# Presentation: 460647

## Session C-21

** ****Promote Student Success,**
**Manage Delinquency           and **
**Prevent Defaults**

- John Pierson  Mark Walsh
- U.S. Department of Education

## Topics For Today	

- Recent Cohort Default Rate Data
- A Changing Landscape
- Default Prevention Strategies
- Traditional
- Non-Traditional
- Understanding the intersection of loan default and student success/retention
- Risk and Opportunity: Identifying the solutions
- State projects
- Career school project

## Official Cohort Default Rates	

## Cohort Default Rate By Sector

## National Borrowers in Default

*** 2006 total includes 150 defaulters from foreign   ****  schools not reflected on next graph (slide #6)**

**Defaulted Borrowers By Sector**

## Fast Facts – 2006 Official CDR

- National rate increased from 4.6% in 2005 to 5.2% in 2006, a 13% increase
- Career schools experienced the most significant CDR rise, from 8.2% in 2005 to 9.7% in 2006, an 18% increase
- Defaulted borrowers increased 26.3% between 2005 and 2006 (2004-2005 = 12.4%)
- Public and private 4-year schools continue to maintain the lowest CDRs at 3.4%/2.4%
- How can these statistics be misleading?

## The College Opportunity and Affordability Act (HEA Reauthorization)

- Calculation period for CDRs expanded from    2 years to 3 years beginning in 2012
- Threshold for sanctions due to high rates increases from 25% for 3 consecutive years to 30% beginning in 2012
- Raises from 10% to 15% the CDR which schools must fall below to be exempt from multiple disbursements and first year   student endorsement regulation

## A Changing Landscape in Higher Education Funding	

- Educational costs continue to rise
- More students borrowing larger amounts
- Increased use of Stafford and private loans result in greater loan debt
- Higher debt equals increased default risk
- Schools require uninterrupted loan capital to operate and higher default  rates may result in access problems
- Elevated default risk equals an increased risk to *private loan* capital

## Private Loans

- Often marketed directly to students
- Approval is typically based on factors such as the school attended and credit score
- Interest rates are variable with no cap
- No loan limits or restrictions on fees
- May lack borrower protections available in Federal Student Loans
- Shorter time frame before default
- Are generally more expensive and should not be used until Federal Student Aid has been exhausted

## Federal Aid First

- Distinctions between federal and private loans
- Types, amounts of   federal aid available
- On-line ordering at:
**   **_[http://edpubs.ed.gov](http://edpubs.ed.gov/)_
- Order by phone at:        1-877- 4ED-PUBS

- FEDERAL** **
- AID
- FIRST

- _www.federalstudentaid.ed.gov_

## Prevent Default At Your School

**Making Strategic Choices**

- With unlimited time/resources, you would...
- But of course your resources are limited, so
- you must consider how to best use available
- resources to reduce loan default among your
- Stafford and private loan borrowers.
- Use of traditional and non-traditional default
- prevention strategies can be effective.

## Traditional Approaches to Successful Default Prevention	

**Financial Aid**
- Teach borrowers financial literacy
- Help borrowers prepare for repayment (especially those who did not complete)
- Assist borrowers during repayment, and “rescue” delinquent borrowers utilizing Late Stage Delinquency Assistance (LSDA)
- Successful at DL and FFEL schools

## Financial Literacy	

- Correlation exists between increased financial literacy and decreased defaults
- DCL GEN 05-14 lists financial literacy as one of nine key elements to include in a default prevention and management plan
- 14% of students who left college without completing a degree cited financial reasons*

- * National Center for Education Statistics

## Financial Literacy	 Programs

- Things to consider in developing a financial
- literacy program include:
- Identification of objectives
- Developing your program
- Implementing your program
- Promoting your program
- Measuring outcomes
- Refining

## Financial Literacy Resources

**U.S. Federal Reserve System**

**- Federal**

## Assisting Borrowers As They Approach Repayment

- Of the borrowers who defaulted, 91% _did_
- _not receive their full 6 month grace period_
- due to late or inaccurate enrollment
- notification by the school.

**Source: August 2008 Analysis of Federal Direct Loan Portfolio**

-  How critical is this?

