strategies faas need to know about managing default
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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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Why Create a Default Prevention Plan?Why Create a Default Prevention Plan?
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Why Create a Default Prevention Plan?Why Create a Default Prevention Plan?
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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Why Create a Default Prevention Plan?Why Create a Default Prevention Plan?
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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Why Create a Default Prevention Plan?Why Create a Default Prevention Plan?
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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Communication Across CampusCommunication Across Campus
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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Communication Across CampusCommunication Across Campus
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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Communication Across CampusCommunication Across Campus
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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Communication Across CampusCommunication Across Campus
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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!
Timely and Accurate Enrollment ReportingTimely and Accurate Enrollment Reporting
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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.
Timely and Accurate Enrollment ReportingTimely and Accurate Enrollment Reporting
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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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NSLDS and School-Based DataNSLDS and School-Based Data
School Reports: NSLDS School Reports: NSLDS
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NSLDS and School-Based DataNSLDS and School-Based Data
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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NSLDS and School-Based DataNSLDS and School-Based Data
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!
Servicer Relationship Servicer Relationship
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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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Servicer Relationship Servicer Relationship
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:
defaultpreventionassistance@ed.gov
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
Patrick.Kennedy@ed.gov
QUESTIONS?QUESTIONS?
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