wvasfaa 1. confidential and proprietary information © 2014 sallie mae bank. all rights reserved....
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Confidential and proprietary information © 2014 Sallie Mae Bank. All rights reserved.
Joe Fries, Director, Business Development
MANAGING DEBT, DELINQUENCY AND DEFAULT
DATE: 09/2014
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Understanding Student Loan Debt
Preventing Delinquency and Default
Keys to Successful Loan Repayment
Tools and Resources
Topics
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Understanding Student Loan Debt
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Sallie Mae’s “How America Pays 2014” Survey Results
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How the typical family pays for college, year-over-year
22%
42%
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Sallie Mae’s “How America Pays 2014” Survey Results
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Preventing Delinquency and Default
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Delinquency and Default
Delinquency◦ Failure to make scheduled payment(s) ◦ Reported to credit bureaus
◦ Potentially affects student borrower’s credit rating
Consequences of Default◦ Account can be assigned to a collection agency ◦ Collection costs may be charged◦ Unable to obtain additional federal student aid
◦ Loss of deferment and forbearance benefits
◦ Wages can be garnished without a court order for federal loans◦ Tax refunds may be withheld for federal loans◦ Potential legal action◦ School can withhold records
◦ NOTE: student loans are rarely discharged in bankruptcy
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Early Student Borrower Outreach
Familiarize student borrowers with their debt obligations, payment options, and default consequences
Communications are most effective at key transition points in the loan’s lifecycle
Provide helpful, relevant, and easy-to-understand information ◦ Offer resources well before the student borrower enters repayment (in-
school, separation, grace)
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Default Prevention Techniques for Schools
► Counsel student borrowers on repayment options tailored to individual needs during in-school and grace periods
► Attempt to contact targeted populations prior to entering repayment – In-school and/or grace-period outreach campaigns
► Work with your school’s repayment- and default-management staff and third-party servicer(s)– Use specialized strategies and counselors
for late-stage delinquencies– Send a series of letters and calls that
exceed minimum regulatory requirements
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Borrower Outreach Tips for Schools
Communicate with student borrowers by means they feel most comfortable◦ Video narratives embedded within E-mail messages◦ Reduce text-laden letter content in all (direct- and E-mail)
communications
Offer “non-banking” hours of operation◦ Nights, weekends, etc.
Launch alternate telephone number and/or personal reference campaigns
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Financial Literacy Tips for Schools
Urge student-borrowers to exhibit responsible borrowing by using the “1-2-3 approach”
◦ (1) “Free money” such as grants and scholarships◦ (2) Federal student aid◦ (3) Private (non-federal) educational loans
Counsel students to be aware of their likely future earning power associated with their degree and program-of-study
◦ Borrow accordingly
Encourage student borrowers to access NSLDS◦ www.nslds.ed.gov
◦ Locate whereabouts (and loan amounts) of their federal student loans
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Financial Literacy Tips for Schools (continued)
Advise student borrowers to request a free credit report annually www.AnnualCreditReport.com
Require students to demonstrate financial literacy in a forum that your school deems appropriate
Create videos and letter content on relevant topics ◦ Student loan repayment◦ Money management
◦ Budget building exercises◦ Securing gainful employment
◦ Interview tips, resume building, etc.
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Understand Your Loan Portfolio
► Retrieve the NSLDS SCHPR1 School Portfolio Report on a monthly basis– Augment NSLDS data with information from loan servicers
► Segment your school’s portfolio based on various “risk” attributes– Account status and delinquency ranges– Separation reason
• Graduated, withdrawn, dismissed
– Account balance
► Identify student borrowers who are “at-risk” of defaulting by the close of the CDR evaluation period (September 30)
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Debt Management and Default Aversion Tips
Promote principal-reducing payment via “standard” repayment terms
Promote electronic debit account enrollment◦ Take advantage of interest rate reductions for on-time repayment
Help student borrowers develop a “payment relationship” with their loan-servicers
Suggest “alternative” repayment options for student borrowers who cannot afford monthly loan payment amount
◦ IBR, ICR, graduated, extended repayment plans
Make student borrowers aware of deferment entitlements
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Tips in Locating Your Students
Verify demographic information during every student borrower interaction (via phone, in-person, etc.)
