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Reducing Delinquency and Default Prevention

Reducing Delinquency and Default Prevention. Mark C. Walsh Default Prevention Team U.S. Department of Education Federal Student Aid. Topics. Incorrect Data Challenges ED’s Default Prevention Plan Characteristics of Defaulted Borrowers Three Quick Prevention Tips

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Reducing Delinquency and Default Prevention

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  1. Reducing Delinquency and Default Prevention Mark C. Walsh Default Prevention Team U.S. Department of Education Federal Student Aid

  2. Topics • Incorrect Data Challenges • ED’s Default Prevention Plan • Characteristics of Defaulted Borrowers • Three Quick Prevention Tips • Late Stage Delinquency Assistance

  3. Defaults in the Stafford Loan Program • $400 billion in outstanding federal student loans • Nearly 30 million borrowers • 50% + in FFEL and DL consolidation • Average outstanding consolidation balance is $18,240

  4. Beyond the CDR – Dollars in Default • Demands our attention • Equally important as the CDR • Dollars in default continue to grow even as the national cohort default rate has decreased over a period of years

  5. Beyond the CDR – Dollars in Default What is your school’s contribution? You can estimate the approximate dollars in default at your school. $1,000,000 (origination volume) x 5% (estimated school CDR) ___________ $50,000 (approx dollars in default)

  6. Definition of CDR • For schools having 30 or more borrowers entering repayment in a fiscal year, the CDR is the percentage of borrowers entering repayment on certain FFEL and/or DL Program loans during that fiscal year and default within the CDR period. • For schools with 29 or fewer borrowers entering repayment in a fiscal year, the CDR data includes borrowers entering repayment over a three-year period.

  7. CDR – Included Loans • Federal Family Education Loan Program • Subsidized Stafford Loan • Unsubsidized Stafford Loan • Supplemental Loans for Students Loan • William D. Ford Federal Direct Loan Program • Subsidized Stafford Loan • Unsubsidized Stafford Loan

  8. FY 2004 10/1/03 – 9/30/05 10/1/03 – 9/30/04 (N) (D) CDR Guide – Page 2.1-6 Cohort Default Rate Periods

  9. N X 100% = CDR D CDR Review FFEL & DL Loan data for CDR calculation stored in NSLDS FormulaFor FY 2004 N Default during 2 year period 10/1/2003 – 9/30/2005 D Enter repayment during 1 year period 10/1/2003 – 9/30/2004 Guide—page 2.1-6

  10. CDR – Denominator in the Formula • Determine Date Entered Repayment (DER) • Date of graduation, withdrawal, or less than half-time status • plus 181 days (6 months + 1 day) = DER • Using the DER, determine the correct cohort year in which the student will be counted

  11. CDR – Numerator in the Formula • Loan must be included in denominator • Determine default date (361 day of delinquency or Claim Paid Date [CPD]) • Determine if default date falls within cohort period

  12. Quick CDR Review Calculated 2 times/year Draft CDR February (FY 04 = 1/7/06, 2/13/06) Calculated/released Official CDR September (FY 04 = 7/29/06, 9/11/06) Calculated/released • Not public • No sanctions • No benefits • Public • Sanctions • Benefits

  13. CDR – Applying the Formula • Non-Average Rate • 30 or more borrowers in repayment • Average Rate • less than 30 borrowers in repayment • 3 years of data

  14. Example: Using the Non-Average Rate Formula Calculation: For a school with30 or more borrowersentering repayment in a fiscal year 5 (N) X 100 = 2.2% 225 (D)

  15. Example: Using the Average Rate Formula Calculation: For a school withless than 30 borrowersentering repayment in a fiscal year 5 3 + 1 + 1 (N) = X 100 = 10.6% (D) 20 + 17 + 10 47 FY04 FY03 FY02 The sum of the three most recent cohort periods

  16. Sanctions Associated with High CDR • 3 most recent official CDRs 25.0% or greater (e.g. FY 2004, 2003, 2002) • Loss of eligibility to participate in FFEL, Direct Loan, and Pell Grant Programs • Current year official CDR is greater than 40.0% • Loss of eligibility to participate in FFEL and Direct Loan programs

  17. Incorrect Data Challenge An incorrect data challenge is the process by which a school challenges any errors contained in its draft cohort default rate data.

