Session # 17 Strategies FAAs Need to Know About Managing Default Patrick Kennedy | Dec. 2013 U.S. Department of Education 2013 FSA Training Conference for Financial Aid Professionals
Loan Servicing Updates Why Create a Default Prevention Plan? Default Prevention and Debt Management Strategies The Take-A-Ways Question & Answer Session Topics
Loan Servicing Updates Loan Servicing Information – Federal Loan Servicer Team Update • Direct Loan Servicing Center (ACS) Closed Beginning October 1, 2013 • All Direct Loan accounts previously assigned to COSTEP, EDGEucation Loans, EdManage, and KSA Servicing were successfully transferred to appropriate NFP servicer partner by the end of September 2013 • During the October – December 2013 timeframe, we plan to transfer accounts of borrowers whose loans are split across FedLoan, Great Lakes, Nelnet, and Sallie Mae.
Loan default rates increasing for most institutions Increasing loan delinquency rates Regulatory transition to 3 year Cohort Default Rate calculation Transition Completed Fall 2014 Why Create a Default Prevention Plan?
Why Create a Default Prevention Plan? Source: FRB of NY, Quarterly Report on Household Debt and Credit, November 2013
Why is a Default Prevent Plan encouraged for all institutions? Establishes default prevention goals Shows the institution’s commitment to default prevention Provides a framework for school-based initiatives Protects the integrity of the loan programs It’s the right thing to do for students! Why Create a Default Prevention Plan?
A Default Prevent Plan is required if the institution: 34 CFR 668.14 (b)(15) Participates in the Direct Loan program for the first time Participates in the Direct Loan program and have undergone a change of ownership 34 CFR 668.217 Has a 3-Year Cohort Default Rate of 30% or greater for any one federal fiscal year Why Create a Default Prevention Plan?
Default Prevention Plan - Required Default Prevention Plans due to FSA December 30, 2013 Firstyear at 30% or more: • Create a Default Prevention Plan and task force • Submit plan to FSA for review
Default Prevention Plan - Required Default Prevention Plans due to FSA December 30, 2013 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 • Institutions must review its submitted plan, re-evaluate its planned actions, make necessary adjustments, and submit a revised plan. • The revised plan should include information on the institution’s collaboration with the federal servicers regarding delinquent borrowers in the Direct Loan program and Federally-held Federal Family Education Loan program (FFELP). • Because these partners are responsible for servicing your students’ loans, they can aid your default prevention efforts as well as help your students have a successful repayment experience.
Default Prevention Plan - Required Thirdconsecutive year at 30% or more • Loss of eligibility: Pell, DL • School has appeal rights Let’s Talk Default Prevention and Debt Management Strategies
1 Borrower Communication - Institutions Borrower communication and engagement is a key factor in successful default prevention! • While the borrower: In School • Educate about repayment • Leverage financial literacy resources and tools • Update contact information • Update enrollment status changes • Reiterate the importance of communicating with the loan servicer(s) • When the borrower: In Grace • Validate contact information • Re-enrollment and transfer assistance • Prepare borrower for repayment • Update enrollment status changes • Reiterate the importance of communicating with the loan servicer(s) • Confirm the students servicer contact information 13
1 Contact Information Some institutions have reported great success by creating a separate form to collect additional borrower contact information, for all borrowers. • Goal is to supplement what is obtained via the MPN • Collect info during admissions process and any other time students come into contact with school offices • Share this information institution-wide between offices • Inform borrowers that you may verify this info (to improve accuracy) and spot check if time permits Although an institution may collect additional information, you may not make a borrower’s receipt of aid contingent upon providing it. Note
1 Borrower Communication - In Grace Federal Loan Servicers - In the Grace Period • Establishes a relationship with the borrower • Ensures the correct repayment status • Discusses the appropriate repayment plan • Promotes self-service through the web • Updates and enhances borrower contact information • Discusses consolidation options
1 Borrower Communication - Repayment • Preparing Borrowers for Repayment: • Make sure borrowers understand the various repayment plans and other options: • Deferment and Forbearances • Discharges and Forgiveness Programs • Loan Consolidation • Help borrowers understand the servicer role and when to contact their servicer • Remind borrowers that loan servicers are available to assist • Check NSLDS to identify all federal loans and identify the servicer(s) • Sign up for online account access • Sign up for automatic debit to ensure timely payments and receive a 0.25% interest rate reduction • Ensure that borrowers know that they must repay their loan, regardless of whether they complete their education 16
Financial Literacy 2 • Schools play an important role • Some schools make financial literacy 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
