# Presentation: 267438

## U.S. Department of EducationFSA, Borrower Services

**Portfolio Risk Management**
**Presented by Daniel Pollard**

- 2005 Boston Summit, August 31

## Student Loan Basics

- Approximately $400 billion in outstanding federal student loans.
- Nearly 30 million borrowers.
- More than 50% of the outstanding FFEL/DL balance is in consolidation.
- Average outstanding loan balance  in consolidation is approximately $18,450.

- Source:  National Student Loan Data System (NSLDS),
- CSB Data Mart,, July 31, 2005

## What is Portfolio Risk Management?

- Portfolio risk management mitigates risk for performing and non-performing loans.
- Shifts from ***transaction*** management to ***portfolio*** management.
- Changes from ***monitoring*** performance to ***predicting*** portfolio performance.
- Focuses vision and concentrates efforts on default prevention and reducing the cost to the taxpayer.

## Advantages of Portfolio Risk Management

- Understand the elements of the portfolio.
- Manage through the life of the loan.
- Identify borrower attributes that impact  performing and non-performing loans.
- Prevent a “scatter gun” and managing on demand approach.

## A Focused Vision

- Created a Portfolio Risk Management Group to focus on the risks associated with the Title IV Programs
- Responsible for supporting the performance evaluation of federally guaranteed loan programs.
- Identify and analyze risk exposure for Title IV programs.
- Work with schools, lenders, and guaranty agencies to insure that the Title IV programs continue to reduce risk of default.

## A Focused Vision (cont.)

- Transform data into information
**Analyze borrower behavior**
**Identify significant patterns and trends of a delinquent borrower **
**Identify risk parameters****	**
- Recommend tools that may reduce delinquency and avoid default
**Repayment options tailored to the borrower**
**Expand eServices for loan programs which provide increased service opportunities to the borrower**
**Increased focus on due diligence to include risk factors of the borrower,  large $ balances, # of days delinquent**

## Ways to Approach Portfolio

- New “Commitments”
- Monthly, Quarterly, Annual
- Transaction-focused
- “Outstanding” Balance
- Trends
- Dollars or Loans/Borrowers?
- What are your goals?
- Consolidated vs. Non-Consolidated

## Composition of the Outstanding Loan Portfolio

- Source:  NSLDS and Common Services for Borrowers (CSB) Data Mart  7-31-05

## Composition of the Outstanding Loan Portfolio

- Source:  NSLDS   7-31-05

## Composition of the Outstanding Loan Portfolio

- Source:  CSB  Data Mart  7-31-05

## How Do You Manage Risk?

- Know the borrower through the life of the loan.
- Identify borrower attributes throughout the life cycle of the loan that impact performance of the loan.
- Look for patterns, trends or changes in behavior.
- Identify significant patterns and trends of a delinquent borrower.
- Develop a targeted approach to understanding the borrower.

## How Do You Manage Risk? (cont.)

- Use data mining to find patterns and subtle relationships in data and rules that allow the prediction of future results.
- Build tools to focus on the risk factors and proactively “attack” the risks.
- Communicate consistently and effectively with the borrower.
- Assist in improving financial literacy.
- Develop strategies tailored to your portfolio mix, borrower behavior, past performance, and current environment.

## What’s on the Horizon?

- Impact of Private Loans
- Bankruptcy Law -- Oct. ‘05
- Growth of Distance Learning
- Flat Economy

## Private Loans

## Private Loans (cont.)

## Summary

- Portfolio Risk Management is a commitment by FSA/Department of Education to focus on reducing risk of a portfolio of $400 billion.
- Increased focus on default prevention rather than the previous focus of “default collector.”
- Coordination of efforts within FSA as well as partnerships with schools and the FFEL community are critical to the success of reducing risk.
- Understand the performance of your portfolio.
- As a taxpayer, you are a share/stakeholder in the federally insured student loan portfolio; each of you has a vested interest in insuring that “your” investment is managed well.

## Questions?