strategies faas need to know about managing default

Patrick Kennedy | Dec. 2013

U.S. Department of Education

2013 FSA Training Conference for Financial Aid Professionals

Strategies FAAs Need to Know About Managing Default

Session # 17

Session TopicsSession Topics

Loan Servicing Updates Loan Servicing Updates

Why Create a Default Prevention Plan?Why Create a Default Prevention Plan?

Default Prevention and Default Prevention and Debt Management StrategiesDebt Management Strategies

The Take-A-WaysThe Take-A-Ways

Question & AnswerQuestion & Answer

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Loan Servicing Information – Loan Servicing Information – Federal Loan Servicer Team UpdateFederal Loan Servicer Team Update

Direct Loan Servicing Center (ACS) Closed Beginning October 1, 2013

All Direct Loan accounts previously assigned to COSTEP, EDGEucation Loans, EdManage, and KSA Servicing were successfully transferred to appropriate NFP servicer partner by the end of September 2013

During the October – December 2013 timeframe, we plan to transfer accounts of borrowers whose loans are split across FedLoan, Great Lakes, Nelnet, and Sallie Mae.

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Loan Servicing UpdatesLoan Servicing Updates

Federal Loan Servicers

Federal Loan Servicers Borrower Contact #

Aspire Resources Inc. 1-855-475-3335

CornerStone 1-800-663-1662

ESA/Edfinancial 1-855-337-6884

FedLoan Servicing (PHEAA) 1-800-699-2908

Granite State – GSMR 1-888-556-0022

Great Lakes Educational Loan Services, Inc. 1-800-236-4300

MOHELA 1-888-866-4352

Nelnet 1-888-486-4722

OSLA Servicing 1-866-264-9762

Sallie Mae 1-800-722-1300

VSAC Federal Loans 1-888-932-5626

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Why Create a Default Why Create a Default Prevention Plan?Prevention Plan?

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• Loan default rates increasing for most institutions

• Increasing loan delinquency rates

• Regulatory transition to 3 year Cohort Default Rate calculation • Transition Completed Fall 2014

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Source: FRB of NY, Quarterly Report on Household Debt and Credit, November 2013

Why is a Default Prevent Plan encouraged for all institutions?

Establishes default prevention goals

Shows the institution’s commitment to default prevention

Provides a framework for school-based initiatives

Protects the integrity of the loan programs

It’s the right thing to do for students!

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A Default Prevent Plan is required if the institution:

34 CFR 668.14 (b)(15) Participates in the Direct Loan program for the first time Participates in the Direct Loan program and have

undergone a change of ownership

34 CFR 668.217 Has a 3-Year Cohort Default Rate of 30% or greater for

any one federal fiscal year

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FirstFirst year at 30% or more:• Create a Default Prevention Plan and task force• Submit plan to FSA for review

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Default Prevention Default Prevention

Plans due to FSA Plans due to FSA

December 30, 2013December 30, 2013

Default Prevention Plan - RequiredDefault Prevention Plan - Required

SecondSecond consecutive year at 30% or more:– Review/revise default prevention plan– Submit revised plan to FSA

» FSA may require additional steps to promote student loan repayment

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Institutions must review its submitted plan, re-evaluate its planned actions, make necessary adjustments, and submit a revised plan.

The revised plan should include information on the institution’s collaboration with the federal servicers regarding delinquent borrowers in the Direct Loan program and Federally-held Federal Family Education Loan program (FFELP).

Because these partners are responsible for servicing your students’ loans, they can aid your default prevention efforts as well as help your students have a successful repayment experience.

Default Prevention Plan - RequiredDefault Prevention Plan - RequiredDefault Prevention Default Prevention Plans due to FSA Plans due to FSA

December 30, 2013December 30, 2013

ThirdThird consecutive year at 30% or more Loss of eligibility: Pell, DL School has appeal rights

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Default Prevention Plan - RequiredDefault Prevention Plan - Required

Let’s Talk Default Prevention and

Debt Management Strategies

Borrower Communication - Institutions Borrower Communication - Institutions

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Borrower communication and engagement is a key factor in successful default prevention!

While the borrower: While the borrower: In SchoolIn School-Educate about repayment -Leverage financial literacy resources and tools-Update contact information -Update enrollment status changes -Reiterate the importance of communicating with the loan servicer(s)

When the borrower: When the borrower: In Grace In Grace -Validate contact information-Re-enrollment and transfer assistance-Prepare borrower for repayment-Update enrollment status changes -Reiterate the importance of communicating with the loan servicer(s)-Confirm the students servicer contact information

Some institutions have reported great success by creating a separate form to collect additional borrower contact information, for all borrowers.