Call archived telephone numbers on file and contact personal references if available
Use third-party data providers ◦ E.g., Accurint, FirstData, Innovis, etc. ◦ To obtain the “freshest” demographic information associated with student borrower
Look into possibly using social media to locate and contact “hard-to-find” student borrowers
◦ Evaluate compliance considerations◦ Consult your legal team
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Keys to Successful Loan Payment
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Federal Loan Repayment Plans
Extended◦ Lengthens the repayment term effectively reducing the monthly payment amount
Graduated◦ Monthly payment amount increases as the loan ages
Income-Based Repayment (IBR)◦ Aligns the monthly student loan payment with the student borrower’s earning power
Income-Contingent Repayment (ICR) (Direct Loan only)◦ Aligns the monthly student loan payment with the student borrower’s earning power
Income-Sensitive Repayment (ISR) (FFELP Loan only)◦ Pegs the student loan payment amount with the student borrower’s earning power
Pay As You Earn (Direct Loan only)◦ Combines certain features if IBR and ICR for borrowers with financial hardships
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Federal Loan Repayment Comparison
Total Loan Amount $150,000 in Loans *
Initial Monthly Payment
Long-term Monthly Payment Total Interest
Years in Repayment
Standard $1,726 $1,726 $57,145 10
Graduated (4 years interest-only) $850 $2,543 $73,894 10
Extended (Standard) $1,041 $1,041 $162,332 25
Income-based repayment* $727 $1,726 $155,714 20
Income-sensitive repayment $850 $1726 $67,345 11
Consolidation (Standard) $985 $985 $204,742 30
Examples assume federal Stafford loans with the total loan amount due on the day repayment begins, 6.8% fixed interest rate on non-consolidated loans and 6.875% interest rate on consolidated loans, no borrower benefits or repayment incentives, no pre-payments and no delinquent payments. All payment calculations are estimates only. M onthly payment schedule and total payment estimates will vary. Note: Sallie Mae’s current repayment calculator estimates schedules for non-consolidated loans. This table provides consolidation schedule for fuller comparison of borrowers’ repayment options.*Income-based repayment assumptions: Borrower is repaying $34,000 in subsidized Stafford loans and $116,000 in unsubsidized Stafford loans, all carrying a rate of 6.8%. In this scenario, the calculations assume a household size of 2, residence within the Continental U.S., an initial adjusted gross income (AGI) of $80,000, and a 5% annual increase in AGI. The example also assumes that borrower is married but spouse has no IBR-eligible loans. The borrower’s payment will rise each year until it reaches the maximum payment amount allowed, which, in this example, is $1,726—the monthly payment amount required to repay the balance of the loans at the time they are placed into IBR, in equal installments over a 10-year term. In this example, the borrower can expect to make 245 payments (approximately 20.5 years), totaling $307,959. In addition, the borrower can expect to qualify for a small interest subsidy of $658, during the early years of the loan. All payments are assumed to be made on time.
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Payment Relief on Federal Loans
Grace-Period ◦ Six (6) months in length for Stafford Loans◦ Neither principal, nor interest payments are due◦ Repayment begins at the expiration of the grace period
Deferments◦ Student-borrower payment-postponement entitlements (providing specific criteria is met)
◦ In-School◦ Economic Hardship◦ Unemployment◦ Graduate Fellowship◦ Military
Forbearance◦ Lender/servicer-discretionary suspension of payments
◦ Helps to help avoid delinquency and default (only when deferment is not an option)◦ Monthly payment amounts will increase (post-forbearance) when interest capitalizes (causing the student borrower to
pay more overall)
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The Cost of Postponing Payments
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Federal Loan Repayment/Forgiveness Programs
Federal loan service commitment programs allow student borrowers to repay loans in exchange for service following graduation◦ Some programs offer tax incentives
◦ Currently available through various state and federal programs, and the armed forces
◦ New Loan Forgiveness for Public Service Employees (for Direct Loans only)
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Private Loan Repayment► Private Loans
– Unsubsidized for life of loan– Generally have a separation/grace period prior to the time the
student borrower is required to make (principal and interest) payments
– Forbearance and/or Deferment may be available • Consult your loan servicer!
