Comprehensive Strategies for Student Loan Default Prevention

1. Session #54 Default Prevention 2008 Mark Walsh Angelita Dozier

2. Topics for today • 2005 Official CDRs • IDCs and eCDR Appeals • Statewide Default Projects • Defaulter Characteristics • Early, in-school, and late stage strategies • Default Prevention Grants

3. Topics for today (Con’t) Guaranty Agencies and Lenders • Regulatory Requirement • Cohort Default Rate Release Dates • 2005 Official Cohort Default Rates – Fast Facts • Data Correction

4. Default Prevention and Management Three team structure: • CDR Operations • CDR Challenges, Adjustments, and Appeals • Default Prevention Outreach

5. National Student Loan Default Rates

6. Issued date Schools Subject to Sanctions 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Number of Schools No Sanctions The school numbers are pre-appeal and include only schools impacted by the three years of 25% or greater sanction. A school can be on extended sanction and is therefore reflected in multiple year counts. Since 1991, 1,161 unique schools were sanctioned under the three years of 25% or greater sanction.

7. National CDR by Sector 2003 2004 2005

8. The highest CDRs • 9.6% Puerto Rico • 7.4% Alaska • 7.2% Nevada • 7.0% Arizona • 6.9% Georgia • 6.9% West Virginia • 6.8% Arkansas • 6.0% Kentucky

9. 2005 Official CDR – Fast Facts • The 4.6% CDR represents a 9.8% decrease from the FY 2004 rate of 5.1% • Borrowers entering repayment increased 24% over FY 2004 • Defaulted borrowers increased 12% over FY 2004

10. Incorrect Data Challenge • Review consists of a careful examination by the school of their LRDR, school, and outside source records • Opportunity for schools to work with data managers (guarantors) to correct errors

11. “New” eCDR Appeal Process e-CDR Appeals, a new vehicle for schools to electronically submit challenges, adjustments, and appeals, will be a single web-based user interface for schools, for ED, and for data managers.

12. What are the benefits? • Eliminates the mailing and tracking of hard copy documents • Minimizes the risk for disclosure of personally identifiable info • Reduces the chances of late or incomplete submissions

13. When is the first release? • February 2008 • Schools may challenge 2006 draft cohort default rates via Incorrect Data Challenges • Features automatic routing to the correct Data Manager

14. When is the second release? • September 2008 • Schools may challenge 2006 official cohort default rates via Uncorrected Data Adjustments and New Data Adjustments

15. Default Prevention Activities • State projects are selected according to: • Cohort Default Rate • Volume of dollars in default • Opportunities available to get our message out

16. Statewide Default Prevention Projects Underway 2005: Nevada and Puerto Rico 2006: Ohio, Michigan, Georgia, Florida, and Arkansas 2007: California and New York

17. 2008 Message • Defaulter characteristics • Student success and retention • Financial literacy • Timely/accurate NSLDS reporting • Managing delinquency & LSDA • Dollars in default • Private Loans

18. Defaulter Characteristics • 89% did not receive their full 6 month grace period due to late enrollment notification (sample) • 54% had bad telephone numbers (actual population) Source: January 2007 Analysis of Federal Direct Loan Portfolio

19. Defaulter Characteristics • 94% were not successfully contacted by phone during the 360-day collection effort leading up to default (sample) • 71% withdrew without completing(actual population) Source: January 2007 Analysis of Federal Direct Loan Portfolio

20. Institutional Strategies to Improve Govt. Student Loan Repayment 03/06 Early Stages of Enrollment • Emphasis on Student Success: • Students often receive up to 3 hours credit for workshops • Orientation sessions and events to integrate students into school is mandatory at some colleges.

21. Late Registration • Has student missed classes? • Does a late start indicate poor or no preparation? • Is this student at an increased risk of default?

22. Late Registration Sun Mon Tue Wed Thu Fri Sat First Day of Classes 22 23 24 25 August 26 27 28 29 30 31 Labor Day 2 3 4 5 6 7 8 4 Sun Mon Tues Wed Thurs Fri Sat September 9 Last Day to Register 11 12 13 14 15 Student Misses 7 Classes

23. Institutional Strategies to Improve Govt. Student Loan Repayment 03/06 In-School & Late Enrollment • Schools utilize system-generated reports from student records systems, weekly or bi-weekly, to identify withdrawals at the earliest stage possible.

24. Distance Learning and Default • FSA does not routinely collect data on default in distance education programs • Anecdotal info = increased risk • What is your experience? • Are there best practices? • How can FSA help? • Opportunities for collaboration?

25. Managing Delinquencies Late Stage Delinquency Assistance • For both DL and FFEL schools • Why can schools be effective? • How does it work? • Compliments guaranty agency late stage efforts

26. Managing Delinquencies • Increased due diligence on high volume borrowers • Pre-repayment counseling • Establish relationship • Verify correct repayment status and check monthly payment • Update all contact information

27. Default Prevention Grants • Encourages schools to engage in default prevention activities • Often resources (staff time, $) are obstacles to default prevention work • Schools are likely to maintain activities beyond the life of the grant program

28. Default Prevention Grants • Schools submit proposals • Can fund position dedicated to default prevention • Conduct analysis of defaulting borrowers • Identify and share best practices identified by schools

29. Financial Partners Services Default Coordination Team • Cohort Default Rates for Guaranty Agencies and Lenders

30. Regulatory Requirement • Under Section 430(e) of the Higher Education Act of 1965, as amended(HEA), the Department of Education is required to publish the cohort default rates of lenders, guaranty agencies and schools participating as a lender in the FFEL Program.

31. Cohort Default Rates Release Dates Rates are released twice a year: DRAFT RATES: • Guaranty Agencies Cohort – mailed in February • Lenders - obtained from NSLDS website at www.nsldsfap.ed.gov

32. Cohort Default Rates Release Dates BENEFITS OF DRAFT RATES: • Guaranty agencies and lenders may review data for accuracy • Identify any anomalies and data conflicts • Opportunity to make necessary data correction prior to calculation of official rates

33. Cohort Default Rates Release Dates (Con’t) OFFICIAL RATES: • Guaranty Agency and Lender rates released in September

34. 2005 Official CDR – Fast Facts • Highest guaranty agency rate was 10.3% (5.0% increase from FY 04 rate) • Lowest guaranty agency rate was 1.5% (same rate as FY 04) • Five guaranty agencies had a 1.0% or greater increase

35. 2005 Official CDR – Fast Facts (Con’t) • Eight guaranty agencies had a 1.0% or greater decrease

36. Data Correction • Any guaranty agency or lender that receives an official cohort default rate is provided the opportunity to correct its most recent official cohort default rate.

37. Data Correction (Con’t) Reason for Requesting a Data Correction?  • Data Conflicts–occurs when a Guaranty Agency is not able to report on a loan because of a data/identifier conflict with another loan already reported to (NSLDS).

38. Data Correction (Con’t) Where to submit Data Corrections? • Guaranty agencies must submit incorrect data request to the Department for corrections. • Lenders must submit incorrect data request to the guaranty agency for corrections.

39. Contact Information We appreciate your feedback and comments. We can be reached at: • Phone:816-268-0412 • Email:mark.walsh@ed.gov • Fax:816-268-0441

40. Contact Information We appreciate your feedback and comments. We can be reached at: • Phone: Default Coordination Team 202-377-3053 • Fax: 202-275-0913