Goal is to supplement what is obtained via the MPN Collect info during admissions process and any other time students

come into contact with school offices Share this information institution-wide between offices Inform borrowers that you may verify this info (to improve accuracy)

and spot check if time permits

Although an institution may collect additional information, you may not make a borrower’s receipt of

aid contingent upon providing it.

11 Contact InformationContact Information

Note

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Establishes a relationship with the borrower Ensures the correct repayment status Discusses the appropriate repayment plan Promotes self-service through the web Updates and enhances borrower contact information Discusses consolidation options

Federal Loan Servicers - In the Grace PeriodFederal Loan Servicers - In the Grace Period

Borrower Communication - In Grace Borrower Communication - In Grace 11

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Borrower Communication - RepaymentBorrower Communication - Repayment

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Preparing Borrowers for Repayment:Preparing Borrowers for Repayment:

Make sure borrowers understand the various repayment plans and other options:

Deferment and Forbearances Discharges and Forgiveness Programs Loan Consolidation

Help borrowers understand the servicer role and when to contact their servicer

Remind borrowers that loan servicers are available to assistCheck NSLDS to identify all federal loans and identify the servicer(s)Sign up for online account accessSign up for automatic debit to ensure timely payments and receive a 0.25% interest rate reduction

Ensure that borrowers know that they must repay their loan, Ensure that borrowers know that they must repay their loan, regardless of whether they complete their educationregardless of whether they complete their education

Schools play an important role Some schools make financial literacy part of

their first year curriculum Some schools offer a class for credit, if

possible

There are many free resources available

Federal, non-profits, lenders, guarantors

Consider online financial literacy programs

Counsel students on credit card usage

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Financial LiteracyFinancial Literacy

• Correlation exists between increased financial literacy and decreased defaults:• Financial difficulties can impede academic performance and completion.

• Financial Literacy enhances to student success by:• Enabling students to make fully informed wise borrowing choices• Improve students understanding of the consequences of poor budgeting

while during and after school• Promote an understanding of the impact of debt on their life plans• Prepare students for their transition from school to the workforce• Demonstrate the relationship between graduating on time and

minimizing loans and promoting future financial success

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Financial LiteracyFinancial Literacy

Expenses Funds

Financial Awareness Counseling Tool (FACT) direct link: https://studentloans.gov/myDirectLoan/financialAwarenessCounseling.action?execution=e1s1

Financial Literacy – FACT ToolFinancial Literacy – FACT Tool

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NOTE: Exit Counseling does not include “Manage Your Spending While in School.”

Available on studentloans.gov

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Financial Literacy – CounselingFinancial Literacy – Counseling

Repayment plans and loan payment calculators are available at: http://studentaid.ed.gov/repay-loans/understand/plans#estimator

Financial Literacy – Repayment EstimatorFinancial Literacy – Repayment Estimator

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YOUR Default Prevention Task Force should drive your default prevention process:

Assess the resources you have available Team participants SHOULD be across campus Identify the purpose of the task force Detail responsibilities of determining risk

The prevention and management of loan default is a school-wide effort and not the sole responsibility of the financial aid office.

Communication Across CampusCommunication Across Campus

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Forming the TeamForming the TeamMembers of the Default Prevention team may include:Members of the Default Prevention team may include:- Representatives from various offices on campus

Financial Aid Enrollment Management / Admissions Academic Affairs Representative Senior School Officials Student Services Career Counseling

Select a leader for the group; Consider appointing an institutional Default Select a leader for the group; Consider appointing an institutional Default CoordinatorCoordinator

The function of the team is to conduct data analysis to determine the The function of the team is to conduct data analysis to determine the reasons for default at your school and formulate a set of intervention reasons for default at your school and formulate a set of intervention strategiesstrategies

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Educate the TeamEducate the TeamShare the basic financial aid facts with the team:

1 - Explain Title IV funding and the number of students that rely on financial aid to complete their education at your institution

2 – What is the Cohort Default Rate (CDR) and how it affects the institution

3 – Why a default prevention plan is necessary and important

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Activities for the Team Activities for the Team Study your default student population

Start with your Loan Record Detail Report (LRDR)

Identify any common characteristics of your defaulters and non-defaulters, and borrowers and non-borrowers

Build on early Intervention strategies already in existence

Discuss your current strategies and determine what works and what may need some improvement

Work closely with your servicers and lenders

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Activities for the Team Activities for the Team

Find out what type of tools and services are available from your servicers/lenders

Fine-tune your Loan Servicing procedures for the period while the borrower is at your school

Have clear and precise procedures with a timeline of dates to take appropriate actions

DOCUMENT! DOCUMENT! Create YOUR default prevention plan!Create YOUR default prevention plan!

