Developing Effective Mandatory and Voluntary Default Management Plans

1. Session 12 Developing Effective Mandatory and Voluntary Default Management Plans Fall Conference| Nov. 2012 David Hammond and Cynthia Battle U.S. Department of Education Angela K. Johnson Cuyahoga Community College

2. Part 1: Developing a Default Prevention Team Part 2: Identifying Default Risk Part 3: Default Prevention Plans Part 4: Resources – FSA and Federal Servicers Part 5: A Case Study Cuyahoga Community College In This Session

3. Loan default increasing for most schools Educational costs continue to rise More students borrowing more money The combination of Stafford and private loans equal greater debt Changes to CDR calculation accompanied by new sanctions and an enhanced benefit The Changing Landscape

4. Expands the default tracking window from 2 years to 3 years Creates a transition period (FY09/10/11) Raises penalty threshold from 25% to 30% New set of requirements for FY09, FY10... Possible compliance issue beginning in September 2014 (FY 2011 CDR) Increases availability of “disbursement relief” from 10% to 15% (effective 10/01/11) The 3-Year CDR Calculation

5. Mandatory Plans - 34 CFR 668.217 • New cohort default rate regulation requires that schools which achieve a cohort default rate equal to or greater than 30% must develop a default prevention plan. • Requires identifying at-risk borrowers

6. First year at 30% or more Default prevention plan and task force Submit plan to FSA for review Secondconsecutive year at 30% or more Review/revise default prevention plan Submit revised plan to FSA FSA may require additional steps to promote student loan repayment Third consecutive year at 30% or more Loss of eligibility: Pell, ACG/SMART, FFEL/DL School has appeal rights 3-Year CDR Corrective Actions

7. Default Management • Submit Plan • FSA’s Default Prevention Team to assist schools with: • Establishing their default prevention goals • Developing, refining and reviewing your default prevention plan. • Define and Identify Risk • Determine who is defaulting and why • Analyze data • Organize a Default Prevention Task Force • Assess resources for team • Identify members • Set Purpose • Detail Responsibility • Set Objectives: • Establish Objectives • Identify steps needed to achieve goal • Outline Actions • Specify actions needed to achieve your goal • Ensure actions are measureable

8. The Default Prevention Task Force will drive your default prevention process: Assess the resources you have available Team participants SHOULD be across campus Identify the purpose of the task force Detail responsibilities of determining risk Organize a Default Prevention Task Force

9. A group of specialists who will ultimately conduct data analysis to determine the reasons for default at your school and formulate a set of intervention strategies Select a leader for the group (Best if not FAD); Separate Default Coordinator is recommended Use your current resources to create effective, customized default prevention programs that compliment existing efforts Default Prevention Task Force

10. Study your student population. Identify any common characteristics of your defaulters and non-defaults, and borrowers and non-borrowers Build on Early Intervention strategies already in existence Discuss your current strategies and determine what works and what may need some improvement Activities for the Team

11. Work closely with your servicers and lenders Find out what type of services are available from your servicers/lenders Fine-tune your Loan Servicing procedures for the period while the borrower is at your school Have clear and precise procedures with a timeline of dates to take appropriate actions Activities for the Team (cont.)

12. Fine-tune your servicing efforts during the grace period and repayment Have clear and precise procedures with a timeline of dates to take appropriate actions Review all of your borrower education materials Make sure all of your materials are current and up-to-date. Look for new materials to incorporate into your training Activities for the Team (cont.)

13. Review your results and make the necessary enhancements Always look for ways to improve whatever you are doing. Use evaluations or surveys to get input from the students and staff Create a default prevention plan! Activities for the Team (cont.)