  18. Incorrect Data Challenge • Eligibility • All schools are eligible to challenge • Time frames • The challenge must be postmarked within 45 calendar days of receiving the most recent draft CDR. (For FY 04, challenge timeframe ends on 4/7/06.)

  19. Incorrect Data Challenge • Borrower incorrectly reported • Borrower incorrectly included • Borrower incorrectly excluded

  20. Complete Incorrect Data Challenge • Send to each data manager • Letter • Spreadsheet • Page(s) of LRDR • Supporting documentation

  21. There are specific requirements for the letter format and content. Sample Letter

  22. 1. Borrower’s SSN 2. Borrower’s Name 3. Number and type of loans 4. Earlier of LTH or LDA 5. Date entered repayment 6. CPD, DD or N/A 7. FY(s) appl. 8. Effect on CDR calc. 9. Comments 222-22-2222 David Smith 1 SF and 1 SU 11/12/2000 5/12/2001 4/10/2003 FY 2002 FY 2001 -B +D Borrower was incorrectly included and should be removed from the B of the FY 2002 calculation and added to the D of the FY 2001 calculation. Sample Spreadsheet FY 2004 Incorrect Data Challenge Electrical Training Institute OPE ID# 11111 Guarantor/servicer code: 111 Number of borrowers: 1 Number of loans: 2

  23. Loan Record Detail Report (LRDR) 1 U.S. DEPARTMENT OF EDUCATION CALCULATION DATE: 07/31/2004 NATIONAL STUDENT LOAN DATA SYSTEM (NSLDS) PAGE NO: 1 COHORT YEAR 2002 OFFICIAL LOAN RECORD DETAIL REPORT (SCHOOL) 0 Attention: ALEXANDER PEACHUM Organization ID Number: 99999900 Name: GRAPHIC TECHNOLOGY Address: 9765 ARTS LANE City: CORAL CITY State: IOWA Sort Selection: SSN Country: Postal Code: 12345-6543 Program Type: FFEL/DL Years: 1 ---------------------------------------- STUDENT ----------------------------------------- Original -------- CLASS ------ Academic SSN Last name First/M.I. D.O.B School Begin Date End Date Level ----------- ----------------------------------- ------------- ---------- -------- ---------- --------- -------- 0 - LENDER/SVCR/HOLDER - -- Loan - Claim Rsn/ DEFAULT/ Guarantor/ Guaranty Enrollment Stat/ Usage Originating Current Type Stat Code NegAm Date Repay Date Amount Servicer Loan/Date Code Date 1 2 ----------- --------- ---- ---- ---------- ----------- ---------- ------ --------- ---------- ---------------- ----- 0001-01-0001 CHARM JIM K 06/07/1949 99999900 01/18/2000 05/11/2000 1 8888888888 9999999999 SU RP 00/00/0000 06/12/2002 $ 2,000 666 04/24/2000 G 12/13/2001 D FD 0001-01-0001 CHARM JIM K 06/07/1949 99999900 08/21/2000 05/10/2001 2 8888888888 9999999999 SU RP 00/00/0000 06/12/2002 $ 783 666 10/12/2000 G 12/13/2001 E E 0001-01-0002 NOON SUN M 06/07/1949 99999900 08/21/2000 05/10/2001 2 8888888888 9999999999 SF DF DF 11/22/2002 06/12/2002 $ 2,834 666 10/12/2000 G 12/13/2001 B FB 0001-01-0002 NOON SUN M 06/07/1949 99999900 08/20/2001 12/13/2001 2 8888888888 9999999999 SF DF DF 11/22/2002 06/12/2002 $ 1,471 666 08/24/2001 G 12/13/2001 E E 0002-00-0003 TREAT DENZEL A 06/19/1981 99999900 08/23/1999 05/11/2000 1 8888888888 9999999999 SF FB 00/00/0000 11/07/2001 $ 2,625 666 02/08/2000 G 12/13/2001 D FD 0002-00-0003 TREAT DENZEL A 06/19/1981 99999900 08/21/2000 05/10/2001 2 8888888888 9999999999 SF FB 00/00/0000 11/07/2001 $ 3,500 666 01/30/2001 G 12/13/2001 E E 0003-00-0004 XU MARK R 02/28/1969 99999900 01/16/2001 05/10/2001 1 8888888888 9999999999 SF DA 00/00/0000 02/17/2002 $ 1,313 666 02/05/2001 W 12/12/2002 D FD 0003-00-0004 XU MARK R 02/28/1969 99999900 01/16/2001 05/10/2001 1 8888888888 9999999999 SU DA 00/00/0000 02/17/2002 $ 1,021 666 02/05/2001 W 12/12/2002 E E -Default Rate Usage 1: D = Denominator, B = Numerator/Denominator, N = Not Used, E = Eligible but not counted Default Rate Usage 2: FD = FFEL Denominator, FB=FFEL Numerator/Denominator, DD = Direct Denominator,DB=Direct Numerator/Denominator, IC = ICR (Negative Amortization Only), N = Not Used, E = Eligible but not counted INFORMATION PROTECTED BY THE PRIVACY ACT OF 1974 AS AMENDED School Information OPEID Number Line 1 Line 2 Line 1 Line 2 Abbreviations