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Essential for: Essential for: Proper servicing of loan throughout the life cycle of the loan Preventing defaults School cohort management

Critical for administration of Critical for administration of Title IV Loan ProgramsTitle IV Loan Programs

Ensures students’ rights are Ensures students’ rights are protectedprotected

Timely and Accurate Enrollment ReportingTimely and Accurate Enrollment Reporting

Delays in submitting timely and accurate NSLDS enrollment changes may increase default risk

Servicers may be less able to identify, contact, and prepare borrowers for repayment

Many defaulted borrowers did not benefit from their full 6-month grace period due to late or inaccurate enrollment notification by the institution

Sound Default Prevention Strategy – Sound Default Prevention Strategy –

Send enrollment changes to NSLDS timely!Send enrollment changes to NSLDS timely!


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Of the borrowers who defaulted, most did not receive their full 6-month grace period due to late or inaccurate enrollment notification by the institution.

34 CFR 685.309(b)34 CFR 685.309(b)

Changes in enrollment to less than half-time, graduated, or withdrawn must be reported within 30 days.


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The NEED for Data!The NEED for Data!

In order to Conduct Risk Analysis – You NEED DATAYou NEED DATA! Academic Data Academic Data – Program completion rates, retention

rates, enrollment, percentage of students who borrow, average loan indebtedness

NSLDSNSLDS – Review NSLDS (default and delinquency) data along with school data about defaulters and non-defaulters

Servicer Data – Servicer Data – Servicers offer customized reports

Remember! You need someone to work the data!Remember! You need someone to work the data!

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NSLDS and School-Based DataNSLDS and School-Based Data

School Reports: NSLDS School Reports: NSLDS

• Reports for Data AccuracyReports for Data AccuracyDate Entered Repayment ReportSchool Repayment Info Loan Detail School Cohort Default Rate History Enrollment Reporting Summary

• Reports for Default Prevention Reports for Default Prevention School Loan Portfolio Report Date Entered Repayment ReportBorrower Default Summary Exit Counseling Delinquent Borrower Report

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School Reports: NSLDS School Reports: NSLDS

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Report DescriptionDRC015 DRC016

Repayment Loan Info Detail Report provides the current repayment status of certain borrowers in the FFEL and Direct Loan programs who attended a school during a specific period, either 24 months (DRC015) or 36 months (DRC016)

DER001 The Date Entered Repayment Report (DER001) is a list of student borrowers who are scheduled to go into repayment during a specified date range, with their loan histories

SCHDF2 The Borrower Default Summary Report (SCHDF2) provides a list of loans that currently have a defaulted loan status (DB, DL, DO, DT, DU, DW, DF, or DZ) and a loan status date that falls within the requested date range

SCHPR2 The School Portfolio Report (SCHPR2) provides school users with information about all Direct Loan and/or FFEL program loans for a specified school

DELQ01 The Delinquent Borrower Report (DELQ01) provides school users a report of borrowers who have been reported as delinquent in making loan payments to one of the federal loan servicers

The NEED for Data!The NEED for Data!

Conducting Risk Analysis:Conducting Risk Analysis:• Use data to create a picture of borrowers at-risk

of default• ‘WhoWho’ is not enough. Your whowho will be unique. • ‘WhyWhy’ will require input of academic, student

affairs and other professionals• Knowing ‘why’ is necessary to create targeted,

useful and measureable interventions

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Analyzing Your DataAnalyzing Your DataWhere To Begin?Where To Begin?(1)Obtain your Loan Record Detail Report (LRDR)Loan Record Detail Report (LRDR)

How many defaulted borrowers are in your numerator?

What are the characteristics of the defaulted borrowers in your numerator?

(2)Query academic data to obtain demographic data for your defaulted population.

(3)Identify the “whowho” and understand the “whywhy”.(4)Translate the who and why into core strategies to

reduce default and build your plan.

