Session # 79 The Changing Data Landscape of Cohort Default Rates

1. Session # 79The Changing Data Landscape of Cohort Default Rates Patrick Kennedy Cynthia Battle U.S. Department of Education

2. Session Agenda • The Landscape • Changes in Cohort Default Regulations • Cohort Default Rate Review • Default Prevention and Debt Management Strategies • The Take-A-Ways

3. The Landscape • Loan default rates increasing for most schools • Educational costs continue to rise • More students borrowing more money • One-in-five households hold student loan debt • Increasing loan delinquency rates • Regulatory transition to 3-year Cohort Default Rate (CDR) calculation

4. National Cohort Default Rates

5. Session Agenda • The Landscape • Changes in Cohort Default Regulations • Cohort Default Rate Review • Default Prevention and Debt Management Strategies • The Take-A-Ways

6. The 3-Year Cohort Default Rate • Expands the default tracking window from 2 years to 3 years • Raises penalty threshold from 25% - 30% • Increases availability of “disbursement relief” from 10% to 15% (effective 10/01/11) • 34 CFR 668.217 affected the 2009 cohort year

7. Regulatory Requirements Section 34 CFR 668.217: Institutions that have a 3-Year Cohort Default Rate of 30% or greater for any one federal fiscal year is required to establish a Default Prevention Task Force to reduce defaults and prevent the loss of institutional eligibility. The 3-Year Cohort Default Rate 7

8. 3-Year CDR Corrective Actions • Firstyear at 30% or more • Default prevention plan and task force • Submit plan to FSA for review • Secondconsecutive year at 30% or more • Review/revise default prevention plan • Submit revised plan to FSA • FSA may require additional steps to promote student loan repayment • Third consecutive year at 30% or more • Loss of eligibility: Pell, DL • School has appeal rights

9. The 3-Year Cohort Default Rate First cohort year where schools will be subject to sanction based on 3-Year Cohort Default Rates

10. The 3-Year Cohort Default Rate The 3-Year Numerator is the numberof a school's borrowers who enter repayment on certain FFEL Program or Direct Loan Program loans during a particular federal fiscal year (FY), which is from October 1 to September 30, and default prior to the end of the nexttwofiscal years. Non- Average 3-Year Cohort Default Rate The 3-Year Denominator is the number of a school's borrowers who enter repayment on certain Federal Family Education Loan (FFEL) Program or William D. Ford Federal Direct Loan (Direct Loan) Program loans during a particular federal fiscal year (FY), which is from October 1 to September 30.

11. The 3-Year Cohort Default Rate The 3-Year Average Rate Numerator is the number of borrowers who entered repayment in the cohort fiscal year or either of the two preceding cohort fiscal years and who defaulted or met the other specified condition in the cohort default period for the cohort fiscal year in which they entered repayment. 3-Year Average Cohort Default Rate The 3-Year Average Rate Denominator is the number of borrowers who entered repayment in the cohort fiscal year or either of the two preceding fiscal years.

12. The 3-Year Cohort Default Rate CDR Benefit Threshold Changes New Old

13. 3-Year Cohort Default Rate Benefits

14. The 3-Year Cohort Default Rate CDR Sanction Threshold Changes Old New

15. Session Agenda • The Landscape • Changes in Cohort Default Regulations • Cohort Default Rate Review • Default Prevention and Debt Management Strategies • The Take-A-Ways

16. CDRs: The Formula Cohort Default Rate Review Borrowers who entered repayment in one year, and defaulted in that year or the next. Numerator Borrowers who entered repayment during the one-year cohort period. Denominator

17. 2 to 3-Year CDR (a scenario) Cohort Default Rate Review Numerator = # of borrowers from the denominator who default within a FY Denominator = # of borrowers who enter repayment within a FY Year 1 Year 2 3555000 = .071 or 7.1% 125 230 5,000 Year 1 Year 2 Year 3 6055000 = .121 or 12.1% 125 230 250 5,000

18. CDRs Are Released Twice A Year Cohort Default Rate Review February (DRAFT) Not public No sanctions No benefits September (OFFICIAL) Public Sanctions apply Benefits apply

19. Cohort Default Rate Review Challenges, Adjustments, and Appeals

20. Cohort Default Rate Review - LRDR

21. Cohort Default Rate Review Data Manager • Data Manager: • Depending on the loan, a data manager may be the Federal Loan Servicer, a guaranty agency or in some instances, the Department. • Entity responsible for maintaining and managing the data used in calculating cohort default rates.