  24. Loan Record Detail Report (LRDR) 1 U.S. DEPARTMENT OF EDUCATION CALCULATION DATE: 07/31/2004 NATIONAL STUDENT LOAN DATA SYSTEM (NSLDS) PAGE NO: 1 COHORT YEAR 2002 OFFICIAL LOAN RECORD DETAIL REPORT (SCHOOL) 0 Attention: ALEXANDER PEACHUM Organization ID Number: 99999900 Name: GRAPHIC TECHNOLOGY Address: 9765 ARTS LANE City: CORAL CITY State: IOWA Sort Selection: SSN Country: Postal Code: 12345-6543 Program Type: FFEL/DL Years: 1 ---------------------------------------- STUDENT ----------------------------------------- Original -------- CLASS ------ Academic SSN Last name First/M.I. D.O.B School Begin Date End Date Level ----------- ----------------------------------- ------------- ---------- -------- ---------- --------- -------- 0 - LENDER/SVCR/HOLDER - -- Loan - Claim Rsn/ DEFAULT/ Guarantor/ Guaranty Enrollment Stat/ Usage Originating Current Type Stat Code NegAm Date Repay Date Amount Servicer Loan/Date Code Date 1 2 ----------- --------- ---- ---- ---------- ----------- ---------- ------ --------- ---------- ---------------- ----- 0001-01-0001 CHARM JIM K 06/07/1949 99999900 01/18/2000 05/11/2000 1 8888888888 9999999999 SU RP 00/00/0000 06/12/2002 $ 2,000 666 04/24/2000 G 12/13/2001 D FD 0001-01-0001 CHARM JIM K 06/07/1949 99999900 08/21/2000 05/10/2001 2 8888888888 9999999999 SU RP 00/00/0000 06/12/2002 $ 783 666 10/12/2000 G 12/13/2001 B FB 0001-01-0002 NOON SUN M 06/07/1949 99999900 08/21/2000 05/10/2001 2 8888888888 9999999999 SF DF DF 11/22/2002 06/12/2002 $ 2,834 666 10/12/2000 G 12/13/2001 E E 0001-01-0002 NOON SUN M 06/07/1949 99999900 08/20/2001 12/13/2001 2 8888888888 9999999999 SF DF DF 11/22/2002 06/12/2002 $ 1,471 666 08/24/2001 G 12/13/2001 E E 0002-00-0003 TREAT DENZEL A 06/19/1981 99999900 08/23/1999 05/11/2000 1 8888888888 9999999999 SF FB 00/00/0000 11/07/2001 $ 2,625 666 02/08/2000 G 12/13/2001 D FD 0002-00-0003 TREAT DENZEL A 06/19/1981 99999900 08/21/2000 05/10/2001 2 8888888888 9999999999 SF FB 00/00/0000 11/07/2001 $ 3,500 666 01/30/2001 G 12/13/2001 E E 0003-00-0004 XU MARK R 02/28/1969 99999900 01/16/2001 05/10/2001 1 8888888888 9999999999 SF DA 00/00/0000 02/17/2002 $ 1,313 666 02/05/2001 W 12/12/2002 D FD 0003-00-0004 XU MARK R 02/28/1969 99999900 01/16/2001 05/10/2001 1 8888888888 9999999999 SU DA 00/00/0000 02/17/2002 $ 1,021 666 02/05/2001 W 12/12/2002 E E -Default Rate Usage 1: D = Denominator, B = Numerator/Denominator, N = Not Used, E = Eligible but not counted Default Rate Usage 2: FD = FFEL Denominator, FB=FFEL Numerator/Denominator, DD = Direct Denominator,DB=Direct Numerator/Denominator, IC = ICR (Negative Amortization Only), N = Not Used, E = Eligible but not counted INFORMATION PROTECTED BY THE PRIVACY ACT OF 1974 AS AMENDED C D E H A B F G CDR Guide – Chapter 2.3

