# Presentation: 056794

## <date/time>

## The Student Aid Lifecycle

***The Student Aid Lifecycle***

**Student Aid Awareness**
**Application Processing System**

**Student Eligibility**

**Disbursement and Cash**
**Management**

**Repayment of Title IV Loans**** **

- EFC

- COA

- Verification

- Packaging

- Overrides

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## Repayment of Title IV Loans

***Presented by***
- 	Kristie Hansen
- General Manager, Financial Partners Channel
- 	Dan Hayward
- Director, Student Credit Management/  Repayment

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## Agenda

- Repayment Overview
- Examples – Repaying
- Examples – Defaulting
- Summary

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## Repayment OverviewOur Current Environment

- 	The U.S.economy is currently in a period of great turmoil with high levels of unemployment.
- The costs of education continue to rise.
- Student and parent borrowers are experiencing significant debt burden (Title IV loans, private loans, credit cards and other debt).
- To address these issues:
- Access to Title IV information/services continuously improved
- Default aversion strategies are being implemented

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## Title IV Participants

- Student and Parent Borrowers
- Schools
- Loan Holders & Servicers
- Lender, Guarantors, Department of Education
- Collection Agencies (FSA and Private)
- Guaranty Agencies (GAs)
- FSA Ombudsman
- Department of Education
- U.S. Taxpayers

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## Repayment Cycle 

**In School, Qtrly Interest Payments – Unsub only**

**Leave School**
**Begin Grace**

** ****30 day**

** ****60 day**

-  **90 day**

**120 day**

**150 day**

**330 day**

**180 day**

**210 day**

**240 day**

**270 day**

**300 day**

**360 day**

**Begin **
**Repay**

**6 mo**
**Grace**

**Phone attempts **
**Begin day 31**

**Credit Bureau Reporting every 30 days**

**Default Reported to Credit Bureau**

**Technical Default**

**Lender Claim Paid by GA ~ 360,**
**DL Transfers to Collections (DCS)**

**Default Options:**
**Pay, Rehabilitation, **
**Consolidation, Settlement, Etc****.**

**Repay Options:**
**Pay Plan Flexibility,**
**Deferments (no interest),**
**Forbearances (interest) Loan, Forgiveness, Discharge,**
**Consolidation**

**Default Results:  Loss of Title IV Elig., Coll. Agencies, AWG,**
**IRS Tax Offset**

**Lender transfer to GA at ~ day 300**

**Default Aversion Efforts Intensify**

**Delinquency reported to Credit Bureaus**

**GA Subrogates Loan To ED Collections ****(up to 4 years)**

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## Borrower Delinquency Trend

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## Cohort Default Rate

- National Student Loan Default Rates

- http://www.ed.gov/offices/OSFAP/defaultmanagement/defaultrates.html

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## Default Statistics (DL)

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## Characteristics of Default Population (DL)

- 76% have withdrawn from school and did not complete their studies
- 85% do not get the advantage of “aging through” their full 6 month grace as the result of late enrollment notification
- 40% have bad telephone numbers
- 57% have been unable to contact the borrower by telephone during the 12 months of collection effort  (call screening, cell phones, etc.)

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## Successful Repayment Scenarios

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## Possible Repayment Scenarios 

- Borrower receives $18,000
- disbursed over 4 years
- all Unsub Title IV loans
- Borrower separates from school
- Chooses Standard Repayment option
- For illustration purposes, assume interest rate remains constant

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## Scenario 1Borrower pays off loan in 10 years (or less) with no “hiccups”

- Capitalize $1,857 interest (3.46%) at Grace End
- 120 monthly payments of $202 (for illustration, assume 4.06% for life)
- Total paid by borrower is $24,240
- $18,000 principal and $6,240 in cap and regular interest
- Prepaying could reduce the number of payments and reduce the total costs
- Various incentives could reduce total costs

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## Scenario 1 Impacts 

|  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Student or Parent Borrower | School | Loan
Holder | Collection Agency | GA’s | Ombuds-man | Dept
ED | US
Taxpayer |
| Successful

 $18,000 principal and $6,240 interest | Success

A happy alumnus
 | Success

Performing Loan | Not 
Involved | Not 
Involved | Not 
Involved | ProgramSuccessful | Success

