# Presentation: 267440

## Student LoanDelinquency Management

**Student Loan****Delinquency Management**

**Mark Walsh**
**U.S. Department**
**of Education**

**Bill Kohl**
**National Student**
**Loan Program**

## What We’ll Talk About:

- The Big Picture
- Reducing delinquent loans
- Why should I get involved?
- What should I do?
- Manage Delinquency and Mitigate Default
- Examples of guarantor and school activity

## Student Loan Basics

- CSB Data Mart (July 31, 2005)

**Student Loan Basics**

- Approximately $400 billion in outstanding federal student loans
- Nearly 30 million borrowers
- More than 50% of the outstanding FFEL and DL balance is in consolidation
- The average outstanding loan balance in consolidation is $18,240

## Composition of the OutstandingLoan Portfolio

**Number of loans**

**% to **

**Total**

** ****Total Principal & **

**Interest **

**% to **

**Total**

- Stafford Sub.

- 39,048,155

- 49.1%

- $107,325,080,770

- 26.7%

- Stafford Unsub.

- 22,036,060

- 27.7%

- $75,908,037,857

- 18.9%

- Consolidation

- 10,432,719

- 13.1%

- $190,301,070,660

- 47.4%

- PLUS

- 2,978,623

- 3.7%

- $16,245,320,583

- 4.0%

- SLS

- 803,898

- 1.0%

- $3,321,484,742

- 0.8%

- Refinanced

- 56

- 0.0%

- $205,809

- 0.0%

- FISL

- 324,974

- 0.4%

- $274,390,715

- 0.1%

- Perkins

- 3,867,933

- 4.9%

- $8,461,713,993

- 2.1%

**Total**

**79,492,418**

**             **

** **

**100.0%**

**$401,837,305,129**

**100.0%**

**Average per Consolidated Loan**

**18,241**

**$                    **

** **

**Average per Non-Consolidated Loan**

**3,063**

**$                      **

** **

**Combined Title IV Loans**

- Source:  NSLDS and Common Services for Borrowers (CSB) Data Mart  (July 31, 2005)

**Composition of the Outstanding****Loan Portfolio**

## Composition of the OutstandingLoan Portfolio

- Source:  NSLDS   (July 31, 2005)

**Composition of the Outstanding****Loan Portfolio**

## Composition of the OutstandingLoan Portfolio

**Number of **

**loans**

**% to **

**Total**

** ****Total Principal & **

**Interest **

**% to **

**Total**

- Stafford Sub.

- 8,367,739

- 48.8%

- 24,198,134,843

- $

- 28.0%

- Stafford Unsub.

- 5,265,757

- 30.7%

- 17,742,313,004

- $

- 20.5%

- Plus

- 803,704

- 4.7%

- 4,663,194,125

- $

- 5.4%

- Consolidation

- 2,719,901

- 15.9%

- 39,930,285,841

- $

- 46.1%

**Total**

**17,157,101**

**100.0%**

**86,533,927,813**

**$    **

** **

**100.00%**

**Average per Consolidated Loan**

**14,681**

**$                    **

** **

**Average per Non-Consolidated Loan**

**3,228**

**$                      **

** **

**Direct Loans**

- Non-defaulted

- Source:  CSB  Data Mart  (July 31, 2005)

**Composition of the Outstanding****Loan Portfolio**

## The Primary Players in Repayment

- Borrower
- School
- Lender/Servicer
- Department of ED
- Guaranty Agency

## Things Happen During Repayment

- Borrower pays off loan in 10 years or less with no “hiccups”
- Borrower has a few “hiccups” and uses forbearance or deferment entitlements
- Borrower has more “hiccups,” becomes delinquent and eventually defaults
- Borrower never intended to repay and   defaults

## Example: Payoff In 10 Years Or Less

- Student borrowed $18,000 while in school
- Selected standard repayment option
- Monthly payments are X $$$ for 120 months
- Total paid by borrower is $19,450

## Negative Impact

- Borrower – None
- School – None
- Lender/Servicer – None
- Department of ED – None
- Guaranty Agency - None

## Example: Borrower Has a Few “Hiccups”

- Borrower is laid off from his/her job and receives a 24-month deferment
- Borrower receives discretionary/administrative forbearance for 12 months to prevent default
- Borrower finally pays off loan in 13 years and pays X $$$, including capitalized interest, for a total payoff of $23,750

## Negative Impact

- Borrower
- Increased cost due to capitalized interest on forbearance (ED pays on deferment)
- Longer obligation
- School
- None
- Lender/Servicer
- Additional servicing costs

