An Overview

Building Student Success An Overview Dana Kelly, National Trainer Nelnet Loan Servicing

Agenda 1.Its all about Loan Repayment 2.The importance of loan repayment 3.Results from FSA survey of borrowers in grace 4.Resources for repayment 5.A Focus on the Data 3

Context: Student Loan Repayment 37 million federal student loan borrowers The median amount owed by new borrowers is $10,000 and the average is $20,000 Debt levels for graduate borrowers are significantly higher: a median of $31,000 and an average of $51,000 The majority of new borrowers will choose the standard ten- year repayment plan 4

Cohort Default Rates are Increasing SOURCE: NCES, Condition of Education 2013, Table 400, Number of postsecondary students who entered the student loan repayment phase, number of students who defaulted, and 2-year student loan cohort default rates, by level and control of institution: Fiscal years 2007 through 2010; IFAP, September 30, 2013, National Default Rate Briefings for FY Year Rates and FY Year Rates. 5

Characteristics of Defaulters Older (median age of 38 years old) Pell recipient/low-income Undergraduate loans only Median loan balance: $5,800 Poor financial literacy Did not complete degree SOURCES: NSLDS, as of June 30, 2013; The Student Loan Default Trap: Why Borrowers Default and What Can Be Done About It, National Consumer Law Center, July 2012; What Matters in Student Loan Default: A Review of the Research Literature, Jacob P. K. Gross, Osman Cekic, Don Hossler, and Nick Hillman; Journal of Student Financial Aid, 2009; Calculating the Contribution of Demographic Differences to Default Rates, Mark Kantrowitz, May

7 What do we know about new borrowers who are just about to begin repaying their loans?

Characteristics of Borrowers in Grace 8 SOURCE: NSLDS, as of June 30, 2013.

Characteristics of Borrowers in Grace Median loan balance for graduate students in grace 9 $0 $50K $25K $6,000 Median loan balance for undergraduate students in grace $0 $50K $25K $14,500 SOURCE: NSLDS, as of June 30, 2013.

Typical Borrower in Grace 26 years old Graduated with a Bachelor’s degree Family income: $25,000 Pell recipient Five loans in grace Undergraduate loans only Has not consulted any resources about loan repayment 10 NOTE: Loan balance is the median for both undergraduates and graduates combined SOURCE: NSLDS, as of June 30, 2013; CFI, Customer satisfaction survey of borrowers in grace, June 2013.

Most Choose Standard Repayment Nearly half of borrowers in grace plan to choose standard repayment. A large number do not know enough or are undecided. Source: CFI, Customer satisfaction survey of borrowers in grace, June

Reason for Choosing Plan Source: CFI, Customer satisfaction survey of borrowers in grace, June

Consideration of IBR Source: CFI, Customer satisfaction survey of borrowers in grace, June The majority (54%) did not consider income-based repayment (IBR) because they did not have enough information 13

Understanding of Borrower in Grace New borrowers who completed their degree program rated their understanding of student loan options higher than borrowers who did not complete their degree There is a 14- point difference in confidence in their ability to manage their loans Source: CFI, Customer satisfaction survey of borrowers in grace, June

Borrower in Grace – by Balance Borrowers with a high balance (+$50K) were more likely to consolidate their loans and begin repayment than those who owed less They were also more likely to choose income- based repayment Source: CFI, Customer satisfaction survey of borrowers in grace, June 2013; Questions 21: “At the end of your grace period, what action will you take related to your student loan(s)? and 29: “What repayment plan have you chosen, or do you plan to choose at the end of your grace period?” 15

Borrower in Grace - Repayment 44% report not being contacted at all about their loans going into repayment 34% report not being aware of their repayment options 26% are undecided about what action they will take on their loans at the end of their grace period 35% of those planning to go into repayment at the end of their grace period, either don’t know or are undecided about their repayment plan Source: CFI, customer satisfaction survey of borrowers in grace, June

Borrower in Grace - Resources Gone to find out information from… % of Respondents Online loan servicer account management40% Studentloans.gov website25% Talking with friends or family21% NSLDS website18% Exit counseling at my school18% Not used any of these sources of information17% Studentaid.gov website15% Phone number for loan servicer14% Talking with staff at my school12% Other online government resources4% Online non-government resources4% Other4% Mobile phone apps1% Social media resources1% Source: CFI, customer satisfaction survey of borrowers in grace, June 2013, Question 12: Where have you gone to find out information about your repayment options, your grace period, or how to manage your student loan(s)? – check all that apply. 17

18 Resources for Repayment

StudentLoans.gov 19

FACT Tool 20

Loan Repayment Estimator 21 Available at Studentloans.gov.

