KASRO May 10, 2013

TOPICS STATISTICS STATISTICS WHAT IS DEFAULT WHAT IS DEFAULT COHORT DEFAULT COHORT DEFAULT DEVELOPING A DEFAULT MANAGEMENT PROGRAM DEVELOPING A DEFAULT MANAGEMENT PROGRAM

Student debt topped $1 trillion for the first time last year Student debt topped $1 trillion for the first time last year The average loan debt is around $26,500 The average loan debt is around $26,500 Orange Book – June 30, 2012 cohort rates Orange Book – June 30, 2012 cohort rates U.S.1844 schoolsavg 11.08% KY 31 schoolsavg 10.38% OH 77 schoolsavg 14.53% STATISTICS

What is default? The borrower is considered to be in default on the 271st day of delinquency.

COHORT DEFAULT

For any award year in which 30 or more borrowers enter repayment, the cohort default rate is the percentage of those current and former students who enter repayment in that award year on loans received for attendance at that school and who default before the end of the following award year. From Student Financial Aid Handbook

For any award year in which fewer than 30 current and former students at the school enter repayment on a loan received at the school, the cohort default rate is the percentage of those current and former students who entered repayment on loans received for attendance at that school in any of the three most recent award years and who defaulted on those loans before the end of the award year immediately following the year in which they entered repayment. For any award year in which fewer than 30 current and former students at the school enter repayment on a loan received at the school, the cohort default rate is the percentage of those current and former students who entered repayment on loans received for attendance at that school in any of the three most recent award years and who defaulted on those loans before the end of the award year immediately following the year in which they entered repayment. From Student Financial Aid Handbook

Numerator Borrowers who entered payment in one year, and default in that year or the next. Denominator Borrowers who entered repayment during the one-year cohort period. 8 Cohort Default rate is 10.66% 75

COLLECTING COHORT ACCOUNTS Work the accounts several times a month Work the accounts several times a month Work next year’s cohorts right now Work next year’s cohorts right now Increase phone calls and letters Increase phone calls and letters If you have in-house staff, provide incentives If you have in-house staff, provide incentives Notify your collection agencies Notify your collection agencies

Default Reduction Assistance Program (DRAP) A school or a school’s third-party servicer can request that the Department send a borrower a letter designed to warn the student of the seriousness of default. Default Reduction Assistance Program (DRAP) A school or a school’s third-party servicer can request that the Department send a borrower a letter designed to warn the student of the seriousness of default.

WORKING COHORT ACCOUNTS ROADBLOCKS Tough economy Tough economy Slow job market Slow job market Budget cuts Budget cuts Fewer resources Fewer resources Non-responsive borrowers Non-responsive borrowers

FY Year Draft Cohort Default Rates Distributed March 25, 2013 If a school’s FY 2010 official 3-year CDR is equal to or greater than 30 percent when the official CDR is published in September 2013, the school will be required to establish a Default Prevention Task Force and develop a default prevention plan. The plan must be submitted to the Department. In developing the plan, a school will be required to:

Identify the factors causing the default rate to exceed the threshold; Establish measurable objectives and the steps the school will take to improve its cohort default rate; and Specify the actions the school will take to improve student loan repayment, including counseling students on repayment options.

Potential sanctions due to higher default rates Potential provisional certification to participate in the Title IV programs if any one of the three most recent cohort default rates are 25.0% or greater Possible loss of lender participation, loss of FFEL, DL and/or Pell Grant program eligibility if the three most recent official cohort default rates are 25% or greater Loss of FFEL and DL program eligibility if the most recent official rate is greater than 40% Potential sanctions due to higher default rates Potential provisional certification to participate in the Title IV programs if any one of the three most recent cohort default rates are 25.0% or greater Possible loss of lender participation, loss of FFEL, DL and/or Pell Grant program eligibility if the three most recent official cohort default rates are 25% or greater Loss of FFEL and DL program eligibility if the most recent official rate is greater than 40%

DEVELOPING A DEFAULT MANAGEMENT PROGRAM

IFAP.ED.GOV Default Prevention and Management Entrance counseling Entrance counseling Financial Literacy Financial Literacy Communications Communications Exit counseling Exit counseling Timely and Accurate Enrollment Reporting Timely and Accurate Enrollment Reporting NSLDS Date Entered Repayment Report NSLDS Date Entered Repayment Report

Student Financial Aid Guidelines Fiscal Management Collections HHS Fiscal Management Health professions, Nursing and Primary Care Loans governed by same regulations

Default management is not a Bursar or Student Accounts issue. It is an institution-wide issue.

