Student Default Impact on Schools Sailing away the winter blues with ISFAA … 2015 Winter Conference

What is a Cohort Default Rate (CDR)? A “cohort” is a group of Stafford Loan Borrowers who entered repayment within a given federal fiscal year (FY) A Cohort Default Rate (CDR) is the percentage of those borrowers in a school’s cohort who defaulted within that federal fiscal year or within the next three fiscal years (36 months) Know your rate: Think student loan “Risk Management” Cohort Default Rate

Cohort Calculation Example

Benefits of a Low Rate Consumer Perception – Low default rate school viewed as quality education CDR below 15% allows flexibility. – will allow schools to disburse loan proceeds in a single installment made for one semester, one trimester, one quarter, or a four-month period. Cohort Default Rate - Facts

High CDR Risks School with a single-year CDR of 30% or greater must: – Establish a default prevention task force – Develop a default prevention/reduction plan with measureable objectives for lowering CDR – Submit the default reduction plan directly to DOE School with two consecutive years of CDR of 30% or greater must: – Revise the default reduction plan – Implement additional measure to prevent and reduce defaults – May be subject to provisional certification Cohort Default Rate - Facts

Sanctions Schools with three consecutive years CDR of 30% or greater = loss of eligibility to participate: – Pell Grant – Federal Direct Loan Programs Schools with a single year CDR of 40% or greater = loss of eligibility to participate: – Federal Direct Loan Programs Cohort Default Rate – Danger Zone

Comparison of FY 2011 Official National 3-Year Rates to Prior Three Years Public Institution Comparison Source : U.S. Department of Education School Classification

CDR Comparison

FY Year CDR By School Type

% of Student Loan Balances 90+ Days Delinquent Source: FRBNY Consumer Credit Panel/Equifax; Data displayed in maps are as of December 31, 2012.

Sample Report - Academic Details The single greatest risk factor is non- completion -Factors affecting persistence and attainment Delayed enrollment Part-time enrollment Working full-time while enrolled Single parent status Borrower Repayment Schedule The greatest number of borrowers who default are in standard repayment – suggesting that they have not attempted to revise repayment terms for more affordable month payments. Risk Factor

Cease Student Loan Program Participation Negative impact on enrollment and access (TICAS Report – 2014) CDR rates and defaults continue for many years Institute Educational Program for Borrowers CDR is a lagging indicator 5 years or more before full impact can be assessed Early withdrawals are marginally impacted Look to the Institution for “The Solution” Budget limitations Data & Technology Depth of Knowledge CDR Risk Management – “Knee Jerk”

Develop Default Management Plan and Devote Resources to Manage Risk Top Down Make it an institutional priority Default management task force School wide representation Create plan/work the plan Devote resources to align with borrowing rate Maintain participation in federal loan programs CDR Risk Management – Best Practice Best Practice

Increase Resources for Financial Aid Counseling Institutional control of loan process Staff training Gather reference data Outsource or Insource Outreach Initiatives Re-enrollment counseling Repayment education and assistance Triage for delinquent or defaulted borrowers Risk Management & Student Success

Options include: Data Challenges (Incorrect, Uncorrected, etc.) Loan Servicing Appeal Participation Rate Index Economically Disadvantaged Appeal These challenge/appeal options require evaluation of student enrollment and/or repayment data Financial aid leadership Institutional research Third party servicers CDR Challenge and Appeals

Student Success Financial Literacy Early Intervention & Grace Counseling Default Prevention / Repayment Counseling CDR Challenges / Appeals Where to Start? School-based products to help students understand financial products and services. Goal: to change student attitudes toward debt and reduce over-dependence on student loans. College completion is the best default prevention tool in a school’s tool kit! Online entrance and exit programs are not enough – in person counseling, budgeting and borrower education needed Only 10% of schools currently challenge draft CDR data. The DOE estimates that 40% of challenges submitted are accepted. Retention Outreach to delinquent borrowers to offer solutions- emphasizing affordable repayment options.

Where are you starting from? – CDR > 15 – lose benefits – CDR > 22% – urgent – CDR > 30% – emergency Validity of enrollment reporting data Validity of borrower data How much and how fast you can impact repayment behavior? Tipping Points

At Indiana University, it’s a Campus-wide initiative Board of Governors Presidents Council Management Council Enrollment Management Committee -Instruction / Faculty -Student Services -Business Office -Registrar It takes an Institution…

Default Management Plan Enrollment Management Committee -Implementation -Analysis -Metrics It takes a Village…

Default Management Plan OutcomesOutcomeResponsibility Students Contacted vs. CuredFinancial Aid / 3 rd Party Servicer Workshops for HS CounselorsRecruiters & Student Services Mandatory Financial Aid OrientationFinancial Aid & Instruction Borrower Education & Strategic DisbursementFinancial Aid Student Advisory GroupDean of Student Services Transitional CoursesInstruction / Faculty Track Loan Repayment BehaviorFinancial Aid Enhanced Borrower MessagingPublic Information Office Scholarship Funding & Awarding StrategyFinancial Aid & Advancement Accurate Enrollment ReportingRegistrar Metrics tied to Outcomes

Default Management Plan: Sample Outcome Mandatory Financial Aid Orientation Developing interactive financial aid assignment as part of the revitalized STU103 initiative Money Management learning objective will include: – 9-10 hours of content – Utilizing “Cash Course”, which will also be featured on MCC’s new financial literacy webpage Responsibility: Financial Aid & Instruction Outcomes to Track: # Incoming Students required to attend orientation and STU versus # of students who successfully complete the courses/sessions # of students who successfully complete financial aid orientation

It takes a Village… Other Resources Loan Servicers U.S. Department of Education Default Prevention: free and paid Financial Literacy: free and paid -Must be mandatory to be effective

Do you know your CDR’s for the last 3 years? Are your CDR’s trending upward? Who are your defaulters? What is the current financial position of the college? Do staffing models / budget reflect necessary default management efforts? Do financial models need to change to prepare for potential loss of Title IV funds? Form relationships with Director of Financial Aid – Regular CDR and Regulatory Updates Take Aways

College support loan limit reductions for community colleges Legislator rhetoric regarding “skin in the game” (i.e. Risk Sharing) College ranking/scorecards Future Regulatory Considerations

Who We Are Administrative body behind some of the changes to FA business practices and required component Provides Financial Education services for all 7 campuses, 114,000 students at IU Collaborates with liaisons/teams from all IU campuses to implement effective programming Office of Financial LiteracyIU MoneySmarts Dynamic tool to make financial education more accessible for students Established to assist students in making informed financial decisions before, during, and after college Brand established to make program identifiable and approachable Adopts a holistic approach to promote overall student wellness

IU Office of Financial Literacy 2012 Student Debt Task Force Establishment of Office Launch of IU MoneySmarts Website 2013 Required Financial Literacy piece implemented IU MoneySmarts Team created Establishment of campus teams Development of Podcast 2014 Partnership with School of Public Health Borrowing reduction of 12.4% between

Financial Literacy Deliverables Transit MoneySmarts.iu.edu “How Not to Move Back in With Your Parents” For-Credit Courses IU MoneySmarts Team Campus Teams & Program Funding Staff Professional Development “Business Practices” Changes

National Summit on Collegiate Financial Wellness June 28-30, 2015 – Bloomington, IN Connect those tackling financial wellness in Higher Ed and progress the field 160 attendees from 33 states in 2014 Keynote from Tahira Hira, international financial literacy expert Call for proposals goes live January 20, with registration opened at a later date

Phil Schuman Director of Financial Literacy Indiana University Steve Queisser Vice President Edfinancial Services Contact Information