# Presentation: 549011

## What is Risk ManagementAndy Cho

## Agenda

- What is Risk Management?
- Reducing Delinquency and Default.
- Delinquency Patterns and Characteristics
- Tools for Schools to Help Students
-    Avoid Delinquency and Default

***Session 9***

## What is Risk Management?

- Risk Management is the continuous management of reducing             exposure of loss from non-performing loans.
- Includes a balanced review of business results and how to maximize opportunities.
- Provides the foundation that supports the quality, composition and profitability of loan portfolio.

## Why is Risk Management Important?

- Department of Education owns or guarantees approximately $290 billion in outstanding student loans.
- In 2002 $56.5 billion was delivered in total new federal aid.
- There are approximately 22 million borrowers with student loans.
- As a taxpayer you are a share/stakeholder in the federally insured student loan portfolio, each of you have a vested interest in insuring that “your” investment is managed well.

## Advantages of Risk Management

- Manages through the life of the loan
- Identifies borrower attributes throughout the life cycle of the loan that impact performing and non performing loans
- Prevents a “scatter gun” approach to managing the portfolio, which leads to managing on demand
- A focused vision and concentrated effort to managing default prevention and reducing the cost to the taxpayer

## Slide 6

## Slide 7

## Sample Report 

**Sample Report **
**Direct Loans - Defaulted Loans**

## Sample Report - Delinquency

## Sample Report - Delinquency

## Sample Report - Delinquency

## Sample Report - Delinquency

## Sample Report - Delinquency

## Sample Report - Delinquency

## Sample Report - Delinquency

## Why is Risk Management Important?

## Risk Management:  Reducing Delinquency & Default

- Tim Fitzgibbon, Iowa College Student Aid Commission

## Default Aversion

- Required by Regulation
- Pre-claims Assistance
- Supplemental Pre-claims Assistance

## Student Loan Outfitters

- Referral service for “high-risk” borrowers
- Early awareness and delinquency prevention
- Available to all Iowa colleges and universities
- Interactive web site

## Disaster Relief Grants

- Funds available to students and families affected by natural disasters – later expanded
- Matching funds from colleges and universities
- Recipients agree to limit borrowing
- 2,100 recipients – Grants average $1,400

## Foster Grants

- Funds available to students formerly in foster care
- Recipients agree to limit borrowing
- Support from colleges and universities, and Iowa Dept. of Human Services
- 60% completion rate
- $3,000 average award

## Default Reduction Grants

- Funds available to promote innovative default prevention programs at the campus level
- Competitive application process
- Tiered award levels
- Guest speakers, academic         courses, community programs

## Student Assistant Grants

- Funds provided to hire “peer advisors”
- SAs trained in financial aid, student loan, and debt management basics
- Increase awareness, communication on campuses
- Refer students to FAOs, ED, lenders,
-    or the Commission

## Agency Servicing Center

- Iowa-based default prevention call center
- Based on Commission theme of Iowans-helping-Iowans
- Expanding Iowa work force

## Stafford Late Stage Delinquency AssistanceLSDA

- Ben LeBorys

## Official Cohort Default Rates

## Makeup of Cohort Rate

## Borrower Delinquency Pattern

## Defaulter Characteristics

*	**12 month average of Stafford borrowers - all cohort years*

- 84% do not receive the advantage of the full 6 month grace period as a result of late enrollment notification
- 71% have withdrawn from school and did not complete studies
- 43% have had bad telephone numbers at the time of default
- 58% have not successfully been contacted by telephone during the 360 day collection effort during delinquency

## Schools Can Help

- Assist the severely delinquent borrowers in establishing communications with the Service Center
- There is a small subset of borrowers that have not responded to our attempts to communicate and help them resolve their delinquency
- These borrowers will frequently respond to school outreach

## How It Can Work

- Identify the Borrower
- Contact the Student
- Schools have additional tools to locate Borrowers (i.e. Alumni Association directories, putting holds on records, etc. )
- Use email addresses and references you have
- Schools are not collectors but counselors

## 2003 Cohort Year Delinquency Detail

**115**

**13**

- You can work as little or as much as you want

## Why Schools Do It ?

- Reduce the CDR for their school
- Improve the integrity of the program
- Rescue over 30% of potential defaulters
- Minimal effort, maximum results, schools say “we help the borrowers and the school with a little effort”
- Web tools identify & focus on the most severe delinquencies that have a direct impact on a school’s CDR
- No major investment in time, staff or money
- LSDA really works
- It’s the right thing!

## Slide 34

## Total Test Results

## Post Default Cures

- 14 months after the default condition was cured, 82.49% of the borrowers did not re-default.
- 24 months after the default condition was cured, 76.70% of the borrowers did not re-default.

## Perkins Late Stage Delinquency Assistance(Perkins LSDA)

- John Pierson

## Perkins LSDA

- Perkins “Late Stage Borrowers”
- 180-240 days delinquent
- Current default cohort
- Who is servicing the loan?
- Institution
- Outside contractor
- Why is this important?

## Perkins LSDA

- Stafford LSDA principles apply:
- Do something different
- Light touch
- Monthly attention works best
- Limit investment: cost, time and staff

## Perkins LSDA

- When doing LSDA for both Perkins and Stafford:
- QC your data before you start:
- Review delinquency lists for overlap.
- Update contact information
- Borrower Contact process: How will you do it?
- Separate LSDA process for each program?
- Combined LSDA process?
- Know the rules:
- Resolution for Stafford and Perkins may be different.

## Default Analysis: The Long Term Solution

- John Pierson

## 	Default Analysis:    The Long Term Solution

- Our Targets:
- Stafford Loan Program
- and
- Perkins Loan Program

## 	Default Analysis:    The Long Term Solution

- Working Assumptions:
- We cannot effectively change long term patterns until we know who is _likely_ to default.
- The core remaining default for most Perkins and Stafford portfolios can be impacted through administrative and/or academic intervention while borrowers are enrolled.

## Default AnalysisThe Long Term Solution

- Resources: Data
- Institutional student data (FISAP/Perkins)
- Department of Education data (Stafford):
- Loan Record Detail Report
- NSLDS School Repayment Loan Detail Report
- Servicer and Guaranty Agency Reports

## Default AnalysisThe Long Term Solution

- Resources: Process
- Free software to assist in creating defaulter profile for both Stafford and Perkins
- FSA Self-Assessment/ Tools/Schools/Default Management
- 	via Schools Portal (fsa4schools.ed.gov)

## Default AnalysisThe Long Term Solution

- Create an intervention:
- Collect and analyze data
- Identify co-related factors
**Examples: retention, GPA, grad rates, etc.  **
- Intervention based upon empirical analysis
- Choose the biggest targets
- Implement
- Track outcome, evaluate, recalibrate

## Default AnalysisThe Long Term Solution

- Likely problem areas:
- Academic?
- Administrative?
- Other?
- The solution may require the active participation of academic and/or administrative (or other) departments and staff.

## Creating a long term intervention

- Change in co-related factors may occur in the near term: reduction in rate of delinquency and default will take longer.
- Follow the trail wherever it leads.

## Contact information

- Andy Cho
- _Andrew.Cho@ed.gov_
- Tim Fitzgibbon
- _timothy.fitzgibbon@csac.state.ia.us_
- Ben Leborys
- _Ben.Leborys@ed.gov_
- John Pierson
- _John.Pierson@ed.gov_