## Negative Impact (continued)

- Department of ED
- Additional interest paid during deferment on FFEL loan
- Periods of non-earning asset if a Direct Loan
- Guaranty Agency
- None

## Example: More “Hiccups” Becomes Delinquent And Eventually Defaults

- Borrower is laid off his/her job, receives a deferment for 24 months
- Borrower receives discretionary/administrative forbearance for 12 months to prevent default
- Borrower becomes a “rolling” delinquent payer
- Borrower eventually defaults

## Negative Impact

- Borrower
- Increased cost due to capitalized interest on forbearance (ED pays on deferment)
- Adversely impacts credit
- School
- None

## Negative Impact (continued)

- Lender/Servicer
- Additional servicing costs due to extended period of loan and due diligence activity
- Loss of “risk share” (FFEL)
- Department of ED
- Increased costs: payment of claim (FFEL)
- Loss of interest income (Direct Loan)
- Collections costs
- Guaranty Agency
- Increased costs due to collection activity
- Loss of “risk share”

## Example: Borrower Never Makes Payment and Defaults

- Borrower becomes a “rolling” delinquent payer
- Borrower eventually defaults

## Negative Impact

- Borrower
- Increased cost due to capitalized interest
- Adversely impacts credit
- School
- Increases CDR

## Negative Impact (continued)

- Lender/Servicer
- Due diligence servicing costs
- Loss of “risk share” (FFEL)
- Department of ED
- Increased costs: payment of claim (FFEL)
- Loss of interest income (Direct Loans)
- Collection costs
- Guaranty Agency
- Increased servicing and collection costs
- Loss of “risk share”

## Comparisons

- 1989-1990: 21% of undergraduates received Title IV financial aid
- 2003-2004: 46% of undergraduates received Title IV financial aid

## Comparisons

- Average Defaulted Loan as of 9/30/03:
-            	      $3,830
- Average Defaulted Loan as of 9/30/04:
-            	      $3,940
- Average Defaulted Loan as of 9/12/05:
-            	      $4,130

## Cohort Default Contribution by School Type

-    4 Year Private
-    4 Year Public
-    2 Year Public
-    2 Year Private
-     Career

**Represents Direct Loan & FFEL Portfolio**** **

**Cohort Default Contribution by School Type**

## Defaulter Characteristics

**Defaulter Characteristics**

- 84% did not receive their full 6 month grace period due to late enrollment notification
- 71% withdrew without completing studies
- 56% had bad phone numbers
- 83% were not successfully contacted by phone during the 360-day collection effort during delinquency

## Delinquency Management: Should I Be Concerned?

- All schools contribute to the problem
- It’s not just about CDR
- Dollars and Accounts
- Unnecessary costs to:
- Borrowers
- Schools
- Servicers
- Department of ED
- Guaranty Agency

## I’d Like To Help

**Step #2****   **Choose a strategy
**Step #3 ****   **Implement it

**I’d Like To Help**

## What Schools Can Do

**What Schools Can Do**

## 1st Opportunity:                                   While Borrower Is Enrolled

- Entrance Counseling
- Borrower Education
- Financial Literacy
- Rights and Responsibilities

## 1st Opportunity:                                While Borrower Is Enrolled

- Can you identify your potential defaulters?
- Is the student in the right program?
- Does your program support student success?
- Where can you provide a helping hand?
- Identify your student success allies

## 2nd Opportunity:                                   Before Borrower Leaves School

- Exit Counseling
- For those who leave early
- Find out why they left and use this information!
- Collect updated contact numbers and      addresses so you can reach them later

## 2nd Opportunity: Before Borrower Leaves School (continued) 

- Promptly update the enrollment change
**Important Note: **
- Most defaulters do not receive their full grace period
- Why not?
- Why is this important?
- What is the solution?

## 3rd Opportunity:                                  After The Borrower Is Gone

- Borrowers in Late Stage Delinquency
- Who are these borrowers?
- My lender was unsuccessful – How can I make a difference?
- Late Stage Delinquency Assistance (LSDA) Why and how does it work?

## Student Perspective: 			Repayment/Recovery Cycle

**In School**

**Grace**

**Repayment**

**Technical Default**

**Default**

**30 Day**

**60 Day**

**90 Day**

**120 Day**

**150 Day**

**180 Day**

**210 Day**

**6 months grace**

**270  Days**

**240 Day**

**360  Days**

**300  Days**

**330  Days**

- Options: Make Payment to Bring the Loan Current, Rehabilitate Loan (12 on-time payments)
- Obtain Deferment or Forbearance to Temporarily Suspend Repayment (but Capitalize Interest), Consolidate Loans to Lower Total Payments Including ICR/Income Sensitive Loans, Default
- If We Can Contact the Borrower, We Will Have a Solution for Their Problem.