14. Identifying Default Risk Part 2

15. After establishing a default prevention team: Step 1 - Conduct analysis to identify the sources of default risk Step 2 - Create measureable interventions/steps Step 3 - Describe consequent actions to be taken to reduce default (the written plan) Step 4 - Review and revise as necessary Understand Who is Defaulting… and Why

16. The job of your Default Prevention team: determine the source of your default risk; determine what steps your school will take to reduce default risk; represent all parts of the institution (including management), which will contribute to risk reduction activities; allocate school resources to default reduction activities; assess the effectiveness of default reduction activities over time: are they working? Steps to Identify Default Risk

17. Conduct Risk Analysis First! Understanding who is defaulting, and why Increase effectiveness of DP efforts Reduce wasted time/resources Aiming at the right targets You will need data Similar to studies necessary to understand/improve retention/graduation Review combines NSLDS, servicer (default and delinquency) data, and school data about defaulters and non-defaulters Steps to Identify Default Risk

18. Conduct Risk Analysis First Use data to create a picture of borrowers at-risk of default ‘Who’ is not enough ‘Why’ will require input of academic, student affairs, and other professionals Knowing ‘why’ is necessary to create targeted, useful and measureable interventions Steps to Identify Default Risk

19. Risk Analysis Results for Average School Poor… Educational Outcomes Employment Outcomes Repayment Outcomes Reducing Default RiskInterventions

20. Examples: “Who” • Excessive Debt • Academic Preparedness • Academic Probation • No Job in Profession • Certain Majors • Attendance Issues • Student Employment • Late Majors • Never Contacted • Developmental Studies • Late Admits • Early Withdrawal • Gradated/Not Pass License Exam • No Exit Counseling Your ‘who’ will be unique

21. Examples: “Why” • Poor study habits • Basic skill deficits • Language barriers • Feel unwelcome, no • “campus connection” • First generation: No role models or family support • Transition difficulties • Finances/Need • Relationship Issues • Physical & mental health challenges • Dependent-care • Transportation • Housing Understanding ‘why’ is necessary

22. Developing a Default Prevention Plan Part 3

23. Things to Consider When Creating Your Plan Analyzing Default Loan Data to Identify Default Characteristics Early Stages of Enrollment Entrance Counseling Financial Literacy for Borrowers Developing the Plan

24. Things to Consider When Creating Your Plan Early Identification and Counseling for Students at Risk Communication across the Campus Default Prevention and Retention Staff Late Stages of Enrollment Developing the Plan (cont.)

25. Things to Consider When Creating Your Plan Exit Counseling Withdrawals from School Timely and Accurate Enrollment Reporting After Student Leaves School Developing the Plan (cont.)

26. Developing the Plan (cont.) Things to Consider When Creating Your Plan • Early Stage Delinquency Intervention • Late Stage Delinquency Intervention • Enhanced Entrance and Exit Counseling

27. Default Prevention Team translates ‘who’ and ‘why’ into core strategies to reduce default risk Improve Repayment Outcomes Improve Educational and Employment Outcomes Reducing Default RiskInterventions

28. Improve Repayment Outcomes Examples of tactics: Enhanced Entrance and Exit Counseling Financial Literacy Education Collect More Useful Contact Information Early Stage (Repayment) Assistance Late Stage (Repayment) Assistance Reducing Default RiskInterventions

29. Plans we have reviewed recently Reducing Default RiskDP Plans

30. Improve educational/employment outcomes Examples of tactics: Increase student success ‘Crisis’ response, program completion Reduce Program Completion Time Strengthen Relationship with Potential Employers Reducing Default RiskInterventions

31. Core efforts should be targeted at ‘who’ and ‘why’ Your efforts may or may not utilize ‘best practices’. They may be unique to your particular problems Add general best practices only after you have established targeted activities Reducing Default Risk Developing a DP Plan

32. In school, In grace, In repayment When: How to Intervene Driven by Data Key to effectiveness of your plan - Understanding how to utilize these opportunities Reducing Default Risk Targeted Efforts: When?

