delinquency management
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Delinquency Management. October 2011. Recent data shows 25% increase in CDRs . 2009 CDRs by Sector. Public school rates increased from 6% to 7.2% Total increase of 20% Private school rates increased from 4% to 4.6% Total increase of 15% - PowerPoint PPT PresentationTRANSCRIPT
Delinquency ManagementOctober 2011
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Recent data shows 25% increase in CDRs
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2009 CDRs by Sector
• Public school rates increased from 6% to 7.2% – Total increase of 20%
• Private school rates increased from 4% to 4.6%– Total increase of 15%
• For-Profit school rates increased from 11.6% to 15%– Total increase of 29.3%
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Why the Increase? Experts say….
• “These hard economic times have made it even more difficult for student borrowers to repay their loans, and that’s why implementing education reforms and protecting the maximum Pell grant is more important than ever,” said U.S. Secretary of Education Arne Duncan. “We need to ensure that all students are able to access and enroll in quality programs that prepare them for well-paying jobs so they can enter the workforce and compete in our global marketplace.”
• The Department's Deputy Undersecretary James Kvaal blamed the increase on borrowers struggling with unemployment in the weak economy and the increased enrollment in for-profit schools where default rates are higher.
• NASFAA President Justin Draeger said, “Colleges and universities embrace the concept
that they can have a positive impact on student loan repayment rates by helping struggling students succeed academically; helping them set realistic expectations in terms of salary and work goals; and by counseling them on smart borrowing, repayment options and avoiding default.” Draeger noted that financial aid offices are currently struggling with record workloads and a host of new and challenging regulatory requirements that can leave fewer resources for critical one-on-one counseling.
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Default Prevention Challenges
o Increasing loan default in a changing landscape
o The consequences of loan default
o The recession
o The dollars in default
o Our new servicing partners
o The “new” three-year cohort default rate calculation
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The Changing Landscape
o Loan default increasing for most schools
o Educational costs continue to rise
o More students borrowing more money
o Combination of DL (prior Stafford) and private loans equal
greater debt
o Schools require uninterrupted loan capital and high CDRs may
cause access issues
o Changes to CDR calculation accompanied by new sanctions
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The Consequences of Default
Not only does student loan default impact the integrity of the student loan programs, but there are significant consequences for:
o Taxpayers
o Schools
o Borrowers
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The Consequences of Default
For the Borrowero Credit report damaged (7-year
min.) + higher interest rates for years
o Wage garnishment
o Seizure of federal and state tax refunds
o Seizure of portion of any federal payment
o Legal action in federal district court
o Title IV ineligible
o May lose state occupational license
o No mortgage loans
o May have difficulty obtaining car loans
o May be unable to rent an apartment
o May be turned down for jobs
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The Consequences of Default
For SchoolsThe CDR is a measure of a school’s administrative capability. High CDRs may:
o Result in adverse publicity
o Negatively reflect on school quality
o Result in loss of Title IV eligibility
o Threaten continued access to both DL and private loan funds
o Result in extra work to reverse high rates
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The Recession
o CDR default data is retrospective, so the impact of the recession will be seen in FY 08, FY 09 and FY 10 CDR calculations
o More borrowers are having difficulty repaying their loans
o The recession is (unfortunately) occurring concurrent with the change from a 2-year to a 3-year CDR calculation
o Some schools may face compliance difficulties due to CDRs in the coming years
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National –Borrowers in Default and Annual Percentage Increase
Source: DL/FFEL Portfolio
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The Dollars in Default
Volume of Dollars in Default:o Not currently used to measure schools, however, the Dollars in
Default impact the integrity of the student loan program and demand attention!
