Presentation is loading. Please wait.

Presentation is loading. Please wait.

The Real Price of Student Loan Defaults NMASFAA March, 2012 Brenda McCafferty, Strategic Business Director.

Similar presentations


Presentation on theme: "The Real Price of Student Loan Defaults NMASFAA March, 2012 Brenda McCafferty, Strategic Business Director."— Presentation transcript:

1 The Real Price of Student Loan Defaults NMASFAA March, 2012 Brenda McCafferty, Strategic Business Director

2 Current National Trends Factors affecting need for increased financial aid: Decreased state aid Tuition increases Pell Grant formula changes Economic downturn Increased student indebtedness Financial Aid Overview 2Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

3 Financial Aid Overview Current National Trends Factors related to increased default rates: More borrowers Greater amounts borrowed Lower income-earning potential Higher default rates Shift to 3-year calculation of default rate Misunderstood repayment options 3Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

4 Default Overview Not just student borrowers are affected: Nation Region State Community Schools Programs 4Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

5 Cohort Default Rates What is a cohort? Group of borrowers who entered repayment in a Fiscal Year* How is the default rate calculated? Borrowers entering repayment in a Fiscal Year are tracked over three years to determine if they meet their loan repayment obligations or not. * Federal Fiscal Year: Oct. 1 – Sept. 30 5Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

6 What is a Cohort? A group, similar set of characteristics Included loans: Stafford Subsidized Unsubsidized 6Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

7 The Equation Borrowers in the cohort who default within cohort default 3 year period (Numerator) Cohort of federal student loan borrowers who enter repayment during cohort fiscal year (Denominator) X 100 = CDR 7Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

8 National Statistics

9 Student Borrowing 9 The U.S. Department of Education statistics show that the percentage of all undergraduate students borrowing has trended up significantly since 1995.* *Source: NCES Trends in Student Financing of Undergraduate Education Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

10 National Default Rates 10 Even as the number of borrowers increases, so has the percentage of defaulters. The U.S. Department of Education reports that the rate of student loan default is on a steady upward trend. *Includes US, foreign and US Territories

11 National Default Rates Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia 11 The trial three-year* default rates mean that borrowers will have a longer period of time to default and overall default rates will be higher across the board. * Three-year rates are trial through FY08 and official beginning FY09

12 How big is the problem? 12 More than $1.17 trillion in federal education loans have been made since the beginning of the loan programs.* The student loan balance is now $870 billion, surpassing the total credit card balance ($693 billion) and the total auto loan balance ($730 billion).** Of the 241 million people in the United States who have a credit report with Equifax, about 15.4 percentor 37 million hold outstanding student loan debt.** $580 billion of the total $870 billion in student loan debt is owed by people younger than forty.** *Source: Mark Krantrowitz, FinAid.org **Source: Federal Reserve Bank of New York, Household Debt and Credit Q3, 2011 Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

13 13 Student Loans in Default How much money are we talking about? Overall $870 Billion in outstanding student loans Loans in default are $47.4 Billion* *Source: FinAid, Mark Krantowitz, Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

14 2009 Data by School Type Type of Postsecondary SchoolDefaultersRepayers Avg. Default Rate All Two-Year Schools 309,9722,277, % All Four-Year Schools 701,5646,325, % Public Postsecondary Schools 165,8662,542,2966.5% Private Postsecondary Schools 58,2921,062,0875.5% For Profit Postsecondary Schools 787,3854,998, % Grand Total 1,011,5318,602, % 14 StateDefaultersRe-payers AK Total AL Total AR Total AS Total00 AZ Total CA Total CO Total CT Total DC Total DE Total FL Total GA Total GU Total50603 HI Total IA Total ID Total IL Total IN Total KS Total KY Total LA Total MA Total MD Total ME Total MI Total MN Total MO Total MS Total MT Total NC Total ND Total NE Total NH Total NJ Total NM Total NV Total NY Total OH Total OK Total OR Total PA Total PR Total PW Total00 RI Total SC Total SD Total TN Total TX Total UT Total VA Total VI Total4221 VT Total WA Total WI Total WV Total WY Total ZZ Total Grand Total Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

