Welcome to T eaching + L earning T uesdays

1. Welcome toTeaching+LearningTuesdays April 15, 2014 I 2:30PM to 4:00 PM

2. Title: Direct Loan Program and Default Prevention Presenters: Ray Jones, Anne-Harvin Gavin, and Chuck Sanders South Carolina Student Loan

3. Direct Loan Program and Default Prevention South Carolina Technical College System April 15, 2014

4. Direct Loan Program Overview • Initially established during Reauthorization of the Higher Education Act in 1992 • The Healthcare and Education Reconciliation Act of 2010 required all federal student loans to be originated directly through the Federal Direct Loan Program, eliminating state-based originations • New student loans are now assigned to federal loan servicers at the time the loan is disbursed to the borrower. These assigned servicers will work with borrowers to manage the billing and repayment options of the student loans.

5. Direct Loan Servicers • TIVAS (Title IV Additional Servicers) • Nelnet • FedLoan Servicing (PHEAA) • Sallie Mae • Great Lakes Educational Loan Services, Inc. • NFPs (Not For Profit Servicers) • Aspire Resources Inc. • Cornerstone • ESA/Edfinancial • Granite State – GSMR • MOHELA • OSLA Servicing • VSAC Federal Loans • IFAP Servicing Contact information • http://www.ifap.ed.gov/ifap/helpContactInformationDetailedList.jsp?lsc=1

6. DL Loan Servicing – Student Loan Repayment • In-school period • Payments are postponed during periods of half-time enrollment • Undergraduate subsidized loans do not accrue interest • Unsubsidized loans accrue interest from time of disbursement • Grace period • Six-month grace period begins as soon as student graduates, withdraws, or becomes less than half-time • Only one six-month grace period per loan • Repayment • Begins immediately after grace period end date • Loan disclosures provide full terms of loan repayment obligation • First payment usually becomes due 30-45 days after converting to repayment

7. DL Servicing Repayment Options • Repayment Plans • Standard Repayment Plan • Initial borrower plan; level payment amount with 10-year loan term • Graduated Repayment Plan • 10-year loan term; payment starts lower than standard and gradually increases • Extended Repayment Plan • Extends loan term up to 25 years for balances greater than $30,000 • Income-Driven Repayment Plans • Pay as You Earn (PAYE) • Income-Based Repayment (IBR) • Income-Contingent Repayment (ICR) • Additional plans based on borrower’s annual income

8. Payment Postponement • Deferments: • Entitlements • Limited time • Eligibility based on situation of borrower • in-school, unemployment, economic hardship, military, etc. • Subsidized portion of undergraduate loan does not accrue interest • Forbearance • Usually discretionary • 36-month limit • May be offered if borrower is not eligible for deferments • Interest accrues on entire balance, including subsidized portion

9. Cohort Default Rate – Changing Climate • More students borrowing money • Increasing educational costs • Slow economy, higher unemployment • No local default prevention and financial literacy efforts due to elimination of state-based originations by organizations like SC Student Loan • Increasing delinquency rates • Loan default rates have increased for most institutions • Transition to 3-year cohort default rate calculation

10. 2014 – 3 year cohort transition will be completed • Third year of 3-year rates are released • 2-year rates end • Sanction threshold for loss of program eligibility becomes 3 consecutive years equal to or greater than 30%

11. Required corrective actions • Year 1 at 30% or higher: • Default prevention plan and task force required • Submission of plan to FSA is required • Second consecutive year at 30% or higher: • Review and make necessary changes to default prevention plan • Submit changed plan to FSA for review • FSA may require additional steps as needed • Third consecutive year at 30% or higher: • Loss of eligibility for DL Loans (also lose Pell eligibility) • Institution may go through appeal rights • 34 CFR 668.217

12. Two Year CDR

13. Three year CDR

14. Preventing Default – A School Approach • Financial aid office initiatives • Entrance/Exit Counseling • Updated contact information • Understanding loan repayment • Updating enrollment status changes • Focus efforts through entire borrowing experience • In-school • During grace • During repayment

15. What is your graduation rate?At-risk students often do not complete programs of study Historically, higher percentages of defaulting students did not complete their academic program • Did not benefit from job placement services offered by school • Reduced wages due to lack of degree/certification • No exit counseling • Communication attempts were not received from the servicer due to incorrect contact information • Withdrawal may be reported late to NSLDS, resulting in reduced efforts to contact during grace

16. Borrowers in school – start early • Implement student loan awareness as part of orientation process • Include information in a “university 101” class • Offer financial literacy awareness throughout student enrollment • Students that understand how to budget are less likely to default • Show loan payment amount estimates based on total loan balances • Consistently review and update student contact information • Increase efforts for retention, graduation, and employment

17. Borrowers in Grace Periods • Steps to take • Validate contact information • Re-enrollment assistance • Transfer assistance • Prepare borrower for repayment • Provide employment counseling and search preparation • Job placement assistance • Note: Delays in schools submitting timely enrollment information to NSLDS may increase default risk. Send these changes immediately. Servicers are required to submit to NSLDS weekly.