o Big schools + big volume = Big Dollars in Default
o Private loans = more debt for borrowers
o Accomplishment of President’s education priorities depend in part on repayment of student loans
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National –Dollars in Default and Annual Percentage Increase
Source: DL/FFEL Portfolio
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The 3-Year CDR Calculation
o Expands the default tracking window from 2 years to 3 years
o Creates a transition period (FY09/10/11)
o Raises penalty threshold from 25% -30%- A new set of consequences, and, - For some schools a possible compliance issue in September 2014
(FY 2011 CDR)
o Increases availability of “disbursement relief” from 10 to 15% (effective 10/01/11)
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2 to 3-Year CDR (a scenario)
– Numerator = # of borrowers from the denominator who default within a FY
– Denominator = # of borrowers who enter repayment within a FY
3555000 = .071 or 7.1%Released Sept 2011
6055000 = .121 or 12.1%Released Sept 2012
FY-09 FY-10
230125
5,000
FY-09 FY-10 FY-11125 230 250
5,000
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Transition from 2 to 3 year CDRs
CDR Fiscal Year
Denominator(entered repayment)
Numerator(in default)
Official CDR Publication Dates
CDR Used For School Sanctions
2009 10.01.08 to 9.30.09 2-yr. 10.01.08 to 9.30.103-yr. 10.01.08 to 9.30.11
2-yr. September 20113-yr. September 2012 2-yr. rate (25%)
2010 10.01.09 to 9.30.10 2-yr. 10.01.09 to 9.30.113-yr. 10.01.09 to 9.30.12
2-yr. September 20123-yr. September 2013 2-yr. rate (25%)
2011 10.01.10 to 9.30.11 2-yr. 10.01.10 to 9.30.123-yr. 10.01.10 to 9.30.13
2-yr. September 20133-yr. September 2014
2-yr. rate (25%)3-yr. rate (30%)
2012 10.01.11 to 9.30.12 3-yr. 10.01.11 to 9.30.14 3-yr. September 2015 3-yr. rate (30%)
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3-Year CDR Sanctions
Beginning with the 2011 CDR (published September 2014), schools with CDRs of 30% or higher must take certain corrective actions:
o Create a Default Prevention team
o Submit a Default Prevention plan to FSA for review
Note: These are solid default prevention strategies already recommended by FSA.
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3-Year Sanctions – The Details
First year at 30% or moreo Default prevention plan and task force
o Submit plan to FSA for review
Second consecutive year at 30% or moreo Review/revise default prevention plan
o Submit revised plan to FSA
o FSA may require additional steps to promote student loan repayment
Third year at 30% or moreo Loss of eligibility: Pell, ACG/SMART, FFEL/DL
o School has appeal rights due to extenuating circumstances
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HEOA Requires That Default Prevention Plans….
o Identify the factors causing the institution’s cohort default rate to exceed the threshold;
o Establish measurable objectives and identify steps to take to improve the institution’s rate; and
o Specify actions the institution will take to improve student loan repayment, including loan repayment counseling.
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New threshold: Schools with a default rate less than 15% for the 3 most recent fiscal years:
o May disburse a single term loan in a single installment, and
o Need not delay the first disbursement to a first-year undergraduate borrower until the borrower has completed the first 30 days of their program of study
o What are the default prevention implications?
CDR Disbursement Waivers
Effective for loans first disbursed on or after October 1, 2011
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o Form a Default Prevention team
o Develop or adopt a default prevention plan
o Utilize traditional financial aid office-based default prevention strategies
o Utilize non-traditional student success-focused default prevention strategies
o Best option: Use a combination of these four approaches
Default Prevention Best Practices
Effective for loans first disbursed on or after October 1, 2011
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o Primarily involves the financial aid office
o Focus is on helping borrowers to develop a healthy relationship with their loans to include:
– Understanding loan repayment
– Teaching financial literacy
– Updating enrollment status changes
– Reaching out when help is needed
Traditional” Approach
Effective for loans first disbursed on or after October 1, 2011
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Understanding Loan Repayment
YOUR FEDERAL STUDENT LOANS
On-line ordering at:http://edpubs.ed.gov
Order by phone at: 1-877-4ED-PUBS
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Provide information which includes:o Job opportunities & salary information
o Estimated monthly loan payment
o Providing loan servicer contact info
o Obtaining good borrower contact info
o “Self-help” via NSLDS for Students
o Counsel students against returning to school only to avoid entering repayment on existing loans
Entrance Loan Counseling
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Federal Financial Literacy Info
U.S. Federal Reserve System
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o Correlation exists between increased financial literacy and decreased defaults
o Schools can play an important role
o Make it part of your first year curriculum
o Offer a class for credit if possible
o There are many free resources available- Federal, Federal Loan servicers, non-profits, lenders, guarantors
o Consider on-line financial literacy programs
o Can you enhance what you are doing now?