Concerns: Borrowers: negative credit report negative credit report seizure of federal/state tax refunds seizure of federal/state tax refunds difficulty in obtain mortgages/car loans difficulty in obtain mortgages/car loans unable to rent an apartment unable to rent an apartment addition collection costs addition collection costs possible litigation Schools: possible litigation Schools: a higher CDR is a reflection of the school a higher CDR is a reflection of the school provisional certification provisional certification loss of Title IV eligibility loss of Title IV eligibility access to private loan funds access to private loan funds

Default Prevention Establish a default management team Establish a default management team – representatives from various departments Develop a plan and have a goal Develop a plan and have a goal Work to reduce the number of dropouts Work to reduce the number of dropouts Incorporate student success strategies Incorporate student success strategies

Entrance Interview One on one, group or on-line One on one, group or on-line Orientation Orientation Test to borrower comprehends loan borrowing Test to borrower comprehends loan borrowing Stress that repayment is required Stress that repayment is required

Exit Interview Review terms & conditions of the loan Review terms & conditions of the loan Inform as to the average monthly repayment Inform as to the average monthly repayment Emphasize the seriousness of the repayment obligation Emphasize the seriousness of the repayment obligation Explain loan consolidation and repayment options Explain loan consolidation and repayment options

NSLDS for Students Centralized, integrated view of Title IV loans and grants

Personal Financial Management Borrow responsibly Borrow responsibly Budgeting of living expenses Budgeting of living expenses Use of personal credit cards Use of personal credit cards

Communications Contact during grace period Contact during grace period Send letters with “Forwarding and Address Correction” Send letters with “Forwarding and Address Correction” Maintain records of borrowers’ address and phone numbers Maintain records of borrowers’ address and phone numbers Obtain and contact reference information Obtain and contact reference information Secure permission to dial borrowers’ cell phone number Secure permission to dial borrowers’ cell phone number Provide information on various school websites Provide information on various school websites

Telephone outreach Do you have the resources to make out-going calls and accept incoming calls? Do you have the resources to make out-going calls and accept incoming calls? Determine which accounts to call Determine which accounts to call Have scripts ready Have scripts ready Document the call Document the call

Financial Literacy Increased financial literacy, decreases defaults Increased financial literacy, decreases defaults Make it part of your first year curriculum Make it part of your first year curriculum Provide information at orientation Provide information at orientation Create a webpage Create a webpage Establish a position/office Establish a position/office Direct students to various on-line resources Direct students to various on-line resources

Resources There are many free resources There are many free resources Lenders, Guarantors, Department of Education Lenders, Guarantors, Department of Education Look at other schools’ website Look at other schools’ website

School websites Borrower Rights and Responsibilities Borrower Rights and Responsibilities Exit Loan Counseling Exit Loan Counseling Repaying your loan Repaying your loan Tips for struggling borrowers Tips for struggling borrowers Money Management Money Management Defaulted student loan resolution Defaulted student loan resolution FAQs FAQs Videos Videos Resources Resources

Resources IFAP.ED.GOV IFAP.ED.GOV FedLoan Servicing – PHEAA FedLoan Servicing – PHEAA Department of Education Department of Education SFA Handbook SFA Handbook National Association of Student Financial Aid National Association of Student Financial Aid Administrators (NASFAA) Administrators (NASFAA) Various presentations by collection Various presentations by collection agencies and billing services agencies and billing services

QUESTIONS????? Deb Jones University of Cincinnati Director, Collections