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Analyzing Analyzing

Food For Thought: Typical Findings Food For Thought: Typical Findings

• Never Contacted • Developmental Courses• Late Admits• Did Not Graduate• Gradated but No License• Late Majors• Exit Counseling• Level of Indebtedness• Poor Study Habits

• Academic Preparedness• Grad with Minimum GPA• Feel unwelcome, no

“campus connection”• No Jobs in Profession• College Majors• Attendance Factors• Student Employment• Transportation

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Do the leg-work, let your data your data lead the way.

Examples of ‘Who’ and ‘Why’Examples of ‘Who’ and ‘Why’

More Food For ThoughtMore Food For Thought

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Examples of ‘Who’ and ‘Why’Examples of ‘Who’ and ‘Why’

Historically, the majority of borrowers who default, withdrew without completing their academic program.

• Did not achieve academic credential • Often have reduced earning power • May not benefit from job placement• Have one or more loans to repay• May not receive exit counseling• May not respond to communication attempts by their loan

servicer

Getting Started - Creating Your PlanGetting Started - Creating Your Plan

Develop your own unique plan based on what your data tells you

Take a look at other school plans and compare to similar schools

Access the Default Prevention and Management assessment tools and resources

http://ifap.ed.gov/qahome/qaassessments/defaultmanagement.html

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Creating the Plan Creating the Plan

Getting Started - Creating Your PlanGetting Started - Creating Your Plan

Include information on “At Risk” borrowers

Identify interventions points to reduce default risk – be specific

“Early warning” system

Leverage Intervention Opportunities Enrolled/Grace/Repayment

Specify who is responsible for what tasks or initiatives

Make steps measureable You need to know if interventions are working

Create a written realistic executable written realistic executable plan

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Creating the Plan Creating the Plan

Servicer Communication Channels for Borrowers: Servicer Communication Channels for Borrowers:

All servicers have toll free numbers for borrowers to contact (phone, fax, and e-mail)

Use IVR (integrated voice response) systems

Allow self-service for those that prefer

Make payments over the phone

Includes option to speak to a representative

All servicers have a dedicated staff to assist borrowers

Financial literacy (online tools and webcasts to help borrowers with budgeting, managing credit, and loan repayment)

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Servicer Relationship Servicer Relationship

Servicer Support – Cures: Servicer Support – Cures:

Within 30 – 60 days of delinquency, a large percentage of delinquent accounts can be cured if servicers have good contact information

Borrowers that hit 270 days delinquent have a greater chance of remaining delinquent and even defaulting

Partner with the servicers to help borrowers in the later stages of delinquency! Partner with the servicers to help borrowers in the later stages of delinquency!


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Examples of activities servicers are doing:Examples of activities servicers are doing:

Servicer Role – Default Prevention Servicer Role – Default Prevention

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All servicers work to gather feedback and find ways to partner with schools on default prevention. Examples include:

Face to face meeting on school campuses

Financial aid conference attendance

Presentations at conferences

Default Management Training and Webinars

Analyzing Servicer Specific Reports and Tools

Late Stage Delinquency Efforts

Incorrect Data Challenges

Work the CDR data

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Default Prevention Team was created to assist schools with:

Establishing their default prevention goals

Assessing the resources schools have available in order to establish their Default Prevention team

Understanding default risk through the use of servicer and NSLDS available reports and tools

Developing /refining their default prevention plan

FSA – Default Prevention Team FSA – Default Prevention Team

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Need Assistance?Need Assistance?

If schools need assistance in developing or reviewing their default prevention plan, please send a request to

the following email address:

[email protected]

Contact Us!Contact Us!

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3 Important Take-a-ways from this Session3 Important Take-a-ways from this Session

Default Prevention is Everybody's Business!Default Prevention is Everybody's Business!Default prevention is a school-wide effort and not the sole responsibility of the financial aid office.

You NEED DATA!You NEED DATA!In order to conduct risk analysis and identify your defaulters you need data.

Partner with the Federal Loan Servicers!Partner with the Federal Loan Servicers!Your default prevention plan should incorporate the products and services offered by the Federal Loan Servicers.

Get to know the federal servicers! Get to know the federal servicers!

The Take-A-WaysThe Take-A-Ways

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Thank You!Thank You!

Patrick KennedyPatrick Kennedy214-661-9480214-661-9480

[email protected]

QUESTIONS?QUESTIONS?

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strategies faas need to know about managing default

Documents

loan default rates

successful default prevention

default prevention goals

loan programs

loan servicerswhen

loan servicersconfirm

direct loan accounts

direct loan program