Building a Successful

Default Prevention Plan

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Why is default prevention important?

Cohort default rate trends.

Consequences of high CDRs.

Components of an effective default prevention plan.

Agenda

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Weak economy.

– Personal incomes not keeping pace with rising student loan debt.

Increase in borrowing.

– Student loan debt greater than $1 trillion.

– Exceeds total outstanding credit card debt.

Split-serviced loans.

– Borrowers dealing with multiple entities and multiple payments.

Three-year cohort default rate calculation.

– Three-year rate nearly 50 percent higher than two-year

calculation.

‘Perfect storm’ for loan default

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Official FY 2010 two-year CDR

Source: U.S. Department of Education

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Official FY 2009 three-year CDRs

by sector

Source: U.S. Department of Education

CDR “window” illustration

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FY10

Two-year CDR =

Stafford borrowers who enter repayment

and default between 10/1/09 and 9/30/11

Stafford borrowers who enter repayment

between 10/1/09 and 9/30/10

FY10

Three-year CDR =

Stafford borrowers who enter repayment

and default between 10/1/09 and 9/30/12

Stafford borrowers who enter repayment

between 10/1/09 and 9/30/10

Collections activities, fees and fines.

Wage garnishment.

Barriers to future financial aid.

Damaged credit.

Higher interest rates.

Inability to get a job, apartment or mortgage.

Consequences of default

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Three-year CDR equal to or greater than 30 percent:

– 1st year – School must establish default prevention task force and

prepare a plan to submit to the Department.

– 2nd year (consecutive) – Task force must review and revise plan

and submit to the Department.

– 3rd year – School subject to sanctions (provisional certification or

loss of eligibility).

Effective 2012 with publication of FY 2009 three-year rate.

Consequences of a high CDR

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Default prevention task force.

– Identify factors causing institution’s CDR to exceed threshold.

– Establish measurable objectives and identify steps to take to

improve institution’s rate.

– Specify actions institution will take to improve student loan

repayment, including loan repayment counseling.

Sanction: Provisional certification.

– Two-year rates – A single CDR of 25 percent or greater.

Before and during transition period.

– Three-year rates – Two CDRs of 30 percent or greater in last three

years.

Effective when third three-year rate is published in September 2014.

Consequences of a high CDR

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Sanction: Loss of eligibility.

– Two-year rates:

Three consecutive years of 25 percent or greater.

One year greater than 40 percent.

– Three-year rates:

Three consecutive years of 30 percent or greater.

One year greater than 40 percent.

Effective when third three-year rate is published in September 2014.

**Currently: Loss of eligibility with one CDR greater than 40 percent

or three consecutive years of 25 percent or greater.

Consequences of a high CDR

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Components of an effective

default prevention plan

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Share data of impact of three-year calculation for your

school and nationally.

Share your own estimation of three-year rate.

Present a default management plan for controlling

three-year rate.

Talk to your administrators

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Default prevention starts when students

walk through the door

The Life

Cycle of

a Student

Stage 1:

Application and

Loan Origination

Stage 2:

In-School

Period

Stage 3:

Grace

Period

Stage 4:

Repayment

Period

Entrance Counseling

and Orientation

Financial

Literacy

FYE

Classes

Retention

Initiatives

Exit

Counseling

LOAs

Re-Enrollment

Communication in

Grace, Repayment,

Delinquency and

Default

Regular borrower communication.

Retention activities for student loan borrowers.

Financial literacy for all students.

Critical components

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A plan for student and school success.

– Entrance and exit counseling.

– Verify and update contact information.

– Timely and accurate enrollment reporting.

– NSLDS date entered repayment (DER).

– LRDR review.

– Defaulted loan data to identify common

defaulter characteristics.

Default prevention and management

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Start early – during grace period

is best!

School is trusted adviser for borrower.

Use tools available from guarantors

and partners.

– NSLDS

– Repayment calculators

– Servicer websites

Create a strategy for delinquent

borrowers.

Communicate with borrowers in

repayment

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Communicate across campus

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Default prevention is not just financial aid’s responsibility.

Link to other programs across campus.

Communicate with students the importance of SAP.

– “Make the grade,

save your aid.”

Default prevention

and retention staff.

Early withdrawal counseling.

At-risk borrower program.

Calls during grace period.

Early-stage delinquency program.

Late-stage delinquency team.

Financial literacy.

Best practices

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Do you wish your students knew more about managing

their money?

What are you doing now to help your students?

A few questions about financial literacy

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76% of college students wish they had more help

preparing for their financial future.

54% of graduate students said they would have liked to

receive financial management information on an ongoing

basis throughout their undergraduate years.

Students that participated in as little as 10 hours of

financial education increased their understanding of

money management and improved financial behavior.

Financial literacy and student success

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Creating and implementing a financial

literacy program

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Financial education is needed throughout the student’s experience.

Stage 1: Application and First 90 Days

Stage 3: Last year and Graduation

Stage 2: In-School Period

Stage 4: Alumni

Counseling and

Orientation

Communication and

Website Offerings

Graduate and Career

Counseling Financial Literacy

and Enrollment

Retention Efforts

The Life

Cycle of a

Student

How and when will you deliver it?

Who is your target audience?

What will course content and materials cover?

Who will be responsible for managing program?

How will you measure success?

Questions to consider

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Get academics involved.

Bet on a sure thing.

If you build it, they probably won’t come.

Focus on those who need it most.

Tips and lessons learned

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Goals of sophomore mentoring program:

– Engage students academically and socially with departmental

peers and faculty.

– Solidify major through career exploration and evaluation of the fit

between chosen major and student.

– Increase student identification, investment and integration within

major department.

– Increase opportunities for sophomores to engage in learning

experiences within the major.

– Support academic success of students and solidify an academic

sense of purpose.

– Provide job shadowing opportunities for sophomores.

– Increase persistence and retention for sophomore students.

Showcase: Peer mentoring

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Review characteristics of school’s defaulted borrowers.

School’s defaulters were NOT:

– Students with low GPAs.

– Students enrolled in distance education.

– Students enrolled in remedial courses.

– First-generation students.

– Students who registered late.

School’s defaulters WERE:

– Students who did not meet SAP standards.

– Students who did not graduate.

– Students who had a 0 EFC.

– Students aged 25-64.

– Students with average indebtedness of $6,515

Showcase: Defaulted borrower analysis

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Communicate with delinquent borrowers:

– Send delinquent notices.

– Obtain updated contact information.

– Counsel borrowers on options available

Repayment plans, deferment, forbearance.

– Facilitate calls with borrowers and lenders when necessary.

Contact defaulted borrowers.

– Send default notices.

– Obtain updated contact information.

– Counsel borrowers on options available to resolve default.

Make satisfactory payment arrangements.

Consolidate a defaulted loan.

Rehabilitate a defaulted loan.

Pay defaulted loan in full.

Receive a discharge.

Showcase: Borrower communication

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Building a Successful Default Prevention Plan

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