Building a Successful Default Prevention Plan

Transcription

1 Building a Successful Default Prevention Plan

2 Agenda Why is default prevention important? Cohort default rate trends. Consequences of high CDRs. Components of an effective default prevention plan. 2

3 Perfect storm for loan default Weak economy. Personal incomes not keeping pace with rising student loan debt. Increase in borrowing. Student loan debt greater than $1 trillion. Exceeds total outstanding credit card debt. Split-serviced loans. Borrowers dealing with multiple entities and multiple payments. Three-year cohort default rate calculation. Three-year rate nearly 50 percent higher than two-year calculation. 3

4 Official FY 2010 two-year CDR 4 Source: U.S. Department of Education

5 Official FY 2009 three-year CDRs by sector 5 Source: U.S. Department of Education

6 CDR window illustration FY10 Two-year CDR = Stafford borrowers who enter repayment and default between 10/1/09 and 9/30/11 Stafford borrowers who enter repayment between 10/1/09 and 9/30/10 FY10 Three-year CDR = Stafford borrowers who enter repayment and default between 10/1/09 and 9/30/12 Stafford borrowers who enter repayment between 10/1/09 and 9/30/10 6

7 Consequences of default Collections activities, fees and fines. Wage garnishment. Barriers to future financial aid. Damaged credit. Higher interest rates. Inability to get a job, apartment or mortgage. 7

8 Consequences of a high CDR Three-year CDR equal to or greater than 30 percent: 1 st year School must establish default prevention task force and prepare a plan to submit to the Department. 2 nd year (consecutive) Task force must review and revise plan and submit to the Department. 3 rd year School subject to sanctions (provisional certification or loss of eligibility). Effective 2012 with publication of FY 2009 three-year rate. 8

9 Consequences of a high CDR Default prevention task force. Identify factors causing institution s CDR to exceed threshold. Establish measurable objectives and identify steps to take to improve institution s rate. Specify actions institution will take to improve student loan repayment, including loan repayment counseling. Sanction: Provisional certification. Two-year rates A single CDR of 25 percent or greater. Before and during transition period. Three-year rates Two CDRs of 30 percent or greater in last three years. Effective when third three-year rate is published in September

10 Consequences of a high CDR Sanction: Loss of eligibility. Two-year rates: Three consecutive years of 25 percent or greater. One year greater than 40 percent. Three-year rates: Three consecutive years of 30 percent or greater. One year greater than 40 percent. Effective when third three-year rate is published in September **Currently: Loss of eligibility with one CDR greater than 40 percent or three consecutive years of 25 percent or greater. 10

11 Components of an effective default prevention plan 11

12 Talk to your administrators Share data of impact of three-year calculation for your school and nationally. Share your own estimation of three-year rate. Present a default management plan for controlling three-year rate. 12

13 Default prevention starts when students walk through the door Communication in Grace, Repayment, Delinquency and Default Stage 1: Application and Loan Origination Entrance Counseling and Orientation Stage 4: Repayment Period The Life Cycle of a Student Stage 2: In-School Period Exit Counseling LOAs Re-Enrollment Stage 3: Grace Period Financial Literacy FYE Classes Retention Initiatives 13

14 Critical components Regular borrower communication. Retention activities for student loan borrowers. Financial literacy for all students. 14

15 Default prevention and management A plan for student and school success. Entrance and exit counseling. Verify and update contact information. Timely and accurate enrollment reporting. NSLDS date entered repayment (DER). LRDR review. Defaulted loan data to identify common defaulter characteristics. 15

16 Communicate with borrowers in repayment Start early during grace period is best! School is trusted adviser for borrower. Use tools available from guarantors and partners. NSLDS Repayment calculators Servicer websites Create a strategy for delinquent borrowers. 16

17 Communicate across campus Default prevention is not just financial aid s responsibility. Link to other programs across campus. Communicate with students the importance of SAP. Make the grade, save your aid. Default prevention and retention staff. 17

18 Best practices Early withdrawal counseling. At-risk borrower program. Calls during grace period. Early-stage delinquency program. Late-stage delinquency team. Financial literacy. 18

19 A few questions about financial literacy Do you wish your students knew more about managing their money? What are you doing now to help your students? 19

20 Financial literacy and student success 76% of college students wish they had more help preparing for their financial future. 54% of graduate students said they would have liked to receive financial management information on an ongoing basis throughout their undergraduate years. Students that participated in as little as 10 hours of financial education increased their understanding of money management and improved financial behavior. 20

21 Creating and implementing a financial literacy program Financial education is needed throughout the student s experience. Stage 1: Application and First 90 Days Communication and Website Offerings Counseling and Orientation Stage 4: Alumni The Life Cycle of a Student Stage 2: In-School Period Graduate and Career Counseling Stage 3: Last year and Graduation Financial Literacy and Enrollment Retention Efforts 21

22 Questions to consider How and when will you deliver it? Who is your target audience? What will course content and materials cover? Who will be responsible for managing program? How will you measure success? 22

23 Tips and lessons learned Get academics involved. Bet on a sure thing. If you build it, they probably won t come. Focus on those who need it most. 23

24 Showcase: Peer mentoring Goals of sophomore mentoring program: Engage students academically and socially with departmental peers and faculty. Solidify major through career exploration and evaluation of the fit between chosen major and student. Increase student identification, investment and integration within major department. Increase opportunities for sophomores to engage in learning experiences within the major. Support academic success of students and solidify an academic sense of purpose. Provide job shadowing opportunities for sophomores. Increase persistence and retention for sophomore students. 24

25 Showcase: Defaulted borrower analysis Review characteristics of school s defaulted borrowers. School s defaulters were NOT: Students with low GPAs. Students enrolled in distance education. Students enrolled in remedial courses. First-generation students. Students who registered late. School s defaulters WERE: Students who did not meet SAP standards. Students who did not graduate. Students who had a 0 EFC. Students aged Students with average indebtedness of $6,515 25

26 Showcase: Borrower communication 26 Communicate with delinquent borrowers: Send delinquent notices. Obtain updated contact information. Counsel borrowers on options available Repayment plans, deferment, forbearance. Facilitate calls with borrowers and lenders when necessary. Contact defaulted borrowers. Send default notices. Obtain updated contact information. Counsel borrowers on options available to resolve default. Make satisfactory payment arrangements. Consolidate a defaulted loan. Rehabilitate a defaulted loan. Pay defaulted loan in full. Receive a discharge.

27 Building a Successful Default Prevention Plan Evaluation System APP or Web Enter Poll ID Enter Password sasfaa 27

28 A nonprofit corporation, USA Funds works to enhance postsecondary education preparedness, access and success by providing and supporting financial and other valued services.