# Presentation: 139329

## Voluntary Flexible Agreements: An Experiment with Results  

- Pam Eliadis – Federal Student Aid
- Shelia Dunlap – Texas Guaranteed (TG)
- Anita Kermes – EDFUND
- Amy Kerwin – Great Lakes Higher Education Guaranty Corp.
- F. Duane Quinn – American Student Assistance (ASA)

## Voluntary Flexible Agreements

- What is a VFA?
- Agreement between the Secretary of Education and a FFELP Guaranty Agency
- Waives standard legislative requirements
- What is the goal of a VFA?
- Innovation
- Develop best practices in delinquency & default prevention

## Voluntary Flexible Agreements

- How does a VFA originate?
- A guaranty agency submits a proposal to ED (Federal Student Aid, Financial Partner Services)
- New and existing VFA’s must be “cost neutral”
- No additional cost to the Secretary
- Cost neutrality does not = Fee neutrality

## Voluntary Flexible Agreements

- How does a VFA originate (cont.)?
- Negotiation Period
- Fee Structure
- Innovative programs and associated waivers
- Performance Measures and Reporting
- Congressional Review
- 30 day review by Legislating Committees

## Voluntary Flexible Agreements

- Existing VFA’s
- Texas Guaranteed Student Loan Corp (TG)
- California Student Aid Commission (CSAC)
- Great Lakes Higher Education Guaranty Corp (GLHEC)
- American Student Assistance (ASA)
- College Access Network (CAN)

## Voluntary Flexible Agreements

- How does the FFEL program benefit from VFA’s?
- Innovative programs and partnerships
- Work resulting from performance based organization
- ED oversight for demonstrated results

## VFA Best Practices

- Student

- Financial
- Literacy

- Early Awareness
- & Assistance

- Repayment
- Assistance

- High Risk
-  Borrowers

## VFA Best Practices

- Student

**Financial **
**Literacy**

## Where does the money go....		

**Why Financial Literacy is an important component to higher education**.

- Shelia Dunlap
- Assistant Vice President – Default Prevention

## Why Financial Literacy is an important component to higher education

- Focus on the Student
- Impact to a Campus
- Effect on the Overall Economy
- Lasting Effects

## Focus on the Student

**College students and credit cards**
- 7 out of 10 Undergraduate Students have at least one card.
- 43% stated that they received that credit card during their Freshman year
- 18% obtained card from vendor on campus
- 35% obtained card from direct mail offer

- Source: Undergraduate Students and Credit Cards in 2004, Nellie Mae

## Focus on the Student

**Credit Card Balances**
-  Average credit card balance for undergraduate students exceeds $2,100.
- 1out of 10 students have a balance in excess of $7,000
- The average college graduate exits a campus with a balance of $20,402 in educational debt and credit cards

- Source: Undergraduate Students and Credit Cards in 2004, Nellie Mae

## Impact to a Campus

- “We lose more students to credit card debt than to academic failure.”
- University of Indiana administrator (CFA)
- Forget Osama bin Laden-More college students fear going into debt and unemployment.
- Partnership for Public Service, 2005

**Notes:**
Here are a few quotes 

## Impact to a Campus

- Students will forgo the remainder of their education to address higher debt balances.
- - 3 out of 10 traditional college students work over 20 hours a week.
- This in turn effects a campuses retention rates.
- This no longer is just a student issue

- Source: National Center for Public Policy and Higher Education

## Impact to a Campus

- Lower retention rates = smaller funds received from federal and state sources
- Accountability is a major focus of Reauthorization

## Effect on the Overall Economy

- Average American utilizes 26.4% of their net income to pay consumer debt.
- Young American Center for Financial Education
- There were 2,062,000 personal bankruptcy filings in 2004
- Average age for filers was 38 *(Compared to 44 in 2002)*
- 9.6% of these filings were for people 18-24 years of age.
- Federal Administration Officer of the court, Annual report, Jan 2005

## Lasting Effects

- Solid Financial Literacy on your campus can help in the following areas:
-  Increased retention
- This will lead to a more complete revenue stream for the institution.
- Build successful Students
- This will carry forward to help with creating an active alumni
- This will also allow for  strong support and promotion of the institution

## Lasting Effects

- Solid Financial Literacy on your campus can help in the following areas: (con’t)
-  Building a Better Campus
- This will allow a stronger recruiting foundation
- Marketing and promotion will be easier
- Strengthen the Economy
- Every little step can save the U.S. Taxpayers millions.

