default management suggestions for your campus

Default Management Suggestions for Your Campus

Materials developed and provided by College Foundation, Inc. (CFI)

Objectives

• Regulatory Requirements • The Value of a Campus Default

Management and Prevention Plan• Developing Your Plan• Analyzing Data • Plan Components• Questions to Ask Yourself• Additional Resources

Regulatory Requirements

Schools participating for the first time or that have undergone a change in ownership that resulted in a change of control are required to use a default prevention and management plan to participate in Title IV programs

(34 CFR 668.14(b)(15)).

Regulatory Requirements

• All schools are required to comply with regulations concerning– Entrance Counseling– Exit Counseling– Timely reporting of accurate enrollment

information to the U. S. Department of Education

Department of Education Recommendation

• The Department recommends that every school implement a default prevention and management plan to: – Promote student and school success– Preserve the integrity of the loan

programs– Reduce costs to taxpayers

Value to Your School

• Default Management promotes student and school success by– Increasing retention– Reducing delinquency and default

Value to Your School

• Default Management preserves the integrity of Loan Programs– Public perception is important– Avoid limitations on participation in

aid programs due to excessive cohort default rates

Value to Your School

• Default Management reduces costs to taxpayers– It is the taxpayers’ money we are

spending– Schools have a fiduciary responsibility

to comply with regulations and protect the public’s interest in student financial aid funds.

Value to Your Students

• Default Management helps your students– Learn good debt management

practices– Establish a healthy credit history

• Everyone wins!

Consequences of Default

• Borrower Consequences:– Loan balance increases– Default is reported to credit bureau– Wages may be garnished– Federal income tax refund may be seized– Ineligible for additional federal student

aid

Consequences of Default

• School Consequences– Loss of participation in Title IV student

aid programs (FFEL, Direct Loan, Pell, etc.)

– School may be provisionally certified for participation

Consequences of Default

• TIV participation is in jeopardy if– Federal Perkins Loan default rate ≥ 15%– FFEL or Direct Stafford default rate ≥

40% in most recent fiscal yearOr– FFEL or Direct Stafford default rate is ≥

25% in three most recent fiscal years

Consequences of Default – HEOA

• FY 2012 – the 25% threshold becomes 30%

• Beginning with Fiscal Year 2009, the new CDR formula will include students who default by the end of the second fiscal year after beginning repayment– Includes a longer repayment history– Most schools will likely see in increase in

their cohort default rates (CDR)

Consequences of Default - HEOA

• Expect to see CDR based on longer period of time after October 2013

• Borrowers entering repayment this fiscal year (Oct 1, 2008 to Sept 30, 2009) who default on or before Sept 30, 2011 will be the first group in the CDR based on the longer period of time

Consequences of Default - HEOA

• If a low percentage of school’s students borrow loans, the school is exempt from the default threshold requirement.– Participation rate index measures the

number of students who borrow compared to the number of regular students at the school

– The participation rate index will increase from .0375 to .0625 per HEAO

Consequences of Default - HEOA

• US Department of Education will report – Life Cohort Default Rates as well as the

currently reported Fiscal Year CDR– Listed for each category of institution

• CDRs will be listed on the U S Department of Education’s College Navigator Website

Developing Your Plan

• Consider– Staff and resources – Peer institutions’ activities– Partners (lenders, servicers, guarantors)– Evaluation of success

• It takes a campus to develop and implement a successful default management plan.

Developing Your Plan

• A comprehensive plan begins at the early stages of enrollment and continues after a student leaves your campus.

• A comprehensive plan involves more than the financial aid staff.

Analyzing Default Data

• Who is defaulting? • Types of data you might analyze:

– High school attended– Program of study– Demographic information– Grades

• Why are they defaulting?• Remember that you cannot discriminate

against groups of students.

Who Defaults?

• Major indicators that default is more likely:– Students who do not graduate– Students who perform poorly and do not

make effort to improve their performance

X

Who Defaults?

• Other characteristics of those likely to default include:– Failure to provide updated contact information– Face poor job prospects– Have other financial burdens– Marriage to another student with debt

Identifying Delinquent Borrowers

• NSLDS Date Entered Repayment Report– Available upon request– Dept recommends that schools compare

the DER Report to their records bi-monthly.

– Benefit: Borrower enters repayment in the correct cohort year and school’s cohort default rate is more accurate

Analyzing Default Data

• Review the draft and official Cohort Default Rate data - Loan Record Detail Report (LRDR) – Is your rate accurate?– Does it include the correct borrowers and

loans?– Challenge incorrect data

Identifying Delinquent Borrowers

• Check with your lender partners for on-line tools available for financial aid administrators to:– Identify students who are at various

stages of repayment or delinquency– Provide updated contact information

to the lender

Plan Components: Entrance Counseling

• Enhance your entrance counseling– Delivery method: In person or on-line or both?– Gather additional information:

• Additional references• Other family members (beyond those

requested on the loan application)• Cell phone numbers• Email addresses

Reminder: Entrance counseling is a school responsibility.

