1. Loan Servicing & Loan Default Presented by Dan Weigle Manager, School Support Services FedLoan Servicing dweigle@pheaa.org

2. Agenda Role of the servicer Communication milestones Servicer support activities Default statistics School involvement 2

3. Federal Loan Servicers 3 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

4. “TIVAS” Title IV Additional Servicers 4 “ 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.”

5. 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 CODSERVICING 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. 5

6. Not-For-Profit Servicers 6 “ Not-For-Profit awarded federal loan servicing contracts under the HCERA/SAFRA Not-For-Profit (NFP) Servicer Program solicitation.

7. 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 7

8. NFP ServicerNSLDS Name NSLDS Code Aspire Resources Inc.DEPT OF ED/ASPIRE RESOURCES INC.-ISL503 COSTEPDEPT OF ED/COSTEP510 CornerStoneDEPT OF ED/CORNERSTONE-UHEAA502 EDGEucation LoansDEPT OF ED/EDGEUCATION LOANS509 EdManageDEPT OF ED/EDMANAGE505 ESA/EdfinancialDEPT OF ED/ESA-EDFINANCIAL501 Granite State – GSMRDEPT OF ED/GRANITE STATE-GSMR-NH504 KSA Servicing (Kentucky)DEPT OF ED/KSA SERVICING508 MOHELADEPT OF ED/MOHELA500 OSLA ServicingDEPT OF ED/OSLA SERVICING506 VSAC Federal LoansDEPT OF ED/VSAC SERVICING511 8

9. 9 Borrower Satisfaction School Satisfaction FSA and Partner Satisfaction Default Prevention Measures Servicer Performance Score Measuring Performance 9

10. 10 Allocation Methodology 10 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

11. Due Diligence Requirements 11 Stage FedLoan Servicing Action Required Action Early 1-120 Up to 8 calls 5 letters 5 emails 1 Communication Attempt Mid 121-240 Up to 8 calls 2 reference calls Up to 3 letters 4 emails 1 Communication Attempt Late 241-360 Up to 6 calls 2 letters 5 emails 1 Communication Attempt

12. 12On-BoardingIn-SchoolGraceRepayment Delinquent Repayment Servicer Role - Loan Lifecycle Establish Customer Relationship 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 Successful Transition to Repayment Early intervention Repayment options Repay plan modeling Reminder to set up acct “We’re here to help” Ensure Successful Transition 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

13. 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. * To receive an Interest bill while in school, the borrower must contact us. Outstanding Interest Email Enrollment Change Confirmation 13 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.

14. Communication Milestones Entering Grace Email 3-Month Grace Email Interest Notice Repayment Obligation/ Schedule Disclosure Statement Installment Bill Entering Repayment Email 14 FedLoan Servicing In Grace to In Repayment Communications

15. 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 15

16. 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 16

17. Default Statistics 17 FedLoan Servicing 3 year 2010 Cohort Defaults SCHOOL TYPE PROGRAM LENGTH # BRWR DEFAULT # DEFAULT BRWR WITHDREW % PRIVATE SCHOOL 2 YEAR51820540% PRIVATE SCHOOL 4 YEAR10,3185,10449% PROPRIETARY SCHOOL 2 YEAR68622,14331% PROPRIETARY SCHOOL 4 YEAR21,69813,56463% PUBLIC SCHOOL 2 YEAR21,85910,31047% PUBLIC SCHOOL 4 YEAR16,5748,30650% FedLoan Servicing 3 year 2011 Cohort Defaults SCHOOL TYPE PROGRAM LENGTH # BRWR DEFAULT # DEFAULT BRWR WITHDREW % PRIVATE SCHOOL 2 YEAR52833263% PRIVATE SCHOOL 4 YEAR10,8998,09274% PROPRIETARY SCHOOL 2 YEAR13,0509,00469% PROPRIETARY SCHOOL 4 YEAR29,32125,45687% PUBLIC SCHOOL 2 YEAR30,90623,48876% PUBLIC SCHOOL 4 YEAR19,91115,39377%

18. Strategies for Targeting At-Risk Borrowers 18 Target Groups Financial Aid Awareness Counseling Understand Income Driven Repayment Plans Sign-up for Account Access

19. 19 NSLDS Reports 19 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.

20. 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 20

21. 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 Assist in establishing a relationship with servicer 21

22. 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 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 22

23. Categorize your efforts, track your success, and make adjustments. Establish an action plan and follow the students targeted to determine their success. 23 Are You Making an Impact? Late-Stage Delinquency Students - Total Students (100) Sample Size Effort Target Responders/ Contacts Responded to effort Resolved delinquency thru payment Resolved delinquency thru other means 50Email13 (25%)15 (30%)7 (47%)8 (53%) 50Phone Call25 (50%)30 (60%)10 (33%)20 (67%) High-Risk Program of Study - Total Students (90) Sample Size Target Attendance Effort Made in-school payment Enrolled in auto- payments Non-delinquent 5023 (45%) Explained Income Driven Repayment Plans 5 (10%)15 (30%)45 (90%) 4030 (75%) Completed FACT w/ Exit Counseling 2 (5%)15 (38%)30 (75%) Track Your Efforts

24. 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. 24

25. 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.govfsaombudsmanoffice@ed.gov 25

26. 26 Resources 26 Cohort Default Rate The Cohort Default Rate Guide http://www.ifap.ed.gov/DefaultManagement/guide/CDRGuideMasterVersion.html 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 http://www.ifap.ed.gov/eannouncements/071411DefaultPreventionResourceInfoSite.html Assessments FSA Assessments http://www.ifap.ed.gov/qahome/qaassessments/defaultmanagement.html http://www.ifap.ed.gov/qahome/qaassessments/defaultmanagement.html Presentations Federal Loan Servicer Panel Discussion http://ifap.ed.gov/presentations/2012FSAConference.html

27. 27 Questions 27 Dan Weigle Manager, School Support Services FedLoan Servicing 717.720.2955 dweigle@pheaa.org