  25. Loan Record Detail Report (LRDR) U V N S T O P I J 1 U.S. DEPARTMENT OF EDUCATION CALCULATION DATE: 07/31/2004 NATIONAL STUDENT LOAN DATA SYSTEM (NSLDS) PAGE NO: 35 OPEID: 99999900 COHORT YEAR 2002 OFFICIAL LOAN RECORD DETAIL REPORT (SCHOOL) ----------------------------------------- STUDENT ----------------------------------------- Original -------- CLASS ------ Academic SSN Last name First/M.I. D.O.B School Begin Date End Date Level ----------- ----------------------------------- ------------- ---------- -------- ---------- --------- -------- 0 - LENDER/SVCR/HOLDER - -- Loan - Claim Rsn/ DEFAULT/ Guarantor/ Guaranty Enrollment Stat/ Usage Originating Current Type Stat Code NegAm Date Repay Date Amount Servicer Loan/Date Code Date 1 2 ----------- --------- ---- ---- ---------- ----------- ---------- ------ --------- ---------- ---------------- ----- 0003-00-0005 YOUTH JAZZ D 11/28/1975 9999900 08/21/1995 05/10/1996 2 0101 0101 D2 DA 00/00/0000 12/17/2001 $ 2,172 0101 12/21/1995 G 05/31/1996 E E 0003-00-0006 WISHING STAR B 11/17/1980 99999900 08/23/1999 05/11/2000 1 8888888888 9999999999 SF DF DF 08/31/2003 02/21/2002 $ 1,330 666 02/02/2000 W 05/10/2001 B FB 0003-00-0006 WISHING STAR B 11/17/1980 99999900 08/21/2000 05/10/2001 1 8888888888 9999999999 SF RP 00/00/0000 02/21/2002 $ 1,514 666 09/21/2000 W 05/10/2001 E E FFEL DIRECT DUAL ------------- ------------- ------------- TOTAL DOLLARS IN DEFAULT : 20,360 14,895 35,255 (Based on Outstanding Principle Balance) TOTAL DOLLARS IN REPAYMENT : 345,943 52,014 397,957 (Based on Outstanding Principle Balance) TOTAL INSURANCE CLAIM PAYMENTS: 0 ************* = Not Available -Actual Numerator Count : 20 Report Count : 20(B Usage 1 Codes only) Actual Denominator Count: 147 Actual Default Rate: 13.6 Report Count : 147(D & B Usage 1 Codes) INDIVIDUAL PROGRAM TALLY: FFEL: 15/135 DIRECT: 5/19 Appealed Rate flag: N (D=Direct, I=Indirect, N=No Appeal, U=Unknown) IC: 0 (Negative Amortization Only) 0 End of Loan Record Detail Report Report Generation Date: 09/30/04 -Default Rate Usage 1: D = Denominator, B = Numerator/Denominator, N = Not Used, E = Eligible but not counted Default Rate Usage 2: FD = FFEL Denominator, FB=FFEL Numerator/Denominator, DD = Direct Denominator,DB=Direct Numerator/Denominator, N = Not Used, E = Eligible but not counted M K L Q R CDR Guide – Chapter 2.3