15 2009 Data by School Type 15 Type of Postsecondary School# Schools*$ In Default All Two-Year Schools 3,017$2,026,500,406 All Four-Year Schools 2,138$6,464,895,646 Public Postsecondary Schools 1,580$936,259,131 Private Postsecondary Schools 1,314$387,137,105 For Profit Postsecondary Schools 2,261$7,167,999,802 Grand Total 5,155$8,491,396,006 * Number of schools with data Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

16 Regional & State Statistics

17 Impact of Default What is the impact regionally? - Balances rising in Southeast -Northeast & Midwest states among high debt states Outstanding $ balances, April 2011, % change year ago Sources: Equifax. Moodys Analytics, Regional Financial View, July Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

18 18 Regional CDR Trends Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

19 Default Data - Region CDRREPAYERSDEFAULTERS %1,418,940169, %129,455111, %119,860110,0673 Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

20 20 Mississippi CDR Trends Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

21 Default Data - Mississippi CDRREPAYERSDEFAULTERS %32,0493, %30,5782, %31,0932,745 Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

22 Cost of Default Is Too Great To Ignore

23 Costs To An Institution Lost revenue – Tuition, Room and Board Regulatory sanctions Title IV eligibility Single-term disbursements First-time borrower disbursement delay Reputation Decreased Alumni giving 23Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

24 Costs To An Institution 24 Sanctions 30% default rate for one year = submission of mandatory default aversion plan 30% for second consecutive year = submission of an additional mandatory default aversion plan 30% default rate for three consecutive years or 40% for any one year = sanctions and possible loss of eligibility to disburse federal funds Incentives Three years of default rates below 15% = ability to disburse loan funds without 30 waiting period. Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

25 Impact on Students Unmanageable amount of long term debt Fees Interest Collection cost Not eligible for Title IV aid Loss of Pell Grant, Loans Degree completion on hold Credit Rating Decreased ability to buy homes, cars, etc. 25Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

26 Attacking The Problem 26

27 Solutions The U.S. Department of Education recommends that colleges create their own Default Prevention Plans. Basic Elements: I.Periodic review of data a.Analyze defaulted loan data to identify defaulter characteristics II.Early stages of enrollment a.Early identification and counseling for students at risk b.Financial literacy education for borrowers III.Late stages of enrollment a.Exit counseling IV.After students leave school a.Early Stage Delinquency Assistance (ESDA) b.Late Stage Delinquency Assistance (LSDA) 27Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

28 Research Overview The best way to help students is to analyze historical data to identify trends in student success. We study the past to predict the future. The process includes: Identifying the appropriate student variables For each student identifying a measure of success. (Persistence, graduation, gainful employment, successful student loan payment, etc.) Identifying patterns, profiling students most likely to be at-risk Creating intervention and support programs Tracking the success of the intervention programs 28Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

29 Questions An Analysis Can Answer Each schools situation is unique. However, these are questions to be answered: What is your current Cohort Default Rate? Is it trending up or down? How do you compare with peer institutions? Which majors or academic programs have the most defaulters? Do in-state or out-of-state students default at a higher rate? Does financial aid packaging correlate to defaulting? How does retention relate to default rate? Are retention programs working? If you have limited resources, which students should be targeted to lower the default rate? What is the impact of your default prevention efforts and how can you track the effectiveness of these programs? 29Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

30 Sample Findings 30

31 Sample Summary of Key Findings 31 The number one issue in student loan default is Retention of Students. Students who do not graduate are over twice as likely to default on student loans. The analysis shows that a critical point for retaining students is 24 credit hours. If a student persists beyond this point they are significantly less likely to default. Athletes are having a major impact on Cohort Default Rates. A fifth of all defaulters are athletes. Excluding athletes, the schools CDR drops by several percentage points. In each case, the school thought it knew what the issues were. Inceptia gave them quantified information they could act on. Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