Financial Literacy
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o May still spell problems for student borrowers, especially when Federal Student Loans are not their first choice
- 1 in 4 private loan borrowers in 2007-08 did not take out Federal Loans
- 91% of private loan borrowers at community colleges in 2007-08 did not exhaust Federal Student Aid first
o Volume is decreasing and the Secretary now has some authority over them
Financial Literacy and Private Loans
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Protecting the Grace Period
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.
Schools must learn when a borrower leaves campus and promptly
report this to NSLDS.
Why is this so important?
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During the grace period your Loan Servicer does the following:
o Establishes a relationship with the borrower
o Ensures the correct repayment status
o Discusses the appropriate repayment plan
o Promotes self-service through the Web
o Updates and enhances borrower contact information (school should do this also!)
o Discusses consolidation options
Servicer Repayment Counseling
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Of the borrowers who defaulted……….
the majority had contact issues:o 49% had bad telephone numbers (actual population)
o 95% were not successfully contacted by phone during the 360-day collection effort leading up to default (sample)
2 Key Defaulter Characteristics
Source: August 2008 Analysis of Federal Direct Loan Portfolio
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Ensure Borrowers Can Be Found
Create a separate form to collect additional borrower contact information o Goal is to supplement what is obtained via the MPN
o Get contact information for parents, siblings, aunts/uncles, grandparents
o Inform borrowers that you may verify this info (to improve accuracy) and spot check if time permits
Important Note: Although you may collect this information, you may not make a borrower’s receipt of aid contingent upon providing it.
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NSLDS For Students
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NSLDS Default Reports
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Assist Borrowers in Repayment
Late Stage Delinquency Assistance involves school personnel
reaching out to seriously delinquent borrowers (240+ days), and
facilitating the critical contact with the loan servicer to prevent
default.
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o Borrower contact information (the form you had the borrower complete!)
o A list of delinquent borrowers in your current cohort– Request (late stage) delinquency reports from your DL Servicer, or
Federal Loan Servicer
o Staff training– DL Servicers and/or FSA Default Prevention can help prepare staff
How to Get Started
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o Ideally involves all offices on campus
o Focus is on helping borrowers to develop a healthy relationship with their education (student success solutions) and includes:- Increasing program completion rates- Decreasing program completion time- Helping non-completers find a job
“Non-Traditional” Approach
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Borrowers Who Do Not Complete
In 2008, The Direct Loan program served 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
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o Did not achieve academic credential
o May have reduced earning power
o May not benefit from school job placement
o Have one or more loans to repay
o May not receive exit counseling
o May not respond to communication attempts by their loan servicer
o May lose part or all of their grace period if they fail to notify the financial aid office and NSLDS is not updated timely and accurately
Borrowers Who Do Not Complete
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o How quickly do you find out when they leave school?
o Do you have an “early warning” system?- Take attendance?- Issue mid-term grades which provide clues as to whether or not student will persist?- Receive an alert from faculty members?
o Make it somebody’s responsibility for reaching out to those borrowers because they are at high risk of default
Borrowers Who Do Not Complete
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When borrowers leave school without completing their program:
o Try to reach them quickly
o Identify/help them to overcome obstacles to persistence (Persuade them to return!)
