Presented by: Lynn Lee Harford Community College DEFAULT PREVENTION IN COMMUNITY COLLEGES
In 2 year colleges, 33.2% of the students borrow student loans The average cumulative debt for community college students is $9,287 According to the National Postsecondary Student Aid Study, 2003-04, 54% of the students wish they had borrowed less while at a community college DOE recommends that the monthly loan payment be between 8%-12% of net monthly income Student loan debt
Borrowers who earn a degree are less likely to default. Borrowers with GPAs over 3.0 have a less than 1% default rate, while borrowers with GPA of less than 2.0 have a default rate of 18%. Who is less likely to default?From Project on Academic success
Academic preparation—students who had higher grades in high school, higher SAT scores, and who earned better grades in college are less likely to default. Additionally, the course completion rate, grades earned, enrolling continuously, time to degree—all are predictors of default. Who is less likely to default?From Project on Academic success
College-related academic reasons • Students who are continuously enrolled are less likely to default. • Students majoring in scientific, engineering, or agricultural degrees are less likely to default, while students majoring in General Studies are more likely to default. • Default rate decreases as length of time at college increases. However, extending attendance beyond 5 years has a negative impact on default. Who is less likely to default?From Project on Academic success
Borrowers who have used deferments or forbearance are less likely to default. • As post-graduation income increases, the likelihood of default decreases. Who is less likely to default?From Project on Academic success
Income and debt • The borrower who earns less and owes more is more likely to default than the borrower with a smaller debt-to-income ratio. • Age and competing obligations • Older students are more likely to default as older students are more likely to have accumulated more overall debt. • Research shows that being single, separated divorced or widowed, combined with having dependent children, increases the default rate by 40%. SO, Who Defaults?
The greater the disparity between college major and type of employment, the more likely the student will default. Who defaults?
Borrowers who went into delinquency more than one time are more likely to default. • Other variables increasing default: • Underrepresented students—from low-income families, first generation students, African-American students, and students with dependents • Coming from families with little formal education • Having a GED or no high school diploma Who Defaults?From Project on academic success, Indiana university
Analyze your school data to determine why your students are defaulting • Were they academically successful? • Did they complete? • Did they find jobs? • Were they in specific programs? • Consider surveying your past borrowers for suggestions on how your office AND your college could have served them better Why do your students default
Nationally, community colleges educate more than 40% of all undergraduate students. Our colleges are open admission and have a greater percentage of students in remediation courses. What makes Community colleges different?
Community colleges are more accessible. • Location • Low tuition • Many community college students work at least part-time or have families to support and have other expenses beyond the COA, such as day care. • Typically, our students take longer to complete. • Typically, community colleges have lower retention rates. What makes Community colleges different?
Beginning with FY 2009, the new formula will look at three fiscal years - the one in which the borrower began repayment and the following two years. • Old Calculation looks at defaulters over a 2 year time period • New Calculation looks at defaulters over a 3 year time period Institutional concerns--New CDR Calculation
The HEOA increases the minimum CDR threshold schools must meet in order to continue participation in Title IV programs from 25 percent to 30 percent for fiscal year 2012. • The law also increases the participation rate index from .0375 to .0625 for schools to be exempt from the minimum CDR threshold requirement.The participation rate index measures the number of students who obtain loans compared to the number of regular students at the school. If a low percentage of a school's students take out loans, that school is exempt from the minimum threshold requirement. Changes in Rewards and Penalties
Defaulter U has a cohort default rate of 50%. It’s two most recent cohort default rates were 20% and 31%. Therefore, Defaulter is subject to sanction because it’s cohort is now above 40%. Defaulter appeals the sanction based on its participation rate index. It had a total of 100 students enrolled at least ½ time during the cohort year and 10 of those students got loans. Participation rate index appeals
Defaulter’s appeal looks like this: 10/100 X 50% (cohort rate) = 0.05 Because the participation rate index is less than 0.06015, Defaulter U’s participation rate index appeal would be successful. The Participation Rate Index Appeals allow colleges with a relatively low percentage of borrowers to appeal sanctions. Participation rate index appeals
“Based on previous studies and reports, lobbyists and others estimated that adding a third year to the time period in which defaults were tracked could increase default rates by an average of 60 percent, putting more institutions at risk of penalty by the Education Department. “ From Inside Higher Ed, January 21, 2008 Predictions
Special thanks to Anne Arundel, Harford and WorWic Community Colleges for sharing their default information. 3 yr crd projections based on cdr 2006
What can community colleges do? • Lowering the default rate is not just the responsibility of the Financial Aid Office—it involves other student services offices such as tutoring and advising, and the individual faculty who are in the classroom!
Entrance Interviews are a requirement. Beef them up. • Study of student’s anticipated occupation/earnings • Development of “after graduation” budget based on beginning salary for their career goal and anticipated borrowing • Discussion of the budget to see how loan payments will fit in Some ideas that may work for you
Entrance Interview • Use a Stafford Loan test to be sure that they understand the program and their responsibilities • Refer student to support services at your college • Suggest that student meet with academic advisor to develop a plan for completion—remember, students who complete their program are less likely to default! Some ideas that may work for you
While they are enrolled • Use SAP to identify students in academic difficulty • Refer them to advising, tutoring or disability services • Encourage your institution to develop a retention model that identifies students in difficulty and provides resources for them • Provide money-management and budgeting workshops for students Get your institution involved
Withdrawals, drops, disappearing students, and those who don’t return for the next semester • Reach out—call them, find out why they did not return, offer help • Send Exit Information promptly • Follow up with a phone call to see if student has questions • If you are not reporting to the Clearing House on a monthly basis, then notify the lender manually • Urge your school to report monthly When they leave us…
When they leave us • Exit interview • Make sure they have all the resources they need to manage their loan • Referral to college’s job placement services • Letters during the grace period • Contact by phone before they begin repayment
This is the time when you can show them ways to avoid default • Re-enroll in college • Other deferments? • Different repayment option • Forbearance • Offer college services such as resume writing, job placement, etc. • Other community services to help with their immediate needs, such as food, housing, etc. The grace period and beyond…
Use the information provided by servicers and guarantors to contact students who are delinquent • Offer college job placement • Provide deferment and forbearance information again • Explain different repayment options • Use both letters and phone follow-up Whoops! They are delinquent!
Your lender or servicer or guarantor will provide regular reports of the students who are delinquent and how many days delinquent they are • Develop a series of contacts—both written and phone • Use references to locate them if they have moved • Provide them with repayment option information, deferment and forbearance information • Make sure they understand the consequences of default Delinquent students…