## Servicers Do Pre-Repayment Counseling During Grace Period

- Establish relationship with borrower
- Ensure correct repayment status
- Discuss appropriate repayment plan
- Promote self-service through the Web
- Update/enhance borrower contact info
- Review consolidation options, if appropriate
- Crucial for those who drop out...why?

## Key Defaulter Characteristic

- Of the borrowers who defaulted, _the _
- _majority had contact issues_:
- 49% had bad telephone numbers (actual population)
- 95% were not successfully contacted by phone during the 360-day collection effort leading up to default (sample)

**Source: August 2008 Analysis of Federal Direct Loan Portfolio**

## What Can You Do To Ensure Borrowers Can Be Reached?

- Obtain “enhanced” contact info
- Verify borrower references
- Identify or develop an “early warning” system to let you know when borrowers leave school
- Encourage the use of NSLDS for students
- Review school records to see if you have better contact information...use it and/or share with your servicer

## Assisting Borrowers in Repayment

**Late Stage Delinquency Assistance**** ****(LSDA)**
- involves school personnel reaching out to
- seriously delinquent borrowers (240+ days),
- and facilitating the critical contact with the
- loan servicer to prevent borrowers from going
- into default.
- Direct Loan Schools: (888) 877-7658
- FFELP Schools: Contact your guarantor(s) and lenders for details

## What you need to get started

- List of delinquent borrowers in the _current cohort:_
- Request Late Stage Delinquency reports from guarantor or DL Servicer
- School-based contact information:
- Compare with school records and update guarantor or DL Servicer
- Staff training:
- DL Servicer and/or guarantor can help  prepare your staff for this effort

## LSDA Contact Methods

- Phone calls
- Are the most effective
- Borrowers will sometimes take calls from school personnel and not lenders or guarantors
- Letters
- Can be useful, but the other players have used them unsuccessfully
- Email

## Phone Calls Are Most Effective  	

- Only a few calls are needed each month to make a difference in your CDR
- Initiate calls when borrowers are most likely to be home (6:00 PM – 9:00 PM)
- Utilize school-issued calling cards to make calls outside of traditional work hours (Saturday)
- When leaving a voice message avoid using  the words “loan” or “delinquency”

## Phone Calls Are Most Effective  	

- Utilize a call script until practiced
- Explain that you are calling to help  (use a soft touch – you are not a loan collector)
- Make it clear “what’s in it for them” to listen and take action on their own behalf.  Stress the urgency of their situation! (the consequences of default)
- Present possible solutions
- Initiate a three-way call with the guarantor or DL Servicer (stay on the line to provide moral support)

## If you decide to send a letter...	

- First, get the borrower to open it!
- Hand-address regular envelopes
- Use a stamp – not a postage meter
- Consider colored envelopes or paper
- Personalize the letter – sign it
- Postcards can also be effective
- The content
- Stress the urgency of the situation - these borrowers are at imminent risk of default
- Include contact information for yourself and for the guarantor or DL Servicer
- Help the borrower understand the consequences of default in plain language

## If you decide to send a letter...	

- Include information on repayment options, deferments, and forbearance
- Stress that they need to call you, that you can help them resolve their situation
- Once the borrower is contacted, if you cannot easily resolve the delinquency, consider a three-way call with the loan servicer.  Representatives are trained to resolve delinquencies.

## If you use email...	

- Utilize school email addresses (allow students to keep school accounts for a year or two after they leave)
- Attach deferment or forbearance forms requested by the borrower
- Forward _any_ email responses or completed forms to the right person at the guarantor and/or the Direct Loan Servicer

## Borrowers Who Graduate...                     and Borrowers Who Don’t....

- _[ ](http://rds.yahoo.com/_ylt=A0WTefV_UJNIPzgBU9CJzbkF;_ylu=X3oDMTBqY2pzbGhoBHBvcwMxMQRzZWMDc3IEdnRpZAM-/SIG=1ka79vu4q/EXP=1217700351/**http%3A//images.search.yahoo.com/images/view%3Fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253F_adv_prop%253Dimage%2526fr%253Dslv1-mdp%2526va%253Dgraduation%252Bclip%252Bart%2526sz%253Dall%26w=75%26h=57%26imgurl=www.designlogos.net%252Flogos_clipart%252FHoliday%252Fthumbnails%252FHolidays_Occasions_Graduation_2367209.jpg%26rurl=http%253A%252F%252Fwww.designlogos.net%252Flogos_clipart%252FHoliday%252Findex_4.htm%26size=1.6kB%26name=Holidays_Occasions_Graduation_2367209.jpg%26p=graduation%2Bclip%2Bart%26type=JPG%26oid=e55caab7dd7c075a%26no=11%26tt=225%26sigr=11sjcut1a%26sigi=12u7n349h%26sigb=136dpafgq)_
- What does this mean for your default
- prevention efforts?
- Let’s take a look at both of these groups