## VFA Best Practices

- Student

- Financial
- Literacy

**Early Awareness **
**& Assistance**

## Early Awareness

**Early Awareness**

- Anita Kermes

**Opportunities In Education**

## College is Possible

- Educate early and Encourage often
- Elementary School
- Junior High and High School
- Community Organizations
- Get the Parents involved

## College is Possible

- Focus efforts
- Low income
- First generation students
- Student Retention

## What’s the Message 

- Financial aid is available
- Types of aid
- How to apply
- Borrow Wisely, Borrow Responsibly
- Investment in your future
- Budget
- Credit cards

## What’s the Message 

- Resources
- Posters and publications
- Presentations
- Web sites

## Default Aversion Laboratory

- Services for Schools and/or Borrowers
- EDWISE, online financial planning guide
- EDTEST, an online entrance and exit counseling tool
- EDFUND Video Clips: four streaming video presentations focused on financial planning
- Student Loan Debt Summary for students

## Default Aversion Laboratory

- School Consulting Services
- Research, analysis, and recommendations for enhancing default prevention on campus.
- Developed Cohort Management System (CMS) to help school’s prioritize delinquent borrower counseling efforts
- Currently 416 schools signed up for CMS
- Late stage delinquency assistance
- Focus on current and future cohort years

## Early Withdrawal Counseling

- Program Background/Overview
- According to EDFUND research, 43.1% of borrowers who dropped out of school, and of those 15% defaulted.
- Encourage borrowers to return to school
- Provides counseling on repayment options during grace period
**Goal**: Reduce student loan defaults

## Early Withdrawal Counseling

- Success Measures for EWC borrowers compared to Control Group
- Return to School
- EWC borrowers were nearly twice as likely to return to school
- Positive Repayment
- EWC borrowers were substantially less like to become delinquent at any time during their first year after leaving school.

## Early Withdrawal Counseling

- Success Measures for EWC borrowers compared to Control Group
- Delinquency
- EWC borrowers who became delinquent were significantly more likely to be returned to a positive repayment status

## Early Withdrawal Counseling

- Success Measures for EWC borrowers compared to Control Group (con’t)
- Default
- The percentage of withdrawn borrowers in the control group who defaulted within two years of leaving school was more than 50% higher than among borrowers counseled in the EWC program..

## VFA Best Practices

- Student

- Financial
- Literacy

- Early Awareness
- & Assistance

**High Risk**
** ****Borrowers**

## Delinquency Prevention forHigh-Risk Borrowers

- Amy Kerwin
- Chief Guaranty Officer

## High-Risk Borrowers

- Borrowers who withdraw
- ED data shows that 71% of defaulted borrowers withdrew before completing their program of study
- Rehabilitated borrowers
- Past payment problems indicate these borrowers may be more at risk for becoming delinquent again

## Support for Withdrawn Borrowers

- We identify newly-reported withdrawn borrowers.
- Based on information reported by schools.
- Encourage schools to report withdrawn borrowers as soon as possible.
- We make contact _before_ the lender tells the borrower the grace period is ending.

## Support for Withdrawn Borrowers

- We send a “postcard” to borrowers as soon as they are reported as withdrawn

## Support for Withdrawn Borrowers

- Tells the borrower who Great Lakes is and why we are contacting them.
- Answers the following questions:
- When is my first payment due?
- How much do I owe?
- What if I don’t make my payments on time?
- Provides the 800 number to our Early Awareness Unit.

## Support for Withdrawn Borrowers

- Incoming call results:
- “I didn’t drop out!”
- “I’ve enrolled at a different school.”
- “Who is my lender?”
- “How much will my payments be?”
- “What should I do if I can’t afford my payment?”