Plan Components: Financial Literacy

• Provide financial literacy information to your borrowers– Increase knowledge about being

financially healthy, budgeting, avoiding debt, managing debt, repaying student loans

Plan Components: CFNC’s Financial Literacy 101

CFNC’s Financial Literacy 101 interactive on-linecourse is available to all North Carolina students.

Unless stated otherwise, the tools shown in the presentation are available to ALL students, regardless of their lender choice.

Plan Components: Limit Access to Credit Card Companies

• Consider limiting credit card companies’ access to your students and to their information

• Adult students may already have accumulated significant consumer debt.

Plan Components: Interim Counseling

• Require annual entrance counseling • Review lender disclosure statements to the

student (cumulative debt)• Remind student about available tools

– Loan repayment calculators – Calculators that consider debt and career

choices– Budgeting tools and calculators

• Provide contact information for their lender, servicer, guarantor

• Encourage them to use NSLDS for students

Plan Components: Calculators and Tools

Stafford Loan Repayment Calculator– CFNC.org – Paying for College Tab

Available to all students

Plan Components: Calculators and Tools

Smart Borrower Calculator

Available to all students

Plan Components: Calculators and Tools

Budget Calculators

Available to all students

Plan Components: Calculators and Tools

Real World Calculator

Available to all students

Plan Components: Calculators and Tools

Lenders often provideon-line services that allowborrowers to check their loan status, balance due,etc.

Example for CFI Borrower

Plan Components: Calculators and Tools

NSLDS for Students

Plan Components: Communication Across Campus

• Information about borrower’s academic progress and enrollment status– Required to report enrollment status to

Department of Education• Student receives full grace period• Lender and servicer can communicate with

borrower appropriately– Adhering to a monthly reporting

schedule keeps data up to date -- and you in compliance.

Plan Components: Communication Across Campus

• Combine efforts with academic advisors, and faculty

• Increased retention and improved graduation rates could lead to reduced default rates

Plan Components: Communication Across Campus

• Students who withdraw– Students who do not successfully

complete their programs are more likely to default

– Proper and timely R2T4 calculations• Reduce student debt by returning loan

funds– Exit Counseling

• Required when student is no longer enrolled, not just at graduation

Plan Components: Using Your Default Data

• Additional activities for those borrowers most likely to default

• Provide data to administration for evaluation and planning

• Evaluate the effectiveness of strategies

Plan Components: Exit Counseling

• Enhance your exit counseling– Delivery method: In person or on-line or both?– Gather additional information:

• Additional references• Other family members (beyond those requested on

the loan application)• Cell phone numbers• Email addresses

Reminder: Exit Counseling is a school responsibility

Plan Components: Communication with Former Students

• How long are student email accounts active after the student leaves or graduates?

• Can students use job placement/career services after leaving school?

• Collect as much contact information as you can during exit counseling

• Phone calls and letters• Communicate in evenings or on the

weekend

Plan Components: Communicating With Delinquent Borrowers

• Early Stage Delinquency Assistance– Highly focused effort– Work with those who withdrew or failed

to complete academic program– Work with those who fall into particular

categories of “likely defaulter” based on your school’s research

Plan Components: Communicating With Delinquent Borrowers

• Late Stage Delinquency Assistance– Help lender/servicer/guarantor get in

touch with the delinquent borrower– School contact may have a positive

impact on the situation

Questions to Ask Yourself

1. What does our default data tell us?2. What resources do we need for this effort

to be successful?3. Which campus offices will be involved in

this effort?4. What are our peer institutions doing?

Questions to Ask Yourself

5. Will we enhance our loan counseling efforts? If yes, how?

6. How will we communicate with former students?

7. How will we measure success?

Additional Resources

• CFNC.org – A service of the state of North Carolina provided by Pathways,

CFI, and NCSEAA• ifap.ed.gov

– Tools for Schools includes information about default management under “FSA Assessments”

– DCL ID Gen 05-14 (Posted 09/30/2005) – Sample Default Prevention and Management Plan (the basis for this presentation) also lists additional resources

• mappingyourfuture.org• Ensuring Student Loan Repayment: A

National Handbook of Best Practices– The Student Loan Repayment Symposium, October 2-4, 2000 –

US Dept of Education)

Materials provided and developed by College Foundation, Inc.