Default Management in the US Student Loan Program

1. Default Management in the US Student Loan Program Tony Glad, Executive Vice President ANZFAA – Sydney 2010

2. Default ConsequencesFor Schools A high Cohort Default Rate can: • Result in a loss of eligibility for Title IV loans • Possibly reduce school eligibility for other sources of funding • Affect disbursement policies • Cause extra work to reduce default rate • Cause students to reconsider attending an institution

3. The Challenges Ahead • Loan default rates are on the rise • Educational costs/student debt are rising • The economy • “New” three-year Cohort Default Rate (CDR) calculations and sanctions • “New servicers” - Guarantors and FFELP lenders are no longer strong players

4. Cohort Default Rate History

5. Borrowers in Default

6. Good NewsNon US Schools have lower default rates

7. But Remember…That Economy Thing • Cohort Default Rate data is retrospective, and latest published figures are from 2007 • US economy started to decline in 2008 • Unemployment began to increase • Interest rates on Stafford and PLUS locked in at 6.8% and 8.5% (July 1,2006)mean higher monthly payments than early 2000’s

8. CDR Window Expanding • The Higher Education Opportunity Act of 2008 expands the cohort default rate window from 2 years to 3 years. • Essentially, borrowers have a longer period in which their defaulting can affect their school’s default rate. • Would take foreign schools from 2007 CDR 2.12% to 3.61%. • Curious about you? www.finaid.org/loans/cohortdefaultrates.phtml

9. CDR Window Expanding – ctd. • Three year rates won’t go into full effect until FY2011’s data is available, so sanctions based on this won’t go into effect until FY2014 • New sanction levels- 3 years at 30% (up from 25%) lead to ineligibility 15% (up from 10%) for 30 day delay for 1st yr and multiple disbursement rules

10. Three Year Sanctions First year>30% • School must develop a default prevention plan and task force • Submit plan to ED Second consecutive year> 30% • School must review/revise plan • Submit revised plan to ED • ED may require additional efforts Third consecutive year> 30% • Loss of eligibility

11. Increased School Responsibility • Guarantee agencies and FFELP lenders now out of the picture • Reporting of student loan amounts, revisions, refunds and cancellations must be done by school via NSLDS • A return of funds to G5 is not automatically reported; school must do so via COD and NSLDS

12. DL Servicers

13. DL Servicers • Multiple servicers used to create an environment of competition to ensure student borrowers receive the best in business service • All of a borrower’s loans should be at one servicer • School may not designate a servicer • Loan volume will be allocated based on default management performance and customer • Satisfaction surveys (borrower, school, ED)

14. Key Steps to Effective Default Prevention • Counseling strategy • Data collection • Data reporting • Contact with student

15. Entrance Counseling • Solid counseling program using Entrance Counseling • Required for all first time borrowers in the Federal programs • Can be an institutional requirement for all borrowers • Should be done before student arrives and funds disbursed

16. Entrance Counseling • Studentloans.gov • Links in with Direct Loan system • Mapping your future • Same process many have been using • Verifying if still allowed for foreign schools • In person presentation • Stronger impact and more dynamic interaction

17. Exit Counseling • Must be made available to all students when they graduate or cease to be enrolled at least half-time • Harder to enforce than Entrance Counseling • What things have you done? • If student doesn’t attend need to follow up

18. Exit Counseling Option • Studentloans.gov • Links in with Direct Loan system • Mapping Your Future • Same process many have been using • Still exists – for now • In person presentation • Stronger impact and more dynamic interaction

19. Missed Exit Counseling? What must you do if a student doesn’t do Exit Counseling before leaving your university? Either: • Ensure that borrower completes interactive electronic counseling, • Mail written materials to the borrower at their last known address within 30 days after learning they withdrew or failed to complete exit counseling.

20. Data Collection • It is important to maintain current records showing the students • Mailing Address • Phone Numbers • Other contact information • Will be used by servicers chasing the student during delinquency (before a student defaults)

21. Data Reporting • Keep NSLDS up-to-date with all enrollment data • Easier now there is only one lender, but university now bears full responsibility for reporting – no lender or guarantor will do it on your behalf • Keeping servicer informed when student withdraws • Let them know within 30 days if student leaves before expected completion date

22. Contact with students • Students are always more likely to want to stay in touch with the university rather than a lender • Maintaining an alumni connection is often best way to make sure you have contact details