Welcome toTeaching + Learning Tuesdays

April 15, 2014 I 2:30PM to 4:00 PM

Title:

Direct Loan Program and Default Prevention

Presenters: Ray Jones, Anne-Harvin Gavin, and Chuck Sanders South Carolina Student Loan  

Direct Loan Program and Default PreventionSouth Carolina Technical College System

April 15, 2014

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Direct Loan Program Overview

• Initially established during Reauthorization of the Higher Education Act in 1992

• The Healthcare and Education Reconciliation Act of 2010 required all federal student loans to be originated directly through the Federal Direct Loan Program, eliminating state-based originations

• New student loans are now assigned to federal loan servicers at the time the loan is disbursed to the borrower. These assigned servicers will work with borrowers to manage the billing and repayment options of the student loans.

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Direct Loan Servicers

• TIVAS (Title IV Additional Servicers)– Nelnet– FedLoan Servicing (PHEAA)– Sallie Mae– Great Lakes Educational Loan Services, Inc.

• NFPs (Not For Profit Servicers)– Aspire Resources Inc.– Cornerstone– ESA/Edfinancial– Granite State – GSMR– MOHELA– OSLA Servicing– VSAC Federal Loans IFAP Servicing Contact information

http://www.ifap.ed.gov/ifap/helpContactInformationDetailedList.jsp?lsc=1

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DL Loan Servicing – Student Loan Repayment

• In-school period– Payments are postponed during periods of half-time enrollment– Undergraduate subsidized loans do not accrue interest – Unsubsidized loans accrue interest from time of disbursement

• Grace period– Six-month grace period begins as soon as student graduates, withdraws, or becomes less than

half-time– Only one six-month grace period per loan

• Repayment– Begins immediately after grace period end date– Loan disclosures provide full terms of loan repayment obligation– First payment usually becomes due 30-45 days after converting to repayment

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DL Servicing Repayment Options

• Repayment Plans– Standard Repayment Plan

• Initial borrower plan; level payment amount with 10-year loan term

– Graduated Repayment Plan• 10-year loan term; payment starts lower than standard and gradually increases

– Extended Repayment Plan• Extends loan term up to 25 years for balances greater than $30,000

– Income-Driven Repayment Plans• Pay as You Earn (PAYE)• Income-Based Repayment (IBR)• Income-Contingent Repayment (ICR)• Additional plans based on borrower’s annual income

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Payment Postponement

• Deferments:– Entitlements– Limited time– Eligibility based on situation of borrower

• in-school, unemployment, economic hardship, military, etc.

– Subsidized portion of undergraduate loan does not accrue interest

• Forbearance– Usually discretionary– 36-month limit– May be offered if borrower is not eligible for deferments– Interest accrues on entire balance, including subsidized portion

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Cohort Default Rate – Changing Climate

• More students borrowing money• Increasing educational costs• Slow economy, higher unemployment• No local default prevention and financial literacy efforts due to

elimination of state-based originations by organizations like SC Student Loan

• Increasing delinquency rates• Loan default rates have increased for most institutions• Transition to 3-year cohort default rate calculation

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2014 – 3 year cohort transition will be completed

• Third year of 3-year rates are released• 2-year rates end• Sanction threshold for loss of program eligibility becomes 3 consecutive

years equal to or greater than 30%

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Required corrective actions

• Year 1 at 30% or higher:– Default prevention plan and task force required– Submission of plan to FSA is required

• Second consecutive year at 30% or higher:– Review and make necessary changes to default prevention plan– Submit changed plan to FSA for review– FSA may require additional steps as needed

• Third consecutive year at 30% or higher:– Loss of eligibility for DL Loans (also lose Pell eligibility)– Institution may go through appeal rights– 34 CFR 668.217

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Two Year CDR

Cohort Fiscal Year Borrowers in the Numerator/ Borrowers in the Denominator

2-Yr Time Period (Numerator) 1-Yr Time Period (Denominator)

