PowerPoint Presentation

UASFAA Fall ConferenceApril 18, 2013YesAnother Presentation on Default Prevention

BioRose Amador, Call Center Supervisor7 Years Experience in Loan Servicing, Default Prevention and Default CollectionsJoined UHEAA in 2006 to establish in-house servicingDirect Experience Collector to SupervisorPrimary Experience: Default PreventionPart of UHEAAs Default Prevention Team that helped UHEAA reach the #1 cohort default rate in the nationPart of UHEAAs Default Prevention Team that helped UHEAA reach a 1.9% cohort default rate

2U.S. Department of Education Fact Sheet, September 2011

HBCUs have deployed innovative approaches towards default management and reduction. Such strategies include implementation of a default management plan that engages stakeholders, identifies approaches to reducing default rates, and tracks measureable goals. These schools have increased borrower awareness of obligations through incorporating borrower topics at orientation sessions and providing enhanced entrance and exit counseling. Other best practices include borrower tracking, increased contact with delinquent borrowersand partnering with other stakeholders to optimize default prevention, resolution, and reduction.

[Fact Sheet September 12, 2011.]

I will begin with 2 quotes.3NY Times Editorial Columnist, Gail Collins

Dont you think there should be someone in charge of calling [students] once a week and yelling: $800 a month until youre 51 years old?

[New York Times, The Lows of Higher Ed, September 14, 2012 ]

Purpose of these quotes is to introduce the two primary objectives of my presentation. 4Presentation Objective #1Make the case that we have a motivation problem, not an information problem.Presentation Objective #2Present our recommended strategy for preventing delinquent students from becoming defaulted students.

5Keep in mind

CDR calculations based on # not $Compare: 1st-year student with $2,500 in debt vs. a graduating senior with $25,000.Who is most likely to default?Who is most difficult to help?

Lets keep in mind some things which are widely known and generally accepted.6Keep in mind

Highest risk of default: DropoutsMost Critical Risk Indicator: Completion Most Important Success Indicator: Completion

Average debt of 1st year dropouts -- $4,500Monthly payment over 10 years: $52

7Keep in mind

Average debt of college seniors: $25,250*Monthly payment over 10 years: $291

*The Project on Student Debt, www.projectonstudentdebt.org

Keep in mind

The desired action is contact with the servicer

Why?

Only the servicer can solve the problem.

Confusion and the school does not want to become the go-to person for the borrower.9

Consider thisA successful default prevention program must be strong enough to influence the behavior of the most difficult students.

The students most likely to default are the most difficult students to influence.

We have a motivation problem, not an information problem.

If the mere possession of information were somehow persuasive or motivational, we would face no default problems. Sure, it is true there are students somewhere completely ignorant that assistance is available in times of financial distress. Sure, there are students who do not understand that student loans are not like consumer or mortgage loans in that there are many more options if a payment cannot be made. And yes, there are students who do not understand the subtle complexities of Income-Based or Income-Contingent Repayment, loan forgiveness options for public service, and even deferment options for unemployment or in-school enrollment. However, the lack of information is not the problem. Motivation to do something, to find information about options, to ask for assistance, is missing. Thus, in my opinion, we face a problem of motivation, not ignorancenot lack of access to information, but lack of motivation to read and act on what is availablenot lack of simple, cool, attractive, useful, timely, available information, but a lack of even the most base desire to go looking-- we face a problem of motivation. Students do not search for information even if it is placed in their hands. They must be motivated to open the email, to go to the website, to pay attention (and, heaven forbid, take a few notes) during orientations, to listen and then to act. How do we overcome this problem? We must look to classic debtor psychology10Debtor PsychologyTwo Obstacles

Avoidance: I dont want to deal with thisIgnorance: I dont know what to do about this

First Obstacle is much harder to overcome than the second

Discuss my naivet respecting student loans vs. other loans. 11Debtor PsychologyThree Causes of Avoidance:

FearConfrontationNegative treatmentPersonal embarrassment

Debtor PsychologySecond Cause of Avoidance:

ProcrastinationIts only a student loanIts a government loan it will take someone a long time to come after me.What are they going to do, repossess my brain?

Time is the debtors refuge. Time is not our friend because silence is what debtors hope for.13Debtor PsychologyThird Cause of Avoidance:

Feelings of Being Overwhelmed or HelplessI cannot afford the past due amountI have so many other problemsThere is nothing I can do right now

Debtor PsychologyHow do we overcome avoidance?

Borrower Communication that is: Persistent Relentless Sustained

Think NY Times Editorial15Debtor PsychologySecond Obstacle: IgnoranceLack of Information about options & resources.Confusion about who to call.

Some people try to tell me recent problems with default rates are due to the economy. The worst economy since the Great Depression and a collector made $400K? Our agency has seen record low default rates for our schoolsin the midst of the weak economy. The typical assumption is that during a poor economy families struggle with lays-offs and less money to pay more bills. This is true. However, as you all well know, there are more ways a borrower can solve delinquency without money than with money.16Debtor PsychologyHow do we overcome ignorance?Information vs. RecommendationsRecommendations are more important than informationGiving information is not enough.We must tell them what to do and how to do it.Contact your servicerAsk AboutHere are links, resources, contact points

Helicopter Parents. Example of the seat belt warningwe hate it but it gets the point across.17Debtor PsychologyOur Objective:Motivate the borrower to contact the servicer

Helicopter Parents. Example of the seat belt warningwe hate it but it gets the point across.18Our RecommendationsCommunication Strategy: Call CenterEmailsText MessagesWeb ResourcesSkip TracingTargeted MailingsPersistent, relentless and sustained communication of options, resources, and suggestions.

What is it about this stuff that motivates borrowers? It is not the content but rather the persistence that will motivate. Yes, that means many borrowers will act if for no other reason than to stop the relentless communication. I wont use the word harass but in essence that is why this works. Remember the Dept of Ed collector that was making $400K? This works and this is the only thing that worksI am in my 34 year of successfully making this work. Many people will tell you that another very smooth, cutting-edge, and slick presentation of information will cause the aha moment and students will spontaneously get it. No trueanother fancy tool isnt going to make a difference. Every time the phone rings, every time the in-box dings, every time they turn around, a borrower must see the outreached hand of the school, the servicer, or the government. 19Our RecommendationsImplement the Departments PlanEngage Campus-Wide StakeholdersIdentify Your Unique Borrower ProfilesSet & Track GoalsImplement Borrower Awareness ProgramsStrengthen & Enhance OrientationsStrengthen Entrance & Exit CounselingTrack Riskiest BorrowersPartnerships

Why not? We are all in the student success businessa single defaulted student is a terrible thing!20Our RecommendationsCollaborate with Federal ServicersServicers School RepresentativesServicer WebsiteServicer Ombudsman Office

21Our RecommendationsSponsor or Link to Online ResourcesIn-House ResourcesU.S. Department of Education ResourcesCommercial Resources

Prominent on schools website.22Our RecommendationsUse NSLDS ReportsPortfolio ReportsDelinquency ReportsOther Databases

23Our RecommendationsTiming of Borrower CommunicationBegin 90-Days Delinquent - Why?90-Days Delinquent = 4 Payments DueAverage 1st Year Student Owes: $200Average Senior Owes: $1,000Avoidance in full swing

Federal servicers have robust borrower communication campaigns, which are particularly effective in the early stages of delinquency.24Communication Schedule

Communication Schedule

Results How Do You Know?Follow delinquencyThis months 90-day delinquency is next months 120-day delinquency.You want the month-to-month historical trend lines to aim downward.

ResultsDont stop

Questions?