No negative impact on program costs
 |

***Scenario 1 Impacts ***

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## Capitalize $1,857 interest (3.46%) at Grace End
Discretionary/administrative forbearance for 2 months to clear delinquency -  Cap $132 interest (4.06%) 
Can’t find job. Unemployment Deferment  for 24 months. $1,623 Interest (4.06%) capped deferment end - Gets good job and repays loans
Monthly payment is $220 for 120 months
Borrower pays $3,612 over the life of the loan in capitalized interest
Total paid by borrower is $26,400 
$18,000 principal and $8,400 in cap and regular interest
Prepaying could reduce the number of payments and total costs 
Various incentives could reduce total costs

- Discretionary/administrative forbearance for 2 months to clear delinquency -  Cap $132 interest (4.06%)
- Can’t find job. Unemployment Deferment  for 24 months. $1,623 Interest (4.06%) capped deferment end - Gets good job and repays loans
- Monthly payment is $220 for 120 months
- Borrower pays $3,612 over the life of the loan in capitalized interest
- Total paid by borrower is $26,400
- $18,000 principal and $8,400 in cap and regular interest
- Prepaying could reduce the number of payments and total costs
- Various incentives could reduce total costs

***Scenario 2***
*Borrower has “hiccups,” uses forbearance or *
*deferment entitlement, then pays off loan.*

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## Scenario 2 Impacts

|  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Student or Parent Borrower | School | Loan
Holder | Collection Agency | GA’s | Ombuds-man | Dept
ED | US
Taxpayer |
| Successful

Higher loan costs (cap and accrued interest)

Longer repayment term
 | Success

No Negative Impact | Success 

Longer servicing time

Slightly higher costs

 | Not Involved | No Negative Impact | Not Involved | Program Successful but at a slightly higher cost

Longer repayment term | Successful

Minimal negative impact on program costs |

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## Defaulted Loans Scenarios

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## Capitalize $1,857 interest (3.46%) at Grace End
10 month discretionary/administrative forbearance  prevents default - $662 cap interest (forbearance)
Becomes  a “rolling” delinquent payer
Borrower reaches technical default (270 days)
In FFEL Reported to Credit Bureaus as “defaulted”
Lender files claim with and transfers to GA
GA continues to attempt collections 
GA pays claim 
$$$ interest capped and collection fees added
Borrower owes $26,225 ($18,000 principal, $4,125 cap interest, $4,100 collection fees)

- 10 month discretionary/administrative forbearance  prevents default - $662 cap interest (forbearance)
- Becomes  a “rolling” delinquent payer
- Borrower reaches technical default (270 days)
- In FFEL Reported to Credit Bureaus as “defaulted”
- Lender files claim with and transfers to GA
- GA continues to attempt collections
- GA pays claim
- $$$ interest capped and collection fees added
- Borrower owes $26,225 ($18,000 principal, $4,125 cap interest, $4,100 collection fees)

***Scenario 3****Borrower has “hiccups”, becomes delinquent, defaults and proactively rehabs or consolidates loans *

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## In DL, borrower reaches technical default (270 days)
Reported to Credit Bureaus as “defaulted”
Performs additional Default Aversion activities to day 360
Transfers to ED’s Collections on day 361
$$$$ capped at default
Borrower owes $22,125 ($18,000 principal, $4,125 cap interest)
Impacts to borrower:
Loss of Title IV eligibility, collection fees (18.5%), bad credit, collection calls
Wage garnishment (AWG), treasury offset (TOP), National Directory of New Hires (NDNH), etc. 
Borrower rehabilitates or consolidates the loan
Enters and completes repay
Regain Title IV eligibility

- Reported to Credit Bureaus as “defaulted”
- Performs additional Default Aversion activities to day 360
- Transfers to ED’s Collections on day 361
- $$$$ capped at default
- Borrower owes $22,125 ($18,000 principal, $4,125 cap interest)
- Impacts to borrower:
- Loss of Title IV eligibility, collection fees (18.5%), bad credit, collection calls
- Wage garnishment (AWG), treasury offset (TOP), National Directory of New Hires (NDNH), etc.
- Borrower rehabilitates or consolidates the loan
- Enters and completes repay
- Regain Title IV eligibility

