn Repayment

Reach out to at-risk borrowers and facilitate the critical contact with the

loan servicer to prevent default.

• Early Stage Delinquency: Target borrowers 30-60 days delinquent• Mid Stage Delinquency: Target borrowers 60-270 days delinquent• Late Stage Delinquency : Target borrowers 270+ days delinquent

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Categorize your efforts, track your success, and make adjustments. Establish an action plan and follow the students targeted to determine their success.

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Are You Making an Impact?

Late-Stage Delinquency Students - Total Students (100)

Sample Size

EffortTarget Responders/

ContactsResponded to effort

Resolved delinquency thru

payment

Resolved delinquency thru

other means

50 Email 13 (25%) 15 (30%) 7 (47%) 8 (53%)

50 Phone Call 25 (50%) 30 (60%) 10 (33%) 20 (67%)

High-Risk Program of Study - Total Students (90)

Sample Size

Target Attendance

EffortMade in-school

paymentEnrolled in auto-

paymentsNon-delinquent

50 23 (45%)Explained Income Driven

Repayment Plans5 (10%) 15 (30%) 45 (90%)

40 30 (75%)Completed FACT w/ Exit

Counseling2 (5%) 15 (38%) 30 (75%)

Trac

k Y

ou

r E

ffo

rts

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How to Help Defaulters

When federal student loans default, borrowers are provided with opportunities to clear their credit history. Borrowers with defaulted student loans can regain eligibility for federal student aid and return to good standing with their loan servicer.

What needs to happen: • To regain Title IV eligibility a student must make at least six voluntary on-

time payments for six consecutive months. • To rehabilitate a defaulted loan a student must make at least nine full

voluntary payments within 20 days of their monthly due date over a 10 month period.

• Consolidation is an option to bring the account current, but does not remove the default record from a student's credit report.

• Pay the loan in full.

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How to Help Defaulters

Benefits of rehabilitating defaulted loans:

• Students will regain all benefits such as deferments, forbearance, loan

forgiveness, and repayment options.

• Regain eligibility for federal student aid.

• Default status will be removed from credit report.

• Wage garnishment and withholding of income tax return will cease.

Who to contact: • Debt Management Collection Services (DMCS)

– 1-800-621-3115

• The U.S. Department of Education's Federal Student Aid Ombudsman – 1-877-557-2575– fsaombudsmanoffice@ed.gov

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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

Presentations• Federal Loan Servicer Panel Discussion

http://ifap.ed.gov/presentations/2012FSAConference.html

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Questions

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Dan WeigleManager, School Support Services

FedLoan Servicing

717.720.2955

dweigle@pheaa.org