o If they will not return, help them to understand repayment obligations
o Learn what you can about their experiences and use this information to help other students stay in school
Outreach to “At-Risk” Borrowers
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o Driven by the fact that borrowers who do not complete are at high-risk of default (Remember the 70%)
o Holistic approach that involves faculty, staff, and administrators
o Goal is to increase student success, as successful students are typically in the best position to repay their loans
“Non-Traditional” Approach
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What Prevents Student Success?
o Finances/need
o Relationship issues
o Physical & mental health challenges
o Dependent-care
o Transportation
o Housing
o Transition difficulties
o Poor study habits
o Under-prepared, basic skill needs
o Language barriers
o Feel unwelcome, no “campus connection”
o First generation, no role models or family support
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Explore the unique connections
between loan default and
student success at your
school.
Data collection:o Info from current studentso Info from former students
Promoting Student Success
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o The rate, number of borrowers, and dollars in default are increasing
o The combination of the recession and the new 3-year CDR calculation will cause rates to increase
o Schools should:- Examine their CDR history- Assess their degree of risk for exceeding CDR thresholds- Take positive steps to reduce defaults on their campus
Take Home Message
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o There are many things schools can do now to protect the taxpayer, school, and its borrowers from the consequences of default including:– Implementing traditional, financial aid-based strategies– Implementing non-traditional student success-based strategies– Reaching out to FSA default prevention staff and loan servicers for
assistance
Take Home Message
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FSA Default Prevention Contacts
• Mark Walsh • 816-268-0412 • [email protected]
• John Pierson • 404-974-9315• [email protected]
• Portfolio Performance Management• (CDR calculations and data challenges)
• Main Line: 202-377-4258 Hotline: 202-377-4259
• Email: [email protected]
• Web: ifap.ed.gov/DefaultManagement/DefaultManagement.html
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Get to know the Federal Loan Servicers:
Student Loan Servicing Center (ACS)
NSLDS Servicer Code: 700577NSLDS Name: Dept of ED / ACS
Borrower Phone: 1.800.508.1378
Web: www.ed-servicing.com
School Phone: 1.866.938.4750
Web: www.ed-servicing.com
Great Lakes Educational Loan
ServicesNSLDS Servicer Code: 700581NSLDS Name: Dept of ED / Great Lakes
Borrower Phone: 1.800.236.4300
Web: www.mygreatlakes.org
School Phone: 1.888.686.6919
Web: www.mygreatlakes.org
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Get to know the Federal Loan Servicers:
Fed Loan Servicing (PHEAA)
NSLDS Servicer Code: 700579NSLDS Name: Dept of ED / FedLoan Servicing PHEAA
Borrower Phone: 1.800.699.2908
Web: www.myfedloan.org
School Phone: 1.800.655.3813
Web: www.myfedloan.org
NelnetNSLDS Servicer Code: 700580NSLDS Name: Dept of ED / Nelnet
Borrower Phone: 1.888.486.4722
Web: www.nelnet.com
School Phone: 1.866.463.5638
Web: www.nelnetloanservicing.com
Sallie MaeNSLDS Servicer Code: 700578NSLDS Name: Dept of ED / Sallie Mae
Borrower Phone: 1.800.722.1300
Web: www.salliemae.com
School Phone: 1.888.272.4665
Web: www.opennet.salliemae.com
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Additional Resources
• Cohort Default Rate Guidehttp://ifap.ed.gov/DefaultManagement/finalcdrg.html
• CDR Guide Quick Referencehttp://ifap.ed.gov/DefaultManagement/CDRQuickReference.html
• CDR Frequently Asked Questionshttp://ifap.ed.gov/DefaultManagement/faq/FAQ.html
• NASFAA - Recent Summary Page on CDR (good overview and links to NASFAA Conference presentations)http://www.nasfaa.org/publications/2010/rcdr081910.html
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Contact Information
Dana KellyRegional Director – Nelnet Loan [email protected]
www.nelnetloanservicing.com