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Federal Policy and Education Debt Management

Federal Policy and Education Debt Management. NYSFAAA Conference – October 28, 2009 State of Industry - New World of Student Lending - Panel Paul C. Combe – President and CEO. A Growing Social Issue. ASA Confidential and Proprietary Information. 2. Trends in Student Debt.

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Federal Policy and Education Debt Management

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  1. Federal Policy and Education Debt Management NYSFAAA Conference – October 28, 2009 State of Industry - New World of Student Lending - Panel Paul C. Combe – President and CEO

  2. A Growing Social Issue ASA Confidential and Proprietary Information 2

  3. Trends in Student Debt • 49% of Bachelor’s Degree recipients had debt in 1992-1993; increased to 65% in 1999-2000 • Choy % Li , 2005 • In 2007-2008 two-thirds of Bachelor's Degree recipients graduated with student loan debt: • Average debt - $23,186 • Cumulative debt is growing at 5.6% per year or $1139 • Of Bachelor’s Degree recipients who applied for federal aid and had AGI less than $25,000, 86.8% had average debt of $24,951 • More Pell Grant recipients graduate with student loans than non recipients Source: Growth In Cumulative Education Debt at College Graduation by Mark Kantrowitz (July, 2009) (FinAid.org) ASA Confidential and Proprietary Information 3

  4. Consequences of Default Ruined Credit Record: Unable to purchase home Unable to obtain car loan Credit scores effect eligibility for apartment / employment Wage garnishment Tax refunds offset No additional financial aid ASA Confidential and Proprietary Information 4

  5. We know how many default • Cohort Default Rate 2007-2009 6.7% • Trigger Rate 2007 2.05% • ED Cumulative Default Rate (10 years) 13% • We don’t know how many borrowers have serious trouble, but don’t default • No federal data collected • ASA’s estimate, based on Trigger Rate Data is that at least 25% and 30% of all borrowers are delinquent more than 90 days each year ASA Confidential and Proprietary Information 5

  6. What are the implications of growing debt for colleges? • Not just about enrollment • Alumni repayment and “brand tail” • Although donations grew by 18% in 2005, “The percentage of alumni making gifts declined” • Kaplan 2007:3 • ASA Study with Miami University of Ohio • “Student Debt and Alumni Giving” (ASA’s report on student debt and alumni giving is available in the “Press Room” at www.amsa.com. Click on “Reports & Studies.”) ASA Confidential and Proprietary Information 6

  7. Giving Effected by Loans Alumni who graduated without any college loans were slightly more than twice as likely to donate (20.9%) than were those who graduated with debt repayment responsibility (9.8% ). (MWU Sample) ASA Confidential and Proprietary Information 7

  8. Total Loan Debt: High vs. Low Debt Graduates with low TOTAL loans (< $20,000) are more likely to contribute to their alma mater (34.0%) than those with higher TOTAL loans (18.2%). (ASA Sample) ASA Confidential and Proprietary Information 8

  9. Monthly Debt Repayment: None vs. High Those without debt responsibility were almost four times more likely to donate money than those with high debt repayment (>$175,000); 23.7% as compared to 6.4%. (MWU Sample) ASA Confidential and Proprietary Information 9

  10. Sense of Debt Burden Students who “felt overburdened” by student loan debt were less likely to contribute than those who did not feel overburdened (2.5% vs. 16%). (MWU Sample) ASA Confidential and Proprietary Information 10

  11. Sense of Debt Hardship Alumni who agreed with the statement “My loan repayments cause me more hardship than I anticipated” were less likely to contribute to their alma mater (4.4% vs. 15.2% contributed). (MWU) ASA Confidential and Proprietary Information 11

  12. Debt Management Service as a Borrower Right • America has chosen debt as the primary method for funding access to higher education • You get what you measure • Access doesn’t end until the loan is repaid • If federal policy helps get them into debt, it is a federal responsibility to provide assistance to help them get out of debt • Education Debt Management = Entitlement ASA Confidential and Proprietary Information 12

  13. What is Education Debt Management? • Effective education debt management is not just due diligence with a prescribed amount of letters and phone calls • Borrower based for all federal loans, source of capital is irrelevant • It’s about using federal college loans as “teachable moments”: • Debt Management is a “contact sport” • Use continuum of intervention / education activity (proactive and reactive) to target, engage, and impact the borrower’s financial wellness • It is proactive and focused on getting the right information to the right borrower at the right time • Moments of Truth • It is individualized and personalized • Uses CRM tools ASA Confidential and Proprietary Information 13

  14. (800) 999-9080 (617) 728-4670 F A X (800) 999-0923 T D D www.amsa.com American Student Assistance® 100 Cambridge Street, Suite 1600 Boston, MA 02114

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