***Scenario 3****Borrower has “hiccups”, becomes delinquent, defaults and proactively rehabs or consolidates loans *

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## Scenario 3 Impacts

|  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Student or Parent Borrower | School | Loan
Holder | Collection Agency | GA’s | Ombuds-man | Dept
ED | US
Taxpayer |
| High costs (cap/ accrued interest, collection fees)

Negative credit data (ability to buy car, home, etc.) | Possible Higher CDR
 | Higher costs
More collection costs prior to default
If FFEL, reduced guaranty insurance when default (98%) | May be active in collection of defaulted loan | Pays lender
Increased collection activity and costs

ED reimburses GA for funds to lender at ~ 95% | Possible requests for assistance  | Successful but much higher collection activity and costs | Cost of Student Aid Program increases
 |

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## Capitalize $1,857 interest (3.46%) at Grace End
Borrower makes no payment - becomes delinquent 
Borrower technically defaults at 270
Borrower transferred from Lender to a GA (FFEL) – Cap interest $806
At 360 days, DL sends ED’s Collections
Borrower never repays the loan
At up to 4 years, GA subrogates to ED’s Collections if no Pay
Impact to borrower:
Additional interest accruals
Wage garnishment (AWG), treasury offset (TOP), National Directory of New Hires (NDNH)
Impact on professional licenses, no federal jobs, etc.
We WILL get the money!

- Borrower makes no payment - becomes delinquent
- Borrower technically defaults at 270
- Borrower transferred from Lender to a GA (FFEL) – Cap interest $806
- At 360 days, DL sends ED’s Collections
- Borrower never repays the loan
- At up to 4 years, GA subrogates to ED’s Collections if no Pay
- Impact to borrower:
- Additional interest accruals
- Wage garnishment (AWG), treasury offset (TOP), National Directory of New Hires (NDNH)
- Impact on professional licenses, no federal jobs, etc.
- We WILL get the money!

***Scenario 4****Borrower never intended to repay and defaults *

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## Scenario 4 Impacts

|  | 
 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Student or Parent Borrower | School | Loan
Holder | Collection Agency | GA’s | Ombuds-man | Dept
ED | US
Taxpayer |
| High costs (cap/ accrued interest, collection fees)

Negative credit data (ability to buy car, home, etc.) | Higher CDR | Higher costs
More pre-default collection costs If FFEL, reduced guaranty insurance when default (98%) | Active in collection of defaulted loan | Pays lender
Increased collection activity and costs

ED reimburse GA for funds to lender at ~ 95% | Possible appeals and requests for assistance | Eventually successful  through use of AWG, TOPS, NDNH, but much higher cost for collection activity | Cost of Student Aid Program increases |

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## Electronic Servicing From Start to Finish

- Web-based functionality provides “anytime, anywhere” access to Title IV information to enhance repayment.
- Online Counseling
- Credit and debt counseling
- Entrance and exit counseling
- Budget calculators
- Online Account Management for Borrower (receive bills/correspondence, payments and prepayments, track loans, manage pay plans and dates, etc.)
- Online Management for Schools (delinquency reporting, credit checks, etc.)

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## Tools for Borrowers

- Repayment Plan Options
- Payment Due Date Flexibility
- Entitlements
- Deferments
- Forbearances
- Forgiveness
- Loan Consolidation
- Electronic Payments (EDA, ACH, Bill Pay Services)

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## Tools for Loan Holders

- Skip Tracing
- Entrance/Exit Counseling materials
- Borrower Contacts (collection calls)
- Electronic Servicing (ease of use, access)
- School Delinquency Support
- Credit Bureau Reporting
- NSLDS

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## In Summary...

- Need the right payment options to match debt level and ability to pay
- Need to consider all debt (including credit card, alternative loans and Title IV loans)
- The borrower needs to understand their OPTIONS
- We’re all in this together and working hard for our borrowers to achieve successful repayment of their student loan debt!

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## Contact information

- <footer>

***Contact information***

- Kristie Hansen, General Manager
- Financial Partner Channel
- kristie.hansen@ed.gov
- (202) 377-3301
- Dan Hayward, Director
- Student Credit Management/Collections
- dan.hayward@ed.gov
- (202) 377-3207
- Gary Hopkins, Director
- Student Credit Management/Collections
- gary.hopkins@ed.gov
- (202) 377-3208

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## Questions and Answers

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