5/17/2013. Sanction: Loss of eligibility. o Two year rates:

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1 Failure to repay a loan according to the terms agreed to when borrowers signed their promissory notes. Default occurs when a Direct Loan borrower becomes 270 days delinquent in making payments on their loans. The consequences of default can be severe. Knowledge and understanding of financial matters. The absence of financial literacy can lead to poor financial decisions that can have adverse effects on the financial health of an individual. Students are a high default risk without financial literacy. 1

2 Sanction: Loss of eligibility. o Two year rates: Three consecutive years of 25 percent or greater. One year greater than 40 percent. o 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 Cohort Default Rate is a measure of a school s administrative capability. High CDRs can: o Negatively reflect on school quality. o Result in provisional certification. o Result in loss of Title IV eligibility. o Threaten access to private loan funds. FY 2010 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 2

3 FY 2010 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 All loans entering repayment in the cohort year. These can include borrowers with: o Loans in deferment. o Forbearance. o Rehabilitated. o On disability. o In bankruptcy. o Death. All cohort loans with a default date occurring during the three year cohort period. The numerator is counted by the number of borrowers, not by the number of loans. 3

4 Draft CDR: Released mid February (private). Schools have 45 days to appeal. Official CDR: Released in mid September (public). It is vital to the success of a default management plan to have the full cooperation of all campus staff: o Campus presidents o Faculty o Registrar o Financial aid office o Student services o Business office manager o Bursars o Admissions staff Default prevention starts when the student first walks through the front door. Make students aware that you are a friend who will answer any questions they may have. Have financial literacy materials available. Financial literacy materials can be ordered free on the FSA website. 4

5 Communication in Grace, Repayment, Delinquency and Default Stage 1: Application and Loan Origination Entrance Counseling and Orientation Stage 4: Repayment Period Exit Counseling LOAs Re Enrollment The Life Cycle of a Student Stage 3: Grace Period Stage 2: In School Period Financial Literacy Retention Initiatives Distribute a Financial Aid Checklist at new student orientation. o Handout should detail your FA office s philosophy and commitment to students. o It should provide an overview of the FA application process. o Explain the consequences of not meeting deadlines and other student responsibilities. o Explain SAP. Introduce the idea to upper management of a New Student Survival Course. It could be a short session given up to a week after the start and before the 30 Day Sit is over. Explain SAP. It should be geared toward reinforcing the responsibilities of the student to their academic and financial obligations. 5

6 Spend as much time as needed to be sure the students understand their obligations. Complete in school deferments for prior loans. Encourage students to create a budget and stick to it. Explain SAP. Advise them to live like a student and not overextend themselves with credit and stipends. Counsel students to pay interest while in school. Default prevention materials should be available to continuing students who are ready for their repack at the end of their academic year. Explain SAP. Always update the student demographics in your database when necessary for skip tracing purposes. Continue to remind the student of their financial responsibilities. Reach out immediately! Help students remain in school. If they ve already left, help them to return. May involve help to overcome obstacles. Assist borrowers to improve educational and employment outcomes. Assist borrowers to have stronger relationship with loan and loan servicer. 6

7 Request in school deferments for prior student loans. Explain SAP. Advise students to avoid the problems they had the first time in school and to seek help this time around, if they face them again. Follow up with the student; good customer service is essential in any business. Counsel students to pay interest while in school. Faculty and staff should advise the dean if they know a student is considering a withdrawal; walk them to the dean s office at once for counseling and be sure they see FA before leaving. If unable to do a one on one exit session, mail a packet to the student with easy to understand directions on how to do it online. o Include repayment materials and forbearance forms. Encourage the student to re enroll if possible. Celebrate your students successes and accomplishments. Decorate your offices and the student lounge with graduation decorations. Hold a pizza party or just coffee and donuts to celebrate.this works well after a group exit. Invite job placement to join in and assist. 7

8 Take extra time for exit counseling because this is your last chance to touch base with the student. Collect as many complete and accurate references as possible. Explain the differences between deferments and forbearances and the options available. Offer financial literacy materials about repayment. Include forbearance forms in exit packet. Give Ombudsman information and its function. Include list of loans and the servicers. or snail mail a reminder to the graduate that grace is almost over and payments will begin soon. Stress that payments must be made even if the borrower does not receive a payment booklet or a billing notice. Review the available options for loan repayment, such as the standard, extended, graduated, income sensitive and income based plans. Remind students there are options available and to keep in contact with their servicer. 8

9 Describe in forceful terms the consequences of default, including adverse credit reports and litigation. o Federal and state tax returns may be seized. o Wages and/or Social Security checks may be garnished. o Loss of Title IV eligibility. o Loss of deferment and forbearance options. Borrowers should be encouraged to set up electronic debiting of their bank account to repay their loans. Stress the student s obligation to keep the lender informed about address and name changes, including changes in their SSN. Failure to tell the lender about changes is perhaps the primary reason that loans go into default. Emphasize the seriousness and importance of repayment obligation. You can t advise students if you don t know it so read up and get a working knowledge of: o Deferments. o Forbearances. o Repayment options. 9

10 7. Entered military service. 6. Not earning enough. 5. Trouble with personal relationships. 4. Not employed. 3. High medical bills. 2. Married someone with more student loan debt. 1. Lack of knowledge. FSA Ombudsman Group 830 First Street, N. E. Mail Stop 5144 Washington, D.C Fax: (202) Toll free: (877) Offer plenty of financial literacy materials. 2. In depth entrance and exit counseling about loan obligations. 3. Create an internal default management team. 4. Maintain contact with students after graduation and assist with loan repayments for four years (three year CDR). 5. Do not let them leave your office until you see the light bulb go off in their eyes! 10

11 The Cohort Default Rate Guide Electronic Announcement Delinquency Prevention Activities odelinqpreventact.html FSA Assessments nagement.html Electronic Announcement Loan Servicing Information FedOwn.html Can We Talk? 11