  26. Certified by School Status Status First Started Term Begin Term End Anticipated Graduation Date School Code School Name 01/15/2001 W 11/12/2000 09/04/2000 12/19/2000 111111-00 Electrical Training Institute Supporting Documentation David Smith SSN: 222-22-2222

  27. Incorrect Data Challenge Review and analyze the data shown on the LRDR against the school’s records Identify inaccurate data and provide supporting documentation and relevant LRDR Receive draft LRDR Prepare a spreadsheet and cover letter for each data manager where inaccuracies occur • Send the incorrect data challenge(s)to each data manager where inaccuracies occur • Send within 45 calendar days of receiving the draft CDR data Data manager responds within 30 calendar days

  28. Defaulter Characteristics • 84% did not receive the full 6 month grace period due to late enrollment notification • 71% withdrew without completing studies • 56% had bad telephone numbers • 83% were not successfully contacted by telephone during the 360 day collection effort Represents Direct Loan Portfolio Only

  29. Defaulter Characteristics 84% did not receive the full 6 month grace period This statistic is directly related to untimely and/or inaccurate enrollment reporting

  30. Withdrawals 71%withdrew without completing their studies • These students are at extremely high risk for default • Early identification is a key • Retention effort

  31. Defaulter Characteristics • 56% had bad telephone numbers • 83%were not successfully contacted by telephone during the 360 day collection effort

  32. Default Prevention and Management Plan • The new sample plan includes activities that: • Promote student, school, and loan program success • Are easy to implement and do not require much in the way of resources • DCL GEN-05-14

  33. Default Prevention and Management Plan Section I. Overview • Increase retention • Reduce borrower defaults • Promote school success

  34. Default Prevention and Management Plan Section II. Early Stages of Enrollment • Entrance Counseling • Financial Literacy for Borrowers • Early Identification of At-Risk Borrowers • Communication Across Campus • Default Prevention/Retention Staff

  35. Default Prevention and Management Plan Section III. Late Stages of Enrollment • Exit counseling • Withdrawals • Timely and accurate enrollment reporting

  36. Default Prevention and Management Plan Section IV. After students leave school • Early Stage Delinquency Assistance (ESDA) • Late Stage Delinquency Assistance (LSDA) • Maintain Contact with Former Students • Analyze Defaulted Loan Data to Identify Defaulter Characteristics

  37. Default Prevention and Management Plan Section V. Enhanced Entrance/Exit Counseling • Requests for borrower information • Information about repaying the loan • Reminders about personal financial management and Title IV loans

  38. Default Prevention and Management Plan Section VI. Tools and activities for schools • Assessments for default prevention and management • General connections/publications Loan counseling • Enrollment reporting and data accuracy • Default prevention

  39. Three Quick Prevention Tools • Loan Record Detail Report • NSLDS Reports • Late Stage Delinquency Assistance

  40. NSLDS Reports • Date Entered Repayment Report • School Repayment Info Loan Detail • School Cohort Default Rate History • Enrollment Reporting Summary

  41. Late Stage Delinquency Assistance (LSDA) • Identify borrowers who did not respond to Lender, GA or DL Servicer loan counseling • Contact and support student to take constructive action: they will listen to you.

  42. Borrower Delinquency Pattern 35% Stafford Borrower Delinquency Pattern 30% 12 month average 25% Percentage of Total Delinquency 20% 15% 10% 5% 0% 31-60 61-90 91-120 121-150 151-180 181-210 211-240 241-270 271-300 301-330 331-360 Days Past Due

  43. Why does LSDA Work? • Schools feel it is the right thing to do • It is achievable • Students typically respond well to schools • It doesn't take a lot of resources • The results are dramatic!

  44. Contact Information Default Prevention and Management Main: 202-377-4258 Hotline: 202-377-4259 Email: fsa.schools.default.management@ed.gov Web: ifap.ed.gov/DefaultManagement/DefaultManagement.html

  45. Federal Student Aid’s Default Prevention Team Mark Walsh Eileen Marcy 816-268-0412 215-656-3249 mark.walsh@ed.goveileen.marcy@ed.gov Craig Rorie John Pierson 215-656-5916 404-562-6269 craig.rorie@ed.govjohn.pierson@ed.gov Let us know how we can help you!

  46. Questions? Thank you!

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