33. Use ‘leverage points’ to gain active borrower participation: Admissions Entrance and Exit Counseling Probation/SAP Registration What ‘leverage points’ do you have? Reducing Default RiskTargeted Efforts: When

34. Passive: No action required… Loan Counseling Financial Literacy Video Active: Borrower must do something which addresses identified risk: Test re: R&R - results show ‘mastery’ Periodic update of contact information Establish online account w/servicer Reducing Default RiskActive vs. Passive Interventions

35. Analysis of Default Risk Tracking and Projections Additional Loan Counseling Existing Student Success Efforts for At-Risk Borrowers Collect/Refresh Detailed Contact Information Establish Online Servicer Accounts Examples: DP Best Practices

36. Early Stage Delinquency Assistance Late Stage Delinquency Assistance Promoting Loan Rehab for Defaulters Financial Literacy Training Leveraging Loan Servicer Products and Services Review Policies/Procedures Working with Employers Examples: DP Best Practices

37. Analyzing for default risk is THE best practice! Do the leg-work first! Let your data lead the way. That’s the surest way to end up with an effective default prevention plan. Failing to take the time to understand who is defaulting, and why, may be fatal.

38. Resources – FSA and Federal Servicers Part 4 We are here to HELP!

39. Goals of our Default Prevention Team • Our Default Prevention Team was established to • assist schools with: • Establishing their default prevention goals • Assessing the resources schools have available in order to establish their Default Prevention team • Understanding default risk through the use of servicer and NSLDS available reports and tools • Developing/refining your default prevention plan

40. Need Assistance? If schools need assistance in developing or reviewing their default prevention plan, please send a request to the following e-mail address:  defaultpreventionassistance@ed.gov Contact Us!

41. Federal Loan Servicers • Provide outbound targeted calling campaigns along with inbound call center representatives to help borrowers become current • Utilize electronic communication methods, such as e-mail, to keep borrowers informed about account status • Work with schools to obtain current available contact information - Utilize a variety of tools to get the most current data to contact borrowers (skip tracing on delinquent accounts) • Work in partnership with the school community to assist borrowers in the later states of delinquency

42. Partnering with Schools: All servicers work to gather feedback and find ways to partner with schools on default Prevention • Face to face meeting on school campuses • Financial aid conference attendance • Presentations at conferences • Proactive phone calls • E-mail communication Partner with the servicers!

43. Schools must learn when a borrower leaves campus to promptly report to NSLDS Of the borrowers who defaulted, most did not receive their full 6-month grace period due to late or inaccurate enrollment notification by the school. Reminder: Protect the Grace Period

44. NSLDS: Includes Guaranty Agency (GA) or Lender held FFEL, PUT (ED-held FFEL), Direct Loans, and servicer assignments Leverage NSLDS Reports for Default/Delinquency Prevention: School Portfolio Report Delinquent Borrower Report Reporting Resources:Centralized Loan Information

45. Provide greater level of detail Offer customization options Include only loans serviced by that organization Reporting Resources:Individual Servicer Reports

46. Part 5Cuyahoga Community CollegeA Case Study… …illustrating the importance of understanding who is defaulting, and why, and how to apply this knowledge to reduce default risk.

47. Cuyahoga Community CollegeCleveland, Ohio Angela K. Johnson Executive Director Enrollment Operations

48. Cuyahoga Community College Facts • Largest community college in the state of Ohio • Serves more than 55,000 credit and non-credit students annually • 32,000 plus credit students (district-wide) • Multi-campus institution in Cleveland and surrounding suburbs • Four campuses, one Corporate College location, one District Office and growing

49. Who are our students? • 60% students place into developmental English • 82% students place into developmental Math • 25% students received GED or passed ATB • 70% first generation college students • 55% receive financial aid • 80% of Pell recipients have Zero EFC • 62% are women • 60% are part-time students • 67% retention Spring to Fall/ 50% retention Fall to Fall

50. Ohio’s Climate Concerns • Rising education costs • Decreasing state funding • Struggling economy (state-wide and national) • Lack of financial literacy education • Reduced state funding • Elimination of state grants for low cost institutions (all community colleges) • State share of instruction (SSI) formula change • Increased unemployment rate