22. CDR Guide CDR Guide CDR Guide Cohort Default Rate Guide The “Cohort Default Rate Guide” (Guide) is a publication that the U.S. Department of Education designed to assist schools with their 2-Year and 3-Year FFEL and Direct Loan Program cohort default rate data. The Guide has been updated and should be used as a reference tool in understanding cohort default rates and processes.

23. Cohort Default Rate Review Contact Information Operations Performance Division Phone: 202-377-4259 E-mail: FSA.Schools.Default.Management@ed.gov Website: ifap.ed.gov/DefaultManagement/DefaultManagement.html E-Appeals: https://ecdrappeals.ed.gov/ecdra/index.html Operations Performance Division 2023774259

24. Default Prevention and Debt Management Strategies

25. Default Prevention and Debt Management Strategies Borrower Communication 1 What is “financial aid”? Students don’t know… • How much aid they have • Where it comes from • Who paid for it • Whose money it really is This reduces the likelihood that it will be spent effectively.

26. Default Prevention and Debt Management Strategies Borrower Communication 1 Result … Lack of Understanding “I went to those financial aid workshops at my high school but those weren't helpful really at all…” “It would be helpful if there was an email explaining what each of the things are and where they're coming from and what they're doing and when you'll have to pay them back, and that kind of stuff.” “…an email saying this is what you're getting. But they don't really tell you where it's coming from or why you're getting it, so I don’t know.”

27. Default Implications for the Borrower Default Prevention and Debt Management Strategies Borrower Communication 1 • Credit report damage (7-year minimum) • Wage garnishment • Seizure of federal and state tax refunds • Seizure of portion of any federal payment • Legal action in federal district court • Title IV ineligible • May lose state occupational license • May have difficulty obtaining mortgage or car loans • May be unable to rent an apartment • May be turned down for jobs • Collection costs

28. Default Prevention and Debt Management Strategies Borrower Communication 1 “What are the most important things a student should know as he/she prepares for loan repayment?” • There are several important messages to deliver to borrowers as they are leaving school and entering repayment: • Check NSLDS to identify all federal loans and identify the servicer(s) • Provide servicers with updated contact information • Sign up for online account access • Sign up for automatic debit to ensure timely payments and receive a 0.25% interest rate reduction • Call the servicer to obtain information on repayment options that best meet the borrower’s financial situation • Understand that servicers are there to help! 28

29. Default Prevention and Debt Management Strategies

30. Default Prevention and Debt Management Strategies Financial Literacy for Borrowers • 2 • Correlation exists between increased financial literacy and decreased defaults • Schools can play an important role • Some schools make it part of their first year curriculum • Some schools offer a class for credit, if possible • There are many free resources available • federal, non-profits, lenders, guarantors • Consider online financial literacy programs • Counsel students on credit card usage

31. Money Smart - A Financial Education Program Default Prevention and Debt Management Strategies Financial Literacy Information Sources U.S. Federal Reserve System

32. Default Prevention and Debt Management Strategies Financial Literacy for Borrowers • 2 All counseling products on StudentLoans.gov highlight financial literacy concepts: • Entrance Counseling – required to receive a federal loan • Exit Counseling – required when the student graduates, leaves school or drops below half-time enrollment • Financial Awareness Counseling – optional • Cannot be required as condition for disbursement • Cannot replace Entrance Counseling

33. Default Prevention and Debt Management Strategies Financial Literacy for Borrowers • 2 Dynamic counseling tools help the student: • Make informed decisions about postsecondary funding • Understand their repayment obligation, using the students loan information in NSLDS • Develop a budget • Estimate monthly student loan payments • Explore paying interest while in-school and during periods of deferment and forbearance • Explore the impacts of deferment and forbearance • Learn about income-driven repayments plan options • Indicate a repayment plan preference (Exit Counseling)

34. Default Prevention and Debt Management Strategies Financial Literacy for Borrowers • 2 All counseling products present basic financial literacy concepts in discreet learning modules. • Plan for the Future • Your Income & Taxes • Your Credit & Identity • Credit Cards & Other Borrowing • Your Student Loans • Loan Basics • Free Money First • Types of Student Loans • Manage Your Spending while in School • Live Within Your Means • Borrow Smart • Estimate What You will Owe, Spend & Earn • Monthly Expenses • Monthly Income • Understand Repayment • Avoiding Default • Postpone or Lower Your Payments • Forgive or Cancel Your Debts • Delinquency & Default

35. Default Prevention and Debt Management Strategies

36. Default Prevention and Debt Management Strategies Communication Across Campus The prevention and management of loan default is a school-wide effort and not the sole responsibility of the financial aid office. To promote success, school officials should examine their communication procedures for effectiveness and inclusiveness. Your default prevention team can serve as the vehicle for cross campus communications. • 3 Form YOUR Default Prevention Team - It’s Everybody's Business!

