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DEFAULT PREVENTION Deb Jones Director of Collections University of Cincinnati

DEFAULT PREVENTION Deb Jones Director of Collections University of Cincinnati. KASRO May 10, 2013. TOPICS. STATISTICS WHAT IS DEFAULT COHORT DEFAULT DEVELOPING A DEFAULT MANAGEMENT PROGRAM. STATISTICS. Student debt topped $1 trillion for the first time last year

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DEFAULT PREVENTION Deb Jones Director of Collections University of Cincinnati

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  1. DEFAULT PREVENTIONDeb JonesDirector of CollectionsUniversity of Cincinnati KASRO May 10, 2013

  2. TOPICS • STATISTICS • WHAT IS DEFAULT • COHORT DEFAULT • DEVELOPING A DEFAULT MANAGEMENT PROGRAM

  3. STATISTICS • Student debt topped $1 trillion for the first time last year • The average loan debt is around $26,500 • Orange Book – June 30, 2012 cohort rates U.S. 1844 schools avg 11.08% KY 31 schools avg 10.38% OH 77 schools avg 14.53%

  4. What is default? The borrower is considered to be in default on the 271st day of delinquency.

  5. COHORT DEFAULT

  6. For any award year in which 30 or more borrowers enter repayment, the cohort default rate is the percentage of those current and former students who enter repayment in that award year on loans received for attendance at that school and who default before the end of the following award year.From 2012-13 Student Financial Aid Handbook

  7. For any award year in which fewer than 30 current and former students at the school enter repayment on a loan received at the school, the cohort default rate is the percentage of those current and former students who entered repayment on loans received for attendance at that school in any of the three most recent award years and who defaulted on those loans before the end of the award year immediately following the year in which they entered repayment. From 2012-13 Student Financial Aid Handbook

  8. Numerator Borrowers who entered payment in one year, and default in that year or the next. Denominator Borrowers who entered repayment during the one- year cohort period.8 Cohort Default rate is 10.66%75

  9. COLLECTING COHORT ACCOUNTS • Work the accounts several times a month • Work next year’s cohorts right now • Increase phone calls and letters • If you have in-house staff, provide incentives • Notify your collection agencies

  10. Default Reduction Assistance Program (DRAP)A school or a school’s third-party servicer can request that the Department send a borrower a letter designed to warn the student of the seriousness of default.

  11. WORKING COHORT ACCOUNTS ROADBLOCKS • Tough economy • Slow job market • Budget cuts • Fewer resources • Non-responsive borrowers

  12. FY 2010 3-Year Draft Cohort Default Rates Distributed March 25, 2013If a school’s FY 2010 official 3-year CDR is equal to or greater than 30 percent when the official CDR is published in September 2013, the school will be required to establish a Default Prevention Task Force and develop a default prevention plan. The plan must be submitted to the Department. In developing the plan, a school will be required to:

  13. •Identify the factors causing the default rate to exceed the threshold;•Establish measurable objectives and the steps the school will take to improve its cohort default rate; and•Specify the actions the school will take to improve student loan repayment, including counseling students on repayment options.

  14. Potential sanctions due to higher default ratesPotential provisional certification to participate in the Title IV programs if any one of the three most recent cohort default rates are 25.0% or greaterPossible loss of lender participation, loss of FFEL, DL and/or Pell Grant program eligibility if the three most recent official cohort default rates are 25% or greaterLoss of FFEL and DL program eligibility if the most recent official rate is greater than 40%

  15. DEVELOPING A DEFAULT MANAGEMENT PROGRAM

  16. IFAP.ED.GOVDefault Prevention and Management • Entrance counseling • Financial Literacy • Communications • Exit counseling • Timely and Accurate Enrollment Reporting • NSLDS Date Entered Repayment Report

  17. Student Financial Aid GuidelinesFiscal ManagementCollectionsHHS Fiscal Management Health professions, Nursing and Primary Care Loans governed by same regulations

  18. Default management is not a Bursar or Student Accounts issue. It is an institution-wide issue.

  19. Concerns: • Borrowers: • negative credit report • seizure of federal/state tax refunds • difficulty in obtain mortgages/car loans • unable to rent an apartment • addition collection costs • possible litigationSchools: • a higher CDR is a reflection of the school • provisional certification • loss of Title IV eligibility • access to private loan funds

  20. Default Prevention • Establish a default management team • – representatives from various departments • Develop a plan and have a goal • Work to reduce the number of dropouts • Incorporate student success strategies

  21. Entrance Interview • One on one, group or on-line • Orientation • Test to borrower comprehends loan borrowing • Stress that repayment is required

  22. Exit Interview • Review terms & conditions of the loan • Inform as to the average monthly repayment • Emphasize the seriousness of the repayment obligation • Explain loan consolidation and repayment options

  23. NSLDS for Students Centralized, integrated view of Title IV loans and grants

  24. Personal Financial Management • Borrow responsibly • Budgeting of living expenses • Use of personal credit cards

  25. Communications • Contact during grace period • Send letters with “Forwarding and Address Correction” • Maintain records of borrowers’ address and phone numbers • Obtain and contact reference information • Secure permission to dial borrowers’ cell phone number • Provide information on various school websites

  26. Telephone outreach • Do you have the resources to make out-going calls and accept incoming calls? • Determine which accounts to call • Have scripts ready • Document the call

  27. Financial Literacy • Increased financial literacy, decreases defaults • Make it part of your first year curriculum • Provide information at orientation • Create a webpage • Establish a position/office • Direct students to various on-line resources

  28. Resources • There are many free resources • Lenders, Guarantors, Department of Education • Look at other schools’ website

  29. School websites • Borrower Rights and Responsibilities • Exit Loan Counseling • Repaying your loan • Tips for struggling borrowers • Money Management • Defaulted student loan resolution • FAQs • Videos • Resources

  30. Resources • IFAP.ED.GOV • FedLoan Servicing – PHEAA • Department of Education • 2012-13 SFA Handbook • National Association of Student Financial Aid • Administrators (NASFAA) • Various presentations by collection • agencies and billing services

  31. QUESTIONS?????Deb JonesUniversity of CincinnatiDirector, Collectionsjodk@ucmail.uc.edu513-556-1620

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