## Borrowers Who Do Graduate            .......And Then Default

- This is becoming more common.  Why?
- What are the implications for default prevention?

## Borrowers Who Don’t Graduate                .......And Then Default

- The Direct Loan program serves 6-7 million
- student loan borrowers.  Of the borrowers who
- defaulted, **70% **withdrew without completing
- their academic program. (actual population)
- While different measures of success exist,
- this is an important indicator that students who
- fail to complete are at high-risk to default.

**Source: August 2008 Analysis of Federal Direct Loan Portfolio**

## What are the consequences when a borrower leaves school without completing?

- Did not achieve academic credential
- Earning power may be reduced
- No benefit from school job placement
- Has one or more loans to repay
- May not have received exit counseling
- If the borrower leaves without notifying the financial aid office, they may lose part/all of their grace period

## Non-Traditional Approach:    The Methodology

- Driven by the fact that borrowers who do not complete are at high-risk of default (Remember the 70%)
- Goal is to increase student success, as successful students are typically in the best position to repay their loans
- This strategy cannot be implemented by the financial aid office alone.  Allies are others on campus who are working to increase retention and graduation rates.

## Non-Traditional Approach:    The Methodology

**Student Success** Solutions
- Support borrower relationship to their education.  (Most defaulters do not complete their academic program)
- Increase student success by
- Increasing retention/graduation rates
- Decreasing program completion time
- Help non-completers find employment

## Non-Traditional Approach:    The Methodology

- Understanding the unique connections between loan default and student success at your school
- Conduct a defaulter data analysis
- Where does the trail lead?
- What steps do you take?
- Who needs to be involved?

## Methodology: Option #1

- Conduct an analysis to identify default factors in _*your*_ student population
- Obtain Loan Record Detail Report (LRDR)
- Query your internal system to obtain demographic data
- Goal is to create a picture of your at-risk students so you can properly target your default prevention efforts
- Seek assistance from your lenders, guarantor, servicer or FSA

## Methodology: Option #2

- Present your defaulter list (for last 3 years)   to the folks on campus involved in:
- Institutional research, and/or
- Enrollment management, and/or
- Student success activities
- Explain:
- You are interested in _**the same students**_
- Their efforts can reduce loan default
- Ask their help in understanding how your school can address _both_ student success and loan default

## To Achieve Maximum Results

- School strategies should help students
- Be more _successful_ as students (as successful students tend to become successful borrowers)
- Limit indebtedness
- Who are _headed_ into repayment (teach financial literacy, ensure understanding of repayment obligations, obtain current contact info)
- When _in_ repayment, and particularly with those who are struggling, use LSDA

## Efforts in Support of Default Prevention Across the U.S.	

- State projects:
-      Georgia        Nevada
-      Arkansas      Ohio
- School organizations:
-          FAPSC, CCA
- Accrediting agencies

## Two State Project Examples	

## State Project – Nevada Team

- Joint project included representatives from
- state financial aid association; two-year
- and four-year public institutions across the
- state; and the Nevada System of Higher
- Education (NSHE).
- NSHE identified borrower characteristics
- suitable for a data analysis, then consulted
- with schools to finalize the list.

