Late Stage Delinquency Assistance: A Bridge Over Troubled Water

1. Late Stage Delinquency Assistance: A Bridge Over Troubled Water Mark Walsh Amy Kerwin FSA Default Prevention Team Great Lakes Higher Education U.S. Department of Education Guaranty Corporation

2. What We’ll Talk About • The Big Picture • Reducing delinquent loans through LSDA • Why should I get involved? • What should I do?

3. Student Loan Statistics • Approximately $400 billion in outstanding federal student loans • Nearly 30 million borrowers • More than 50% of the outstanding FFEL and DL balance is in consolidation • The average outstanding loan balance in consolidation is $18,240

4. Composition of the OutstandingLoan Portfolio Source: NSLDS and Common Services for Borrowers (CSB) Data Mart (July 31, 2005)

5. Composition of the OutstandingLoan Portfolio Source: NSLDS (July 31, 2005)

6. Composition of the OutstandingLoan Portfolio Source: CSB Data Mart (July 31, 2005)

7. Comparisons • 1989-1990: 21% of undergraduates received Title IV financial aid • 2003-2004: 46% of undergraduates received Title IV financial aid

8. Comparisons Average Defaulted Loan as of 9/30/03: $3,830 Average Defaulted Loan as of 9/30/04: $3,940 Average Defaulted Loan as of 9/12/05: $4,130

9. Cohort Default Rates • All-Time High? • 1990 CDR 22.4% • All-Time Low? • 2003 CDR 4.5%

10. 4 Year Private 4 Year Public 2 Year Public 2 Year Private Career Cohort Default Contribution by School Type Represents Direct Loan & FFEL Portfolio

11. Defaulter Characteristics • 84% did not receive their full 6 month grace period due to late enrollment notification • 71% withdrew without completing studies • 56% had bad phone numbers • 83% were not successfully contacted by phone during the 360-day collection effort during delinquency Last 2 percentages updated 11/05 Mark Represents Direct Loan Portfolio Only

12. Delinquency Management: Should I Be Concerned? • All schools contribute to the problem • It’s not just about CDR • Dollars and Accounts • Unnecessary costs to: • Borrowers • Schools • Servicers • Department of ED • Guaranty Agency

13. What Schools Can Do Take advantage of the opportunities to minimize delinquent borrowers at three stages: #1 While borrower is enrolled #2 Before borrower leaves school #3 After borrower is gone

14. Secretary’s Sample DefaultPrevention and Management Plan • Revised 9/30/05 • Useful information for all schools • Promotes student and school success • Available on IFAP

15. Borrowers Who Leave Early • Exit Counseling • For those who leave early • Find out why they left and use this information! • Collect updated contact numbers and addresses so you can reach them later

16. After The Borrower Leaves • Promptly update the enrollment change Important Note: • Most defaulters do not receive their full grace period • Why not? • Why is this important? • What is the solution?

17. Borrowers in Late Stage Delinquency • Who are these borrowers? • My lender was unsuccessful – How can I make a difference? • Late Stage Delinquency Assistance (LSDA) Why and how does it work?

18. Why is Late Stage DelinquencyAssistance Working? • Schools feel it is the right thing to do • Students respond well to schools • Minimal resources and effort required • The results are dramatic!

19. Borrower Delinquency Pattern Stafford Borrower Delinquency Pattern 12 Month Average 35% 30% 25% 20% Percentage of Total Delinquency 15% 10% 5% 0% 31-60 61-90 91-120 121-150 151-180 181-210 211-240 241-270 271-300 301-330 331-360 Days Past Due Represents Direct Loan Portfolio Only

20. Late Stage Delinquency Tools and Techniques Amy Kerwin Great Lakes Higher Education Guaranty Corporation

21. Where to Start? • What is the maximum number of defaults included in your target cohort default rate? • How can you project your cohort default rate through the end of the cohort period? • Which delinquent borrowers do you want to target? • What default prevention activities can you perform?

22. What is the maximum number of defaults included in your target cohort default rate?

24. How can you project your cohort default rate through the end of the current cohort period?

26. Which delinquent borrowers do you want to target?

27. Delinquent Borrower Segments • Borrowers >= 320 days delinquent who can impact your current CDR • Borrowers < 320 days delinquent who can impact your current CDR • Borrowers who entered repayment before or after the start of the current cohort year • PLUS borrowers

28. Why a Late Stage Delinquency Focus? • The segment of borrowers more than 320 days delinquent is the smallest and most manageable. • Most delinquencies are resolved before the borrower becomes 150 days delinquent. • Lenders and guaranty agencies try independently to reach delinquent borrowers until the claim is filed. At claim time, a new strategy is needed.

29. What default prevention activities can you perform?

30. Send Letters, Postcards or Emails • Customize your text to match the targeted borrower segment. For late stage: • Indicate that a default will be reflected on the borrower’s “permanent record” • Describe the consequences of default • Ask the borrower to contact you to learn about options available to avoid default. • Provide your phone number and the number of your guarantor. • Personalize each piece of correspondence.

31. Make Phone Calls • Enlist your guarantor’s support. • “Connecting With Delinquent Borrowers (A Step-by-Step Guide to Making Default Aversion Calls)” • “What Happens When a Borrower Defaults” • “Repayment Options for Student Loans” • Transfer calls to your guarantor or initiate a 3-way call

32. Take Advantage of Other Resources • www.mapping-your-future.org • Your guarantor’s website • FSA Assessments • www.ifap.ed.gov/gamodule/DefaultManagement/DefaultManagement.html

33. Thank You

34. Contact Us: Mark Walsh Lead - FSA Default Prevention U.S. Department of Education (816) 268-0412 mark.walsh@ed.gov Amy Kerwin Chief Guaranty Officer Great Lakes Higher Education Guaranty Corporation akerwin@glhec.org www.GreatLakesGuaranty.org