18. Borrowers in Repayment • Consistently run and review NSLDS reports • Delinquency reports • Demographic reports • Contact loan servicer with updated borrower contact information • Direct phone calls, e-mails, letters, etc. • Early in repayment: Target borrowers who did not complete school • Late in repayment: Target borrowers who are 180+ days delinquent • Skip tracing efforts on bad contact information • Once contacted, discuss individual borrower situation, provide warm transfer to servicer

19. Counseling • Entrance/Exit counseling is a regulatory requirement • Determine the method of counseling that works best for your students. Limited staffing resources often plays a role. • Online • Group Sessions • Combination • Determine at-risk borrowers and consider additional entrance and exit loan counseling. Require entrance counseling for every new loan. Performing exit loan counseling earlier or more often to these students may help as well.

20. Contact Information • Enhance skip tracing efforts when incorrect demographic information is found • Continue to supplement contact and reference information found on the MPN to the borrower’s servicer • Work with all departments to collect borrower contact information when an office visit is made • Inform borrowers that the contact information may be verified • Note: SCSL finds that almost all defaulted student loans could have been corrected if we had been able to contact the borrower

21. NSLDS Institutional Reports Reviewing your data is valuable: • Allows you to identify and correct errors before the draft and official cohort default rates are released • Is an opportunity for immediate feedback on prevention initiatives • Real-time insight into At-Risk borrowers and their characteristics • Opportunity to prepare for release of Draft and Official rates

22. Consequences of Default for a borrower: The consequences of default can be severe: • The entire unpaid balance of the loan and any interest may be immediately due and payable. • Lose eligibility for deferment, forbearance, and repayment plans. • Lose eligibility for additional federal student aid. • The loan will be reported as defaulted to credit bureaus, damaging the borrower’s credit rating. • Federal and state taxes may be withheld through a tax offset. This means that the Internal Revenue Service can take a federal and state tax refund to collect any of the defaulted student loan debt. They also have the ability to withhold any federal payment such as federal retirement benefits. • The student loan debt will increase because of the late fees, additional interest, court costs, collection fees, attorney’s fees, and any other costs associated with the collection process. • A borrower’s employer (at the request of the federal government) can withhold money from their pay and send the money to the government or holder of the loan. This process is called wage garnishment. • The loan holder can take legal action against the borrower, and they may not be able to purchase or sell assets such as real estate. • Federal employees face the possibility of having 15% of their disposable pay offset by their employer toward repayment of their loan through Federal Salary Offset. • City, County, State, and Federal workers could face job termination. • It will take years to reestablish credit and recover from default.

23. EdManage - SC Student Loan’s Default Prevention Program for Schools • 40 years of student loan servicing experience • Tiered offerings allow schools to determine the specific needs of the institution at different pricing levels • Knowledgeable representatives to discuss repayment options with delinquent borrowers • Blast e-mail campaigns during enrollment, grace, and repayment • Warm transfers to the borrower’s servicer after high level options are discussed • Local presence allows us to provide counseling, financial literacy awareness, high school financial aid nights in-person • Established skip tracing efforts already in place • Historically among the lowest default rates in the nation

24. FFELP Default Rates Cohort Default Rate is defined as the percentage of borrowers who enter repayment during a federal fiscal year and subsequently default within that same fiscal year or the following fiscal year. Trigger Rate indicates loan balance defaulted during a federal fiscal year divided by loan balance in repayment at the beginning of such fiscal year. Under the Higher Education Act, as currently in effect, if a guaranty agency's Trigger Rate exceeds 5% then the applicable percentage at which the Secretary reinsures loans guaranteed by that guaranty agency begins to decline below the otherwise applicable level.

25. Questions?Contact Information for Colleges Ray Jones (803) 612-5062 rjones@scstudentloan.org Anne Harvin Gavin (803) 612-5075 agavin@scstudentloan.org