- Problems:  Ruined Credit, Collection Agencies, Wage Garnishment, Treasury Offset, Bankruptcy, Possible Impact on Employment/Licensing, etc.
- Solutions:  Win a Lottery and Pay Off Loan, Arrange Compromise Payoff, Make Satisfactory Repayment Arrangementsr, Rehabilitate Loans through 12 On-time Payments, Consolidate Loans

- Source: Borrower Services/Portfolio Risk Management

## Borrower Delinquency Pattern

**Stafford Borrower Delinquency Pattern**

- 12 Month Average

- 0%

- 5%

- 10%

- 15%

- 20%

- 25%

- 30%

- 35%

- 31-60

- 61-90

- 91-120

- 121-150

- 151-180

- 181-210

- 211-240

- 241-270

- 271-300

- 301-330

- 331-360

**Days Past Due**

**Percentage of Total Delinquency**

**Borrower Delinquency Pattern**

** ****Represents Direct Loan Portfolio Only**** **

##              Manage Delinquency              and Mitigate Default

-              Manage Delinquency              and Mitigate Default

**Bill Kohl**
**Vice President, Operations**
**National Student Loan Program**

**With resources and online tools ****from your partners**

## Today’s Topics

- Borrower Education
- Delinquency and Default Tools
- Additional Tools
- How Can Schools Help?
- Guarantor Partner Assistance

## Borrower Education

- The work begins here...
- Help students manage their money and control debt with personal finance
- Interactive tools students can use to manage money
- Guarantor’s resources

## Borrower Education (continued)

*Online student-friendly information...*
- Budgeting
- 	CNN Money, Mapping Your Future
- Career Planning
- Job Gusher, Monster Trak
- Credit Bureau information
- Experian, Trans Union, Equifax
- Money management
- Bankrate, Federal Reserve
- Borrower Education Online Tools **(see handout)**

## Interactive Courses

- Credit and Debt
- Provides information on budgeting,  credit, and student loans
- At the Bank
- Helps students understand how banks and bank accounts work
- Home Finance
- Teaches fundamentals of finding, renting, and owning a home

## Delinquency and Default Tools

**Delinquency and Default Tools**

- Cancellations, Deferments, Forbearances, Forgiveness, and Consolidation
- Dept of ED, Guarantor’s websites
- Knowing where your loans are
- NSLDS, Clearinghouse
- Understanding repayment plans and options
- Mapping Your Future, Dept of ED, GA’s
- Delinquency/Default Online Tools **(see handout)**

## Additional Tools

- Loan summary
- Exit loan counseling
- Grace programs

## How Can Schools Help?

- Default Aversion Assistance Report
- Identifies delinquent borrowers
- Letter generation
- Updated frequently
- Work borrowers you choose
- Phone calling tips

## Guarantor Partner Assistance

- Default Aversion Assistance
- Request filed between 60 – 120 days
- Continue to work until resolved or default claim filed
- Default prevention activities include
- Phone attempts
- Letters

## NSLP Phone Attempts

- Current phone attempts
- 	3 attempts = 2 – week average
- 	5 attempts = 3 – week average
- 	30 attempts = 25 week average
- Borrower with good phone number
- 	Averages 1.75 attempts per week
- Spanish-speaking representatives

## Skip Tracing

- Directory assistance
- Internet services
- School inquiries
- References and contacts

## Special Phone Campaigns

- Large balance loans
- Cohort default borrowers
- Late-stage delinquency

## Letters

- One every month for seven months
- More assertive and stress urgency of their actions
- Letters in English and Spanish

## Default Rescue Program

- Focus on borrowers who have a default claim filed
- “Last chance” to avoid the consequences of default
- Partner with lenders to help with last minute processing

## Successes

- 53% of borrowers contacted are resolved
- School’s cohort default rate positively affected
- Saves ED and taxpayers $$$
- Borrowers kept out of default
- Lenders, GAs, avoid loss
- Win, Win!

## Summary

- Education
- Retention
- Communication
- Restoration

## Questions?

## Thank you!

- We appreciate your feedback and comments.
- We can be reached at:

**Mark Walsh                                   FSA Default Prevention                          U.S. Department of Education  ****(816) 268-0412****mark.walsh@ed.gov**

**Bill Kohl                                                   Vice President - Operations****National Student Loan Program          (402) 479-6836****billk@nslp.org**