## Support for Rehabed Borrowers

- Our research identified the following as factors contributing to post-rehab delinquency:
- Higher degree of “hand-holding” while in default
- Change in payment due date
- Change in payment method

## Support for Rehabed Borrowers

- We send a “Welcome Back” letter to borrowers as soon as the rehabilitation is funded

## Support for Rehabed Borrowers

- Provides the borrower the following info:
- Confirmation that the loan is out of default
- Name of the new loan servicer
- Payment amount pre- and post-rehab
- Payment due date pre- and post-rehab
- Options for changing the payment due date or amount
- Benefits of signing up for ACH OR reinforcement of ACH benefits

## Support for Rehabed Borrowers

- We send a “Payment Reminder” letter for each of the first 6 post-rehab payments due
- Refers to loan as “recently rehabilitated”
- Notes payment amount and payment due date
- Provides ACH or coupon payment instructions
- Benefits of signing up for ACH OR reinforcement of ACH benefits
- Letter sent 10 days before due date

## Support for Rehabed Borrowers

- We use our autodialer to call rehabilitated borrowers who become delinquent
- Calls start at 5 days delinquent
- “Courtesy call” vs. “delinquency call”
- Calls end with a default aversion request
- Once DAR is received, borrower moves from Early Awareness Unit to Repayment Solutions
- “Delinquency call” that reminds borrower of the benefits gained via rehab

## Conclusions

- Identifying and targeting high-risk borrower segments can have big payoffs!
- Before creating a delinquency prevention strategy for these segments, first determine the underlying causes for delinquency.

## VFA Best Practices

- Student

- Financial
- Literacy

- Early Awareness
- & Assistance

**Repayment  **
**Assistance**

- High Risk
-  Borrowers

## Assisting Students During Repayment

- F. Duane Quinn
- Director of Wellness Outreach

## ASA’s Journeys Program

- Direct mail to students during grace
*“**The right information at the right time”*
- Continuous quarterly mailings for two years
- Opportunity to contact ASA
- Option for school to “co brand” school logo – “Branded Journeys”

## Journeys 2004: Graduates of 2004 

**17,009 Borrowers Identified as degree completion; 1962 received no contact from ASA (control); 15,047 mailings; 8 Schools involved in “Branding”.**
**Journeys 2005: Graduates of 2005**
**Approximately 25,000 Borrowers have been included. Direct Mail and e-mail. 12 schools “Branded” materials.**
**Journeys 2006 : Graduates of 2006**
**Commenced on October 1, 2006.  23 schools involved in Branding**

## Positive Results Carried Through to Individual Default Experience in 2003

- Borrowers who received Journeys 2003 mailings have experienced 50% fewer defaults than borrowers who did not receive Journeys

## Journeys 2004 School-Branding Has Reduced Delinquency Experience

## Journeys 2004 Borrowers Have Fared Better than the  General Population

- From 2003 to 2004, the default experience of Journeys Borrowers decreased more than for borrowers who received no contact

|   | Default Rate Among Control Borrowers | Default Rate Among Journeys Borrowers |
| --- | --- | --- |
| 2003 | 1.10% | 0.50% |
| 2004 | 0.60% | 0.20% |
| % Decrease | 46% | 60% |

## 2003 Cohort by Branded School Type

## National vs. ASA Cohort for 

- National vs. ASA Cohort for
- Branded Schools

## E- Newsletter

|  | Opened E-mail | Clicked-Through (as % of those who opened) |
| --- | --- | --- |
| School-Branded | 30.85% | 25.3% |
| Servicer-Branded | 51.15% | 6% |
| ASA-Branded | 17.35% | 9.35% |

## Slide 54

## Experiments in e-mail Communication (1/09/06)Graphics:  Real vs. “light”

## Slide 56

- QUESTIONS

## Technical Slide

- We appreciate your feedback and comments.
- We can be reached at:
- Email:
- shelia.dunlap@tgslc.org
- anita.kermes@edfund.org
- akerwin@glhec.org
- quinn@amsa.com
- mike.sutphin@ed.gov