THE BIG DEFAULTERS Don’t have them be yours! Presented by: Dawn Knight Regional Director, Nelnet WFAA – October 2011

Agenda – Just the facts... Rising cohort default rates Why are cohort default rates going up? Why are the borrowers confused? School responsibilities and challenges All around best default prevention practices – Within the Financial Aid Office – When partnering with a 3 rd Party Provider

Rising cohort default rates The story you are about to see is true. National FY 2-year CDR has jumped 25% between 2008 and 2009 Cohort default rates have reached their highest levels in 12 years

Rising cohort default rates National FY year CDR has climbed to 8.8% – Public institutions increased from 6% to 7.2% Total increase of 20% – Private institutions increased from 4% to 4.6% Total increase of 15% – For-profit institutions increased from 11.6% to 15% Total increase of 29.3% The 2009 cohort is the first cohort year that will be monitored for the new three-year CDR – Draft FY year CDRs will be provided to institutions in February 2012 with official rates released in September 2012

Rising cohort default rates Cohort default rates have increased by as much as 50% between the 2 year rate and the new 3 year rate according to U.S. Department of Education (ED) data

Why are cohort default rates going up?...”Now can I have the facts?” More borrowers with higher loan balances Sluggish economy makes finding jobs more difficult Great confusion among borrowers – Lack of knowledge of their rights, responsibilities, and options Institute for Higher Education Policy, March 2011 – Confusion on who services their loans – esp. for borrowers with split servicing Nelnet Loan Servicing – Default Prevention Manager

Why are the borrowers confused? “The young people in this country are searching for a direction and they’re having trouble finding it.” Ending of the FFEL Program = changes in lender to the Department of Education (ED) Loans PUT to the Department of Education often resulted in split servicing Department of Education owned loans continue to move to provide borrowers with a single servicer FFEL loan portfolios may be acquired as former lenders choose to sell these assets Some FFEL lenders being allowed to repurchase PUT loans

School responsibilities – Why is this our problem? Schools must have a 3yr CDR less than 30% to avoid sanctions including potential loss of Title IV eligibility for the following circumstances: – Three consecutive years of 30% CDR or higher – One year with a CDR over 40% Effective when the third 3-year CDR is published in September 2014 (Cohort years = ‘09, ‘10, ‘11)

School challenges – Why has this gotten harder? “And paperwork? Oh, you’ll fill out a report when you’re right, you’ll fill out a report when you’re wrong... you’ll fill out a report on the reports you’ve made!” Loss of industry partners who shared responsibility for lower default rates – Lenders – Guarantee Agencies Schools must now work with all ED servicers (TIVAs) – Multiple sources of data

Default management best practices Whose driving your default management efforts? School /in house 3 rd Party Provider

Default management best practices What works (no matter who is driving)? – Establishing financial wellness/literacy programs for all borrowers Educate borrowers from the beginning Build trusted relationships before entering repayment Encourage conservative borrowing Go beyond entrance/exit requirements

Default management best practices What works (no matter who is driving)? – Provide individualized counseling Provide each borrower with information for understanding their circumstances and loan amounts – Total amounts borrowed – Expected payment information – Servicer/contact information – How to access their information on NSLDS – What to do if they cannot make their payments – Find out how each borrower prefers to be contacted

Default management best practices What works (no matter who is driving)? – Early intervention – don’t wait until >90 DPD to start contacting delinquent borrowers

Default management best practices “ You’ll run the files until your eyes ache.” What works (no matter who is driving)? – Determine whether to use a shotgun or rifle approach Most effective order and methods for outreach How tech-savvy are your school borrowers? – Contact borrowers using their preferred method Look into texting and social media options Keep records as to how different borrowers respond to methods of outreach

Default management best practices “Sometimes the going’s rough. It has to be – but it’s the best way to get at the truth we know of.” What works (no matter who is driving) – Look for real solutions – not a quick fix Make sure the person contacting your borrowers are well versed in repayment options, deferments and forbearances Understand the underlying issues and look for solutions that will avoid rolling delinquencies Will using a forbearance help? Or just delay defaults? – Consider the impact of using forbearances on Gainful Employment Include all loans at all servicers to make sure nothing is missed. 1 loan defaulted = 1 defaulted borrower in your CDR calculation

School best practices Work on student recruiting and retention Monitor and track students most at risk – Develop an “early warning system” Understand why your students leave before completing their course of study Look for trends to take action to remove barriers – Analyze your students’ data to identify those most at risk on your campus – Engage and connect with your at-risk students while on campus Develop a Student Success program

School best practices “It looked like he was going to straighten out. He didn’t.” General characteristics of students most at risk: Financial need unmetPoor study habits Relationship issuesUnder-prepared, lacking basic skills Physical & mental health challengesLanguage barriers Dependent care issuesSocial issues – lack of “school connection” Lack of transportationFirst generation students Transition / orientation difficulties Your campus may have other unique factors that need to be identified for at-risk students.

School best practices As students enter grace – Make sure your enrollment status changes are timely Of the borrowers who default, many do not receive their full 6-month grace period due to late or inaccurate enrollment notification by the school - Make sure borrowers are aware of their options of repayment plans and deferments and forbearances before entering repayment

School best practices More recommended actions to take as students enter grace / leave your school – Validate collect additional contact information – Offer re-enrollment assistance if needed – Offer transfer assistance if needed – Provide employment counseling and search preparation – Job placement assistance

Best practices when working with a 3 rd party default management provider Work as partners to solve your school’s challenges – Make sure you introduce the 3 rd party to your borrowers early and often! Posters on campus Information / links on your website During entrance / exit counseling sessions Include the 3 rd party’s information in school publications or other borrower correspondence

Best practices when working with a 3 rd party default management provider Work as partners to solve your school’s challenges – Capitalize on the strengths of each other What can the school do best? What can the 3 rd party do best? – Share information about your 3 rd party provider across all student-facing office across campus

Best practices when working with a 3 rd party default management provider Understand the services provided to your borrowers – Be familiar with the technology and processes provided by your 3 rd party from the borrower’s perspective – Be able to respond to your students’ questions if needed (across all campuses) – Be familiar with your 3 rd party’s borrower contact information and website to direct your borrowers to your servicer

Best practices when working with a 3 rd party default management provider “ Here’s the key to this.” Understand the services provided to your borrowers – Have copies of borrower correspondence available in your financial aid office so your staff understands what is being communicated to the borrowers – Have your 3 rd party provider review any school created messaging collateral before releasing or printing – Keep all messaging consistent

Best practices when working with a 3 rd party default management provider Good communication and understanding between parties is the key to successful default prevention It is all about working together as partners for a common goal!

Questions or Discussion? Contact Information: Dawn Knight Regional Director Nelnet Loan Servicing