Loan Repayment Estimator 22 Repayment plans and loan payment calculators are available at:

23 Your Data is Your Key To Building Successful Students

DID YOU KNOW??? Borrowers who did not receive their full 6-month grace period due to late or inaccurate enrollment notification by the school are at a higher risk of default.

DID YOU KNOW? Borrowers who withdrew without completing their academic programs are also at a much higher risk of default.

DID YOU KNOW??? There is a strong correlation between increased financial literacy and decreased default!

Nelnet Trends in Borrower Repayment Borrowers who get into good early repayment habit less likely to default. For these borrowers, delinquency more likely due to life event change, if delinquency occurs at all. Intervention efforts more successful within the first 90 days of delinquency. From then on, there is a higher likelihood of eventual default. Setting up auto-pay good determinant of repayment success, as well as signing up for services like Manage My Account.

Nelnet Trends in Borrower Repayment Good contact information on borrowers critical. Students in skip-trace status much more likely to default. Schools who collect updated contact information after entrance or exit encouraged to share with servicers. Much of default or late delinquency group is made up of borrowers with small balances. Late Stage Delinquency – Borrowers in this category very difficult for servicers to reach since they have avoided contact from us for so long.

Nelnet: Trends in Borrower Repayment Many borrowers have a knowledge gap when they go into repayment. They are unaware of: – What a servicer does – Who Nelnet is – That they have options in addition to standard ten-year payment, – What deferments/forbearances are – That servicers can assist them if they run into repayment difficulties Please help servicers convey these messages.

Importance of School-based data Benefits of School-based Defaulter Analysis Enables you to develop specific strategies to help students avoid default. Allows you to correct ineffective practices throughout your institution. Enables you to identify high risk students. Helps you identify the relationship between loan default and student success.

What Prevents Student Success? o Finances/need o Relationship issues o Physical & mental health challenges o Dependent-care o Transportation o Housing o Transition difficulties o Poor study habits o Under-prepared, basic skill needs o Language barriers o Feel unwelcome, no “campus connection” o First generation, no role models or family support

Does your school have an “early warning” system? – Take attendance? – Issue mid-term grades which provide clues as to whether or not student will persist? – Alerts from faculty members, student support staff: who has missed classes? failed tests? had adjustment challenges? Don’t allow academic or social problems to become default risk Identifying Students in Trouble

Reach out immediately Help them remain in school If they’ve already left, help them to return – May involve help to overcome obstacles If they will not return, help them to understand their repayment obligations as some think they don’t owe anything because they left Learn what you can about their experiences and use this information to help other students stay in school Helping Students in Trouble

Engaging At-Risk Borrowers School engagement can help reduce risk at any stage of the borrowing cycle. Questions: Who are my at-risk borrowers? – Learning to identify risk factors When should I intervene, and how? – The right time and the right strategy

Engaging At-Risk Borrowers Identifying at-risk borrowers Determine, using available data, which students have defaulted in the past At what point are you most likely to be able to contact and influence these particular borrowers? In school? In grace? In repayment?

Engaging At-Risk Borrowers Example: While 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

Engaging At-Risk Borrowers Example: While 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

Engaging At-Risk Borrowers Example: While In Repayment Reach out to at-risk borrowers and facilitate the critical contact with the loan servicer to prevent default. Early in repayment: Target borrowers who did not complete Late in repayment: Target borrowers who are 240+ days delinquent

Evaluating your default prevention readiness 1.Do I have the right team in place to develop and execute my default prevention strategies? 2.What was my FY 10 CDR? Draft 11? Am I likely to hit 30% in September 2014? 3.What is the source of my default risk? 4.What default prevention strategies are in my plan that address the source of my default risk? How will they work? Are they measureable? 5.What ‘traditional’ strategies are included in my plan? 6.What ‘student success-focused’ strategies are included in my plan? Exercise: Getting To Where You Are…

Global default risk isn’t going away…it will only get worse over the next several years While outside servicers can help, reducing specific borrower risk is an ‘inside job’ School leadership must be prepared to devote internal resources to solve this problem Leadership Buy-in

Thank You! Dana Kelly National Trainer Nelnet Loan Servicing