37. Default Prevention and Debt Management Strategies Communication Across Campus YOUR Default Prevention Task Force should drive your default prevention process: • Assess the resources you have available • Team participants SHOULD be across campus • Identify the purpose of the task force • Detail responsibilities of determining risk • 3

38. Default Prevention Task Force Communication Across Campus Forming the Team • A group of specialists who will ultimately conduct data analysis to determine the reasons for default at your school and formulate a set of intervention strategies • Select a leader for the group; Consider appointing an institutional Default Coordinator • Use your current resources to create effective, customized default prevention programs that compliment existing efforts • 3

39. Default Prevention Task Force Communication Across Campus Activities for the Team • Study your student population. Identify any common characteristics of your defaulters and non-defaulters, and borrowers and non-borrowers • Build on Early Intervention strategies already in existence • Discuss your current strategies and determine what works and what may need some improvement • 3

40. Default Prevention Task Force Communication Across Campus Activities for the Team • Work closely with your servicers and lenders • Find out what type of tools and services are available from your servicers/lenders • Fine-tune your Loan Servicing procedures for the period while the borrower is at your school • Have clear and precise procedures with a timeline of dates to take appropriate actions • 3

41. Default Prevention Task Force Communication Across Campus Activities for the Team • Fine-tune your servicing efforts during the grace period and repayment • Have clear and precise procedures with a timeline of dates to take appropriate actions • Review all of your borrower education materials • Make sure all of your materials are current and up-to-date. Look for new materials to incorporate into your training • 3

42. Default Prevention Task Force Communication Across Campus Activities for the Team • Review your results and make the necessary enhancements • Always look for ways to improve whatever you are doing. Use evaluations or surveys to get input from the students and staff DOCUMENT! Create YOUR default prevention plan! • 3

43. Default Prevention and Debt Management Strategies

44. Default Prevention and Debt Management Strategies Timely and Accurate Enrollment Reporting The IMPORTANCE of Enrollment Reporting • Critical for administration of Title IV Loan Programs • Ensures students’ rights are protected • Essential for • Proper servicing of loan throughout the life cycle of the loan • Preventing defaults • School cohort management • 4

45. Default Prevention and Debt Management Strategies Timely and Accurate Enrollment Reporting • NSLDS places students on a roster based on reporting of federal aid • COD disbursement records now require the “Enrollment School Code” • It is important that schools add financial aid recipients to their rosters if the students are not listed Report Students Where They Attend • 4

46. Default Prevention and Debt Management Strategies Timely and Accurate Enrollment Reporting Report Students Where They Attend • Students should be reported at two locations of the same 6-digit OPEID ONLY IF the student is actually attending both • If the student is not enrolled at both locations, report the correct location for the student • If a student appears on a roster of an incorrect location, use the “Move to” functionality to report the correct location for the student • 4

47. Default Prevention and Debt Management Strategies

48. Default Prevention and Debt Management Strategies NSLDS and School Based Data The NEED for Data! In order to Conduct Risk Analysis – You NEED DATA! • Academic Data – Program completion rates, retention rates, data at the student level • NSLDS – Review NSLDS (default and delinquency) data along with school data about defaulters and non-defaulters • Servicer Data – Servicers offer customized reports • Remember! You need someone to work the data! • 5

49. Default Prevention and Debt Management Strategies NSLDS and School Based Data The NEED for Data! Conducting Risk Analysis: • Use data to create a picture of borrowers at-risk of default • ‘Who’ is not enough • ‘Why’ will require input of academic, student affairs and other professionals • Knowing ‘why’ is necessary to create targeted, useful and measureable interventions • 5

50. Default Prevention and Debt Management Strategies NSLDS and School Based Data What Does the Data Tell You? One of the jobs on your Default Prevention Team: • Determine the source of your default risk; • Determine what steps your school will take to reduce default risk; • Remember your team represents all parts of the institution (including management), which will contribute to risk reduction activities; • Allocate school resources to default reduction activities; • Assess the effectiveness of default reduction activities over time • Are they working? • 5