2009 Borrowers who entered repayment in 2009 and defaulted in 2009 or 2010 divided by Borrowers who entered repayment in 2009

10/01/2008 to 9/30/2010 10/01/2008 to 9/30/2009

2010 Borrowers who entered repayment in 2010 and defaulted in 2010 or 2011 divided by Borrowers who entered repayment in 2010

10/01/2009 to 9/30/2011 10/01/2009 to 9/30/2010

2011 Borrowers who entered repayment in 2011 and defaulted in 2011 or 2012 divided by Borrowers who entered repayment in 2011

10/01/2010 to 9/30/2012 10/01/2010 to 9/30/2011

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Three year CDRCohort Fiscal Year Year Published Borrowers in the Numerator

divided by Borrowers in the Denominator

3-Yr Time Period (Numerator) 1-Yr Time Period (Denominator)

2009 2012 Borrowers who entered repayment in 2009 and defaulted in 2009, 2010 or 2011 divided by Borrowers who entered repayment in 2009

10/01/2008 to 9/30/2011 10/01/2008 to 9/30/2009

2010 2013 Borrowers who entered repayment in 2010 and defaulted in 2010, 2011 or 2012 divided byBorrowers who entered repayment in 2010

10/01/2009 to 9/30/2012 10/01/2009 to 9/30/2010

2011 2014* Borrowers who entered repayment in 2011 and defaulted in 2011, 2012 or 2013 divided byBorrowers who entered repayment in 2011

10/01/2010 to 9/30/2013 10/01/2010 to 9/30/2011

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Preventing Default – A School Approach

• Financial aid office initiatives– Entrance/Exit Counseling– Updated contact information– Understanding loan repayment– Updating enrollment status changes

• Focus efforts through entire borrowing experience– In-school– During grace– During repayment

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What is your graduation rate?At-risk students often do not complete programs of study

Historically, higher percentages of defaulting students did not complete their academic program

– Did not benefit from job placement services offered by school– Reduced wages due to lack of degree/certification– No exit counseling– Communication attempts were not received from the servicer due to incorrect

contact information– Withdrawal may be reported late to NSLDS, resulting in reduced efforts to

contact during grace

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Borrowers in school – start early

• Implement student loan awareness as part of orientation process• Include information in a “university 101” class• Offer financial literacy awareness throughout student enrollment

– Students that understand how to budget are less likely to default

• Show loan payment amount estimates based on total loan balances• Consistently review and update student contact information• Increase efforts for retention, graduation, and employment

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Borrowers in Grace Periods

• Steps to take– Validate contact information– Re-enrollment assistance– Transfer assistance– Prepare borrower for repayment– Provide employment counseling and search preparation– Job placement assistance

• Note: Delays in schools submitting timely enrollment information to NSLDS may increase default risk. Send these changes immediately. Servicers are required to submit to NSLDS weekly.

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Borrowers in Repayment

• Consistently run and review NSLDS reports– Delinquency reports– Demographic reports– Contact loan servicer with updated borrower contact information – Direct phone calls, e-mails, letters, etc.

• Early in repayment: Target borrowers who did not complete school• Late in repayment: Target borrowers who are 180+ days delinquent

• Skip tracing efforts on bad contact information• Once contacted, discuss individual borrower situation, provide warm

transfer to servicer

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Counseling

• Entrance/Exit counseling is a regulatory requirement• Determine the method of counseling that works best for your students.

Limited staffing resources often plays a role. – Online– Group Sessions– Combination

• Determine at-risk borrowers and consider additional entrance and exit loan counseling. Require entrance counseling for every new loan. Performing exit loan counseling earlier or more often to these students may help as well.

