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Transitioning to a 3-Year Cohort Default Rate Cindy Marrs, TG Default Aversion Consultant

Transitioning to a 3-Year Cohort Default Rate Cindy Marrs, TG Default Aversion Consultant. Ohio Association Of Student Financial Aid Administrators Ohio College Access Network 2010 Winter Conference “Building Bridges”. Topics to be Covered. Cohort Default Rate (CDR) – What is it?

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Transitioning to a 3-Year Cohort Default Rate Cindy Marrs, TG Default Aversion Consultant

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  1. Transitioning to a 3-Year Cohort Default RateCindy Marrs, TG Default Aversion Consultant Ohio Association Of Student Financial Aid Administrators Ohio College Access Network 2010 Winter Conference “Building Bridges”

  2. Topics to be Covered • Cohort Default Rate (CDR) – What is it? • CDR calculation • Notification timelines • Potential benefits and sanctions • Challenges and appeals • Default prevention initiatives

  3. National Student Loan Cohort Default Rates Source: Department of Education

  4. Comparison of CDRs by sector type Source: Department of Education

  5. Comparison of CDRs by loan program Source: Department of Education

  6. What is a Cohort Default Rate (CDR)? • A “cohort” is a group of Stafford loan borrowers who entered repayment within a given federal fiscal year (FY). • A “CDR” is the percentage of those students in a school’s cohort who defaulted within a specified period