32 Student Experience | Graduation 32 Graduation # Entering Repayment % of Total Graduated43558% Did not graduate 31242% Total747100% All cohort borrowers had a respectable graduation rate of 58 percent. EXAMPLE REPORT PAGE Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

33 Student Experience | Graduation 33 # Entering Repayment % of Total Borrowers in Repayment N=637 Borrowers in Default N=110 Graduated43558%62%21% Did not graduate31242%38%79% Total747100% Graduation status is a major variable in predicting default. Defaulters are over twice as likely to drop out than are repayers. EXAMPLE REPORT PAGE Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

34 Student Experience | Credits Completed 34 Credits Completed # Entering Repayment % of Total 0 to 9628% 10 to 24608% 25 to 39709% 40 to 54527% 55 to 69456% 70 to 84385% 85 to 99304% 100 or more39653% Total747100% EXAMPLE REPORT PAGE Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

35 Student Experience | Credits Completed 35 Credits Completed # Entering Repayment % of Total Borrowers in Repayment N=637 Borrowers in Default N=110 0 to 9628% 25% 10 to 24608%9%16% Cumulative 0 to 24 credits12316%17%42% 25 to 39709%11%9% 40 to 54527%8%7% 55 to 69456%7%10% 70 to 84385%6% 85 to 99304%5%6% 100 or more39537%45%19% Total747100% The data clearly shows that 24 credits is a critical point in the student experience. The largest portion of Defaulters completed less than 24 credits. Intervention programs need to start early in the student experience. EXAMPLE REPORT PAGE Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

36 Student Background | Athletics 36 Athletes # Entering Repayment % of Total Athletes547% Non-athletes69393% Total747100% EXAMPLE REPORT PAGE Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

37 Student Background | Athletics 37 % of Total Entering Repayment N=747 Non-defaulters N=637 Defaulters N=110 Athletes7%5%19% Non-athletes93%95%81% Total100% Athletes accounted for a disproportionate share of colleges defaulters. Without the athlete defaulters, college's overall default rate would have been 12 percent instead of 15 percent. EXAMPLE REPORT PAGE Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

38 Sample Variables 38

39 Student Variables A students experience in higher education can be broken out into three categories. Student background upon entry Financial Aid Student experience while enrolled and after leaving 39Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

40 Methodology - Variables 40 Student Background Variables First-generation status ACT score SAT scores Other placement tests Remedial courses needed/completed Entry date Age at entry Type of student – first-time freshman, transfer Full time/part time Gender Ethnicity Marital status Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

41 Methodology - Variables 41 Financial Aid Variables Financial aid awarded Types of aid Amount of aid Expected family contribution Family income Dependency status Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

42 Methodology - Variables 42 Student Experience Variables Academic major Academic minor Credits attempted Credits completed Cumulative GPA Core GPA Graduation status Highest grade level completed Number of terms completed Living arrangement Last day of attendance Student loan repayment/default Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

43 How can you help the student? 1.Analysis of data – identify the likely at-risk students 2.Provide Financial Education and Counseling Budgeting skills Paying for college – managing finances Preparing for loan repayment 3.Monitor at-risk student progress in school 4.Watch for the warning signs 5.Build a plan to measure results 6.Provide loan repayment counseling upon exit 43Confidential. Do not copy or redistribute without expressed written permission from Inceptia. © 2012 Inceptia

44 Questions? 44

45 CONTACT INFORMATION Brenda McCafferty Strategic Business Director inceptia.org


Download ppt "The Real Price of Student Loan Defaults NMASFAA March, 2012 Brenda McCafferty, Strategic Business Director."

Similar presentations


Ads by Google