– Repayment terms vary• Many lenders offer a choice of repayment plans
– NOTE: Check promissory note(s) for details
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Tools and ResourcesHow Can You Help?
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Student borrowers should understand their student loan portfolio◦ Know what types of loans they have◦ Know their lenders and servicers◦ Know how much they owe◦ Know what their interest rate and monthly payments are◦ Know what borrower benefits are available
Understand interest capitalization and its impact
Know grace, deferment and forbearance options
Know federal loan repayment plan options
Avoid delinquency and default
Keep good records
Know your resources
Key Tips for Managing Student Loans that Borrower Should Know
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Get all loan documents together: keep them on file!◦ Promissory notes◦ Disclosure statements◦ Award Letters
Exit interview information
Open and READ student loan mail
Bookmark loan servicer’s websites
Notify loan servicer(s) of name & address changes
Document calls to servicer: date/time of call & person who handled the call
Keep important numbers available
Keep Good Records – A Student’s To Do List
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School financial aid office
Lender/servicer
Federal Student Aid Ombudsman◦ U.S. Department of Education – FSA Ombudsman
http://www.ombudsman.ed.gov or 1-877-557-2575
Federal Loan Servicers:
Resources for Students
800-722-1300 - www.salliemae.com/edservicing
800-236-4300 - www.mygreatlakes.org
888-486-4722 - www.nelnet.com
800-699-2908 - www.myfedloan.org
Soon to be:
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Contact Information Joseph C. Fries | Director, Business Development Sallie Mae
phone: 513-561-2125 | mobile: 513-708-2125
email: [email protected]
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The information contained in this presentation is not comprehensive, is subject to constant change, and therefore
should serve only as general, background information for further investigation and study related to the subject matter and the specific factual circumstances being considered of evaluated.
Nothing in this presentation constitutes or is designed to constitute legal advise.
MKT10058 0914
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Blazing a Trail to Debt Management
ONE SCHOOL’S JOURNEY
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First StepsMountwest Assumed Administrative Control of Financial Aid Processing in July 2009Spring 2010 Mountwest Crafted a Default Management Plan Using “Best Practices” as Defined by U.S.D.E.
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Who Has the Map to this Trail?Start with Your Latest CDR ReportsContact Your Loan ServicersUse NSLDS Reports
◦ SCHPR1-School Portfolio Report◦ DELQ01-Delinquent Borrower Report
Develop a Profile of Your DefaultersUse the Cohort Default Rate Guide
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What Did Our Profile Look Like? Typical Defaulted Student Profile
◦ 53% Admitted as First Time Freshmen◦ 41% Had Attempted Fewer than 30 Hours◦ Two Majors Accounted for 30% of Defaulters◦ 80% Received a Pell Grant◦ 92% Did Not Graduate◦ 46% Had GPA below 1.00
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Putting the Default Plan to Worko Began making delinquency contacts via email and letter in 2010oBegan an automated, tiered system of award packaging oBegan a “No-Show” PolicyoBegan attendance check throughout the termoEarly Alert System in placeoAdded a second layer of Entrance Counseling for those students requesting additional loan funding
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Work ContinuedoImplemented New Contact FormsoChecked Enrollment Data on NSLDS to Make Certain Separation Dates Correctly RecordedoFinancial Aid Staff Incorporated into the College 101 Classes oImplemented Paperwork Deadlines for Financial Aid
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What Happened Next?oThe Default Rate Continued to IncreaseoOur 2010 Three Year Rates Projected Over 30%oWe Alerted Our President and CFO oWe Projected Our 2011 Three Year Rates at Over 40%oIn March 2013 the 2010 Three Year Draft Rate Was Released at 32.1%
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Mobilizing Our ResourcesoInvolved the Campus Community in Developing StrategiesoContacted EdFinancial to Assist with the 2011 Cohort- Projected at Over 40%oCreated a Default Task Force (as Required by USDE) and Began Regular Meetings
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What Did the Default Task Force Accomplish?oFaculty Senate Implemented a Mandatory Attendance Policy of 85%oFaculty Senate Set a Floor on Placement Test Scores Required for College AdmissionoEdFinancial Was Hired to Work on 2011-2013 CohortsoImplemented a Loan Disbursement Delay for “At-Risk” Students Until After Mid-Term
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How Did Daily Operations Change?oMore Staff Resources Allocated to Delinquency Management on CampusoMore Staff Resources Allocated to “Enhanced Loan Counseling”oMore Staff Resources Allocated to College 101 and Financial Literacy EducationoNo New Staff Added