## Nevada Project - Data Elements

- Age
- GPA
- EFC
- First generation status
- Enrolled in one or more remedial courses
- Selected for verification

- Graduated Y/N
- SAP Y/N
- Withdrew last term of enrollment?
- Late registration?
- Distance ED only last term
- Credits attempted versus credits completed

## Nevada Project - Methodology 		

- Schools completed the initial data collection
- Shared data with NSHE which in turn completed both school by school and system-wide analysis
- Findings were published in a report in May 2008  **(Copies at DP booth in PC Lab)**

## What They Found

**NEVADA**

**NEVADA**

## Nevada Project Next Steps    

- Report authors meet with system VPs of academic and student affairs to discuss the data and
- Begin to understand the relationship between student success measures and the risk of loan default; and
- For individual schools and the system
- Determine next steps for current data set
- Identify whether additional data is needed
- Next phase to be initiated in early FY 2009

## State Project – Georgia Team

- Worked with the Regents Advisory Council on Student Financial Aid (RACSFA)
- Met with University System of Georgia (USG) to outline project and goals, and explain relationship between student success and loan default
- Interfaced with USG retention, graduation and time-to-completion projects
- Created advisory team composed of USG, members of RACSFA, and the Georgia Association of Student Financial Aid Administrators (GASFAA)

## Georgia Project - Methodology 		

- Advisory team mapped out the project details, goals, and timeframes
- Advisory team identified data elements they wished to query in two stages:
- _Stage one:_ USG runs list of all defaulters
- for 3 years against their database
- _Stage two:_ additional data elements
- were collected locally by each school

## Georgia Project – Data Elements

**Stage Two **(school collection)
- Initial registration date
- EFC
- FASFA file date
- Marital status
- Private loan amount
-     (if known)
- Additional unsub amount
- Dependency status
- Military deployment
- Exit counseling method (in-person or on-line)

**Stage One **(USG collection)
- Incorporated the nearly 100 data points that are maintained in the University System of Georgia Data mart
- Data was queried against 3 years of defaulted borrowers
- USG chose to cast a wide net initially, and then narrow the focus in Stage Two

## What They Found

**GEORGIA**

## Georgia Project - 	Status Report	

- The University System of Georgia (USG)
- Gathered stage one and stage two data and merged it into one large data set
- Conducted an initial analysis of the data and    prepared a summary report
- Shared the summary report with the Advisory team in September 2008, and with RACSFA membership at their quarterly meeting in October 2008 **(Copies at DP booth in PC Lab)**
- Held meetings to discuss the findings with USG staff, and will schedule meetings with university system VPs for academic and student affairs in early FY 2009

## National Career School Project

**C****areer                              ****C****ollege                  ****A****ssociation**

## CCA Default Prevention Project 

- Initiated in 2007
- Brought together a project team composed of the largest CCA member schools
- Project goals
- Reduce delinquency and default among project team schools
- Explore the relationship between student success and loan default
- Identify a set of methodologies and best practices to share with the higher education community through default prevention training

## CCA Project - Methodology 	

- Advisory team mapped out the project details, goals, timeframes
- Advisory team identified the data elements they wished to investigate, including: GPA, program of study, degree type, dependent/independent, gender, preparation type (GED, ATB, HS grad), OPB at default, private loan, first generation, probation/SAP, reason left school, race and ethnicity
- Schools are actively collecting and analyzing data

## CCA Project - Drilling Down

- An example of school-based activity within
- this project:
- Kaplan Higher Education (KHEC) is a member
- of the CCA Default Prevention Project
- Advisory team.
- Strategies utilized by KHEC and other
-    members of this team
**	**

## CCA Project - Drilling Down

**	**

- KHEC began their participation by analyzing a
- single school - Heritage College in Las Vegas.
- Let’s consider
- How they approached their evaluation of student loan defaults at Heritage
- What resources were required
- What the analysis revealed
- The steps they took to reduce the risk of loan default
- The results achieved
- Future plans
**	**

## CCA Project – Status Report	

- The CCA project will continue throughout
- 2009 with completion of the data analysis
- and the development of default prevention
- training materials and media.

## Conference PC Lab	

- Come visit us at the Default Prevention
- Table in the PC Lab:
- Obtain answers to questions on default prevention strategies or topics
- Learn more about the CCA and state projects
- Collect FSA brochures and handouts
- Receive a copy of your Unique School Report containing 2004-2006 Official CDR data

## Contact Information

- We appreciate your feedback and comments.  We can be reached at:
- Mark Walsh
-  Phone: 816-268-0412
-  Email: _mark.walsh@ed.gov_
-  Fax: 816-268-0441
- John Pierson
-  Phone: 404-562-6269
-  Email: _john.pierson@ed.gov_
-  Fax: 404-562-6283