Financial Literacy 2 • Correlation exists between increased financial literacy and decreased defaults: • Financial difficulties can impede academic performance and completion. • Financial Literacy enhances to student success by: • Enabling students to make fully informed wise borrowing choices • Improve students understanding of the consequences of poor budgeting while during and after school • Promote an understanding of the impact of debt on their life plans • Prepare students for their transition from school to the workforce • Demonstrate the relationship between graduating on time and minimizing loans and promoting future financial success
Financial Literacy – FACT Tool 2 Expenses Funds Financial Awareness Counseling Tool (FACT) direct link: https://studentloans.gov/myDirectLoan/financialAwarenessCounseling.action?execution=e1s1
Financial Literacy – Counseling 2 NOTE: Exit Counseling does not include “Manage Your Spending While in School.” Available onstudentloans.gov 20
Financial Literacy – Repayment Estimator 2 Repayment plans and loan payment calculators are available at: http://studentaid.ed.gov/repay-loans/understand/plans#estimator
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. 3 • 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
Communication Across Campus Forming the Team • Members of the Default Prevention team may include: • - Representatives from various offices on campus • Financial Aid • Enrollment Management / Admissions • Academic Affairs Representative • Senior School Officials • Student Services • Career Counseling • Select a leader for the group; Consider appointing an institutional Default Coordinator • The function of the team is to conduct data analysis to determine the reasons for default at your school and formulate a set of intervention strategies 3
Communication Across Campus Educate the Team • Share the basic financial aid facts with the team: • 1 - Explain Title IV funding and the number of students that rely on financial aid to complete their education at your institution • 2 – What is the Cohort Default Rate (CDR) and how it affects the institution • 3 – Why a default prevention plan is necessary and important 3
Communication Across Campus Activities for the Team • Study your default student population • Start with your Loan Record Detail Report (LRDR) • 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 • Work closely with your servicers and lenders 3
Communication Across Campus Activities for the Team • 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 • DOCUMENT! • Create YOUR default prevention plan! 3
Timely and Accurate Enrollment Reporting • Essential for: • Proper servicing of loan throughout the life cycle of the loan • Preventing defaults • School cohort management • Critical for administration of Title IV Loan Programs • Ensures students’ rights are protected 4
Timely and Accurate Enrollment Reporting • Delays in submitting timely and accurate NSLDS enrollment changes may increase default risk • Servicers may be less able to identify, contact, and prepare borrowers for repayment • Many defaulted borrowers did not benefit from their full 6-month grace period due to late or inaccurate enrollment notification by the institution Sound Default Prevention Strategy – Send enrollment changes to NSLDS timely! 4
Timely and Accurate Enrollment Reporting Of the borrowers who defaulted, most did not receive their full 6-month grace period due to late or inaccurate enrollment notification by the institution. 34 CFR 685.309(b) Changes in enrollment to less than half-time, graduated, or withdrawn must be reported within 30 days. 4
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, enrollment, percentage of students who borrow, average loan indebtedness • 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
NSLDS and School-Based Data School Reports: NSLDS • Reports for Data Accuracy • Date Entered Repayment Report • School Repayment Info Loan Detail • School Cohort Default Rate History • Enrollment Reporting Summary • Reports for Default Prevention • School Loan Portfolio Report • Date Entered Repayment Report • Borrower Default Summary • Exit Counseling • Delinquent Borrower Report 5
NSLDS and School-Based Data School Reports: NSLDS 5
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. Your who will be unique. • ‘Why’ will require input of academic, student affairs and other professionals • Knowing ‘why’ is necessary to create targeted, useful and measureable interventions 5
Analyzing Analyzing Your Data • Where To Begin? • Obtain your Loan Record Detail Report (LRDR) • How many defaulted borrowers are in your numerator? • What are the characteristics of the defaulted borrowers in your numerator? • Query academic data to obtain demographic data for your defaulted population. • Identify the “who” and understand the “why”. • Translate the who and why into core strategies to reduce default and build your plan. 5
Examples of ‘Who’ and ‘Why’ Food For Thought: Typical Findings • Never Contacted • Developmental Courses • Late Admits • Did Not Graduate • Gradated but No License • Late Majors • Exit Counseling • Level of Indebtedness • Poor Study Habits • Academic Preparedness • Grad with Minimum GPA • Feel unwelcome, no “campus connection” • No Jobs in Profession • College Majors • Attendance Factors • Student Employment • Transportation 5 Do the leg-work, let your data lead the way.
