Four-year School Default Prevention Building on Your Current Strategies OASFAA Spring Conference 2008

1. Four-year School Default PreventionBuilding on Your Current StrategiesOASFAA Spring Conference2008 John PiersonTasha McDaniel FSA Default Prevention Great Lakes Higher U.S. Department of Education Guaranty Education Federal Student Aid Corporation Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

2. Non-Traditional Methods • Project recap • How we got here • Data • Changing landscape • Traditional vs. non-traditional methods • Next steps / goals Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

3. Ohio Project: Part of an FSA National Initiative • FY 05: Nevada and Puerto Rico • FY 06: Ohio, Michigan, Georgia, Florida, Arkansas • FY 07: Career School Industry, California, New York • FY 08 Accrediting Organizations Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

4. FY 2005 Calculation Special circumstances impact FY 2005 calculation Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

5. Official Cohort Default Rates

6. Composition of Cohort Default Rate

7. National Borrowers in Default • 115,568 2004 144,128 (+24.7%) 2005 161,951 (+12.3%) 2006 Continuing a trend? Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

8. National Dollars in Default 2003 $647.7m 2004 $801m (+23.6%) 2005 $915m (+14.2%) 2006 Continuing a trend? Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

9. Ohio CDRAccounting for ’05 Anomalies… FY 2003 FY 2004 FY 2005 FY 2006 Draft 4.8% 4.7% 4.4% 4.6%** **Draft data estimated only Official ## may change…. Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

10. Ohio Dollars in DefaultThis Trend is Not Your Friend… FY 2003 FY 2004 FY 2005 FY 2006 Draft 31.7m 32.1m 33.9m 46m** % Change +1.2%+5.6%+35.6%**(#9) **Draft data estimated only Official ## will likely decrease…. Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

11. Ohio Defaulting BorrowersNor This Trend… FY 2003 FY 2004 FY 2005 FY 2006 Draft 5771 5982 6617 7700** % Change +3.6% +10.6% +16.4%** (#8) **Draft data estimated only Official ## will likely decrease…. Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

12. A Changing Climate: Inconvenient Truths • Educational costs: rising (costs to borrowers) • Dollars entering default: rising (costs to FSA et al.) • Borrowers entering default: rising (costs to FSA et al.) • Total indebtedness: rising (costs to borrowers) • Combined Stafford and Private loans • Sub-prime time again? • Impact on institutions and students Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

13. Two Broad Approaches to Successful Default Prevention • Traditional • Financial aid solutions • Support borrower relationship to loan • Non-traditional • Student success solution • Support borrower relationship to education…most defaulters do not complete academic program • Increase student success • Increase retention / graduation rates • Decrease time for program completion Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

14. Traditional Methods • Assistance throughout delinquency period • Late Stage Delinquency Assistance • Default Prevention Plan • Default Prevention Activity Log Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

15. Unlimited TimeUnlimitedResources Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

16. Why Late Stage Delinquency Assistance Makes Sense • Lenders have due diligence requirements when a borrower becomes delinquent

17. Why Late Stage Delinquency Assistance Makes Sense • Guarantors also perform default aversion activities • Most delinquencies are resolved before the borrower becomes 240 days late • Biggest bang for your buck • The smallest segment of borrowers are more than 300 days delinquent therefore the most manageable • Something new is needed Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

18. Delinquent Borrower Characteristics • Most borrowers in the late stage of delinquency have never talked to their lender, guarantor or servicer • Many are also avoiding other creditors • They can be difficult to find • Utilize other offices on campus to obtain current addresses and phone numbers • 50 - 60% of defaulters were in phone skip tracing Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

19. What Resources Are Needed • An updated listing of delinquent borrowers • Late Stage Delinquency Reports • School-based contact information • Training for staff on how to work with delinquent borrowers Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

20. Late Stage Activities • Letters • Emails • Phone calls Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

21. When Sending Letters… • Provide contact information of school and/or guarantor/servicer • Create urgency • Describe the consequences of default in plain language • Include information on repayment options, deferments, and forbearance • Sign letters by hand Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

22. Get the Borrower’s Attention • Goal is to get the borrower to open your letter • Hand-addressed envelopes • School’s letterhead • Non-business size envelopes • Colored envelopes or paper • Postcards can also be effective • Ask for call back; don’t mention loan Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

23. When Sending Emails… • Utilize school email addresses • Attach deferment or forbearance forms requested by the borrower • Forward any email responses or completed forms to the guarantor and/or direct loan servicer Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

24. Phone Calls Can Be Most Effective • Utilize a phone call script • Explain that you are calling to help • Make it plain • WIIFM • Present possible solutions Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

25. Phone Calls Can Be Most Effective • Initiate a three-way phone call • Hand-off calls to the guarantor or direct loan servicer • Make calls when borrowers are most likely to be home • Utilize calling cards to make calls from home during the evenings • When leaving a message do not mention “loan” or “delinquency” Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

26. Default Prevention Plan • Long-term strategy to address issue of loan default • Identifies objectives, steps, and measurements used • Pulls people and resources together towards a common goal Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

27. Why Create a Default Prevention Plan • Shows you’re doing the right thing for your students • Details practices, resources and measurements • Identifies initiatives to prevent over-borrowing • Helps to manage your cohort default rate • Allows you to justify additional resources Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

28. Steps To Create a Plan • Establish a Default Prevention Team • Study your student population • Review current initiatives, tools and resources • Review all borrower education materials • Track servicer and lender performance • Seek assistance from partners Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

29. What’s in a Plan

30. What’s in a Plan • 5 Elements of a plan (DCL GEN-05-14) • Early stages of enrollment • Late stages of enrollment • After students leave school • Enhanced entrance and exit counseling • Tools and activities for schools Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

31. Default Prevention Activity Log • Track your default prevention activities Source: Great Lakes Higher Education Guaranty Corporation

32. Default Prevention Activity Log • Items to track include: • Creation and execution of a Default Prevention Plan • Financial literacy materials provided to students • Late stage delinquency assistance activities • Steps taken to monitor and manage your institution’s Cohort Default Rate Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

33. Non-Traditional Methods • Student success solutions • Financial literacy • Defaulter data analysis Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

34. Financial Literacy • Correlation between increased financial literacy and decreased defaults • DCL GEN 05-14 lists financial literacy as one of the nine key elements to include in a default prevention and management plan • 14% of students who left college without completing a degree cited financial reasons studies* • Of the borrowers who defaulted, 71% withdrew from school before completing their education Team Energy Advances Me * National Center for Education Statistics TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

35. Financial Literacy • Five step process to financial literacy programming • Identifying objectives • Developing your program • Promoting your program • Implementing your program • Evaluating outcomes Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

36. Defaulter Data Analysis • Focusing on student success • Defaulter data analysis • What steps do you take? • Who needs to be involved? • Good students make good borrowers Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

37. Defaulter Data Analysis • An analysis of your defaulters used to identify factors that cause default in your student population • Obtain a Loan Record Detail Report (LRDR) • Query your internal system to obtain demographic data • Seek assistance from your lenders, guarantor, servicer or FSA Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

38. School Update • What steps are you taking? • Traditional methods • Non-traditional methods • What are your next steps / goals? Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME

39. Thank You! John PiersonTasha McDaniel John.pierson@ed.gov tmcdaniel@glhec.org Team Energy Advances Me TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME TEAM ENERGY ADVANCES ME