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Why Use a Default Management Service?oMore Available Resources to Devote to Default and Delinquency ManagementoMore Experience Dealing with Delinquency and “Cures”oProven Track Record
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Why We Chose EdFinancial
oOffered a custom plan for MCTC with pricing we could afford and they did not give us unrealistic expectations
oGave us data driven information to make our choice
oProvide a monthly “report card” that marks our progress month to month
oOffer a secure FTP site where we can retrieve custom reports we have requested
oHost webinars upon request to explain information and discuss progress
oAssist with data challenges and appeals
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Other IntiativesoBeacon-Three Year Grant Assists FTFoAttendance Pays-Grant to Promote Attendance and SuccessoCareer Services-Assist all Students (current and former) in Resume Building, Interview Skills and Job HuntingoStarfish-Early Alert SystemoBanner Attendance Tracker
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Where Are We Now?oRetention Increase of 4% Fall 2013 to Spring 2014o2011 CDR 34% (with accepted data challenges)o2012 Draft CDR 25.7%o40% Drop in Total Loan Volumeo35% Drop in Borrowers
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Where Do We Want to Be?o 2014 CDR of 20% or Lesso Increase Retention and Graduation Rateso Mandatory Financial Literacy Counselingo Less Dependence on Student Loans to
Finance Education
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Questions??
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Contact InformationMary Blizzard
WVCTCS
Shared Financial Aid Director, BVCTC and MCTC
1018 Kanawha Blvd, East
Suite 700
Charleston, WV 25301
304-558-4614 (Office)
304-416-3142 (Personal Cell)
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Uncharted Territory: Navigating the Default Management Plan Process
Finding our Direction
at West Virginia Northern Community College
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Our Story Steady increase of 3 year CDR
◦ FY 2009 – 27.6%◦ FY 2010 – 31.7%◦ FY 2011 – 36.4%
◦ FY 2012 (DRAFT) – 28.8%
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How We Brought Our Rate Down•Established a Default Management Task Force•Collected/Analyzed Data•Created awareness•Hired EdFinancial•Submitted a Default Management Plan •Implemented our plan and made necessary changes
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Establishing Our Task Force
Included staff from all areas of the institution Each staff member brought different ideas to the table
Made the President and upper administration aware of the issue and the consequence associated with a high default rate
Held meetings monthly to update on progress
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Collect/Analyze Data• Coded each defaulted student in Banner
•Worked closely with our Institutional Research department • Factors Considered
• Amount owed• Student dependency• Percentage of defaulters receiving a Pell grant• Graduation status of students• Students required to take developmental education courses• Students on SAP• Majors of students
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Creating Awareness• Started at top – President, Administration
• Met with all faculty and staff at All College Day
• Met specifically with faculty at faculty meetings
• Created a campaign as part of the task-force to have uniform and recognizable materials related to default
• Included loan repayment information in college career fairs
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How EdFinancial Helped• Worked with EdFinancial to manage our delinquent loan borrowers
• Default management is time consuming with limited staff
• Forecasted CDR’s helped the institution plan
• Provided us with a monthly status report to track progress
• Helps us with data challenges and appeals
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The Default Management Plan
• Used the template provided by the Department of Education
• Included:• Past and Current CDR’s• Data, Analysis and Conclusions• Identification of Task Force• Strategies and Timeframe of Implementation• Review and Modifications• Feasibility of Resources (internal and external)• Communication With Loan Servicers
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Implementation• Added a larger financial aid/financial literacy component to the ORNT 090 curriculum
• Implemented a school-wide informative campaign on student loans and repayment
• Focused on increasing faculty/staff awareness
• Implemented in-person entrance counseling for first time borrowers at Northern
• Offered optional “Understanding your Loans” workshops
• Offered a default resolution workshop
• Starting Spring 2015 – implemented in-person exit counseling
• Starting Fall 2015 – requiring SAP students to complete the financial awareness counseling with appeal
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Questions?
Kelly Dlesk
Financial Aid Counselor
West Virginia Northern Community College