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Contact Information

• Enhance skip tracing efforts when incorrect demographic information is found

• Continue to supplement contact and reference information found on the MPN to the borrower’s servicer

• Work with all departments to collect borrower contact information when an office visit is made

• Inform borrowers that the contact information may be verifiedNote: SCSL finds that almost all defaulted student loans could have

been corrected if we had been able to contact the borrower

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NSLDS Institutional Reports

Report Description

DRC015DRC016

Repayment Loan Info Detail Report provides the current repayment status of certain borrowers inthe 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 gointo 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 adefaulted loan status (DB, DL, DO, DT, DU, DW, DF, or DZ) and a loan status date that falls within therequested date range

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

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

Reviewing your data is valuable:• Allows you to identify and correct errors before the draft and official cohort default rates are released• Is an opportunity for immediate feedback on prevention initiatives• Real-time insight into At-Risk borrowers and their characteristics• Opportunity to prepare for release of Draft and Official rates

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Consequences of Default for a borrower:

The consequences of default can be severe:• The entire unpaid balance of the loan and any interest may be immediately due and payable.• Lose eligibility for deferment, forbearance, and repayment plans.• Lose eligibility for additional federal student aid.• The loan will be reported as defaulted to credit bureaus, damaging the borrower’s credit rating. • Federal and state taxes may be withheld through a tax offset. This means that the Internal Revenue Service can take a

federal and state tax refund to collect any of the defaulted student loan debt. They also have the ability to withhold any federal payment such as federal retirement benefits.

• The student loan debt will increase because of the late fees, additional interest, court costs, collection fees, attorney’s fees, and any other costs associated with the collection process.

• A borrower’s employer (at the request of the federal government) can withhold money from their pay and send the money to the government or holder of the loan. This process is called wage garnishment.

• The loan holder can take legal action against the borrower, and they may not be able to purchase or sell assets such as real estate.

• Federal employees face the possibility of having 15% of their disposable pay offset by their employer toward repayment of their loan through Federal Salary Offset.

• City, County, State, and Federal workers could face job termination.• It will take years to reestablish credit and recover from default.

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EdManage - SC Student Loan’s Default Prevention Program for Schools

• 40 years of student loan servicing experience• Tiered offerings allow schools to determine the specific needs of the institution at

different pricing levels• Knowledgeable representatives to discuss repayment options with delinquent

borrowers• Blast e-mail campaigns during enrollment, grace, and repayment• Warm transfers to the borrower’s servicer after high level options are discussed• Local presence allows us to provide counseling, financial literacy awareness, high

school financial aid nights in-person• Established skip tracing efforts already in place• Historically among the lowest default rates in the nation

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Trigger Rate indicates loan balance defaulted during a federal fiscal year divided by loan balance in repayment at the beginning of such fiscal year. Under the Higher Education Act, as currently in effect, if a guaranty agency's Trigger Rate exceeds 5% then the applicable percentage at which the Secretary reinsures loans guaranteed by that guaranty agency begins to decline below the otherwise applicable level.

FFELP Default Rates

Cohort Default Rate is defined as the percentage of borrowers who enter repayment during a federal fiscal year and subsequently default within that same fiscal year or the following fiscal year.

Year Trigger Rate2003 0.73%2004 0.60%2005 0.85%2006 0.80%2007 0.76%2008 0.82%2009 0.82%2010 1.11%2011 1.29%2012 1.50%

2.5 2.3 1.9

1.4 1.5

1.1 1.5

1.0

2.4

1.7 1.4

2.7 2.9

5.3 5.4

9.6 8.8

6.9

5.6 5.9 5.4 5.2

4.5 5.1

4.6 5.2

6.7 7.0

8.8 9.1

0

2

4

6

8

10

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1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Perc

en

tag

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Cohort Default Rate ComparisonSCSEAA vs. National Rates

SC Cohort Rate National Average

Questions?Contact Information for Colleges

Ray Jones

(803) 612-5062

rjones@scstudentloan.org

Anne Harvin Gavin

(803) 612-5075

agavin@scstudentloan.org