Examples of ‘Who’ and ‘Why’ More Food For Thought Historically, the majority of borrowers who default, withdrew without completing their academic program. • Did not achieve academic credential • Often have reduced earning power • May not benefit from job placement • Have one or more loans to repay • May not receive exit counseling • May not respond to communication attempts by their loan servicer 5
Creating the Plan Getting Started - Creating Your Plan • Develop your own unique plan based on what your data tells you • Take a look at other school plans and compare to similar schools • Access the Default Prevention and Management assessment tools and resources • http://ifap.ed.gov/qahome/qaassessments/defaultmanagement.html 5
Creating the Plan Getting Started - Creating Your Plan • Include information on “At Risk” borrowers • Identify interventions points to reduce default risk – be specific • “Early warning” system • Leverage Intervention Opportunities • Enrolled/Grace/Repayment • Specify who is responsible for what tasks or initiatives • Make steps measureable • You need to know if interventions are working • Create a written realistic executable plan 5
Servicer Relationship 6 Servicer Communication Channels for Borrowers: • All servicers have toll free numbers for borrowers to contact (phone, fax, and e-mail) • Use IVR (integrated voice response) systems • Allow self-service for those that prefer • Make payments over the phone • Includes option to speak to a representative • All servicers have a dedicated staff to assist borrowers • Financial literacy (online tools and webcasts to help borrowers with budgeting, managing credit, and loan repayment)
Servicer Relationship 6 • Servicer Support – Cures: • Within 30 – 60 days of delinquency, a large percentage of delinquent accounts can be cured if servicers have good contact information • Borrowers that hit 270 days delinquent have a greater chance of remaining delinquent and even defaulting • Partner with the servicers to help borrowers in the later stages of delinquency!
Servicer Role – Default Prevention 6 • Examples of activities servicers are doing:
Servicer Relationship 6 • All servicers work to gather feedback and find ways to partner with schools on default prevention. Examples include: • Face to face meeting on school campuses • Financial aid conference attendance • Presentations at conferences • Default Management Training and Webinars • Analyzing Servicer Specific Reports and Tools • Late Stage Delinquency Efforts • Incorrect Data Challenges • Work the CDR data
FSA – Default Prevention Team • Default Prevention Team was created to assist schools with: • Establishing their default prevention goals • Assessing the resources schools have available in order to establish their Default Prevention team • Understanding default risk through the use of servicer and NSLDS available reports and tools • Developing /refining their default prevention plan
Need Assistance? If schools need assistance in developing or reviewing their default prevention plan, please send a request to the following email address: email@example.com Contact Us!
Default Prevention is Everybody's Business! Default prevention is a school-wide effort and not the sole responsibility of the financial aid office. You NEED DATA! In order to conduct risk analysis and identify your defaulters you need data. Partner with the Federal Loan Servicers! Your default prevention plan should incorporate the products and services offered by the Federal Loan Servicers. Get to know the federal servicers! The Take-A-Ways 3 Important Take-a-ways from this Session
QUESTIONS? Thank You! Patrick Kennedy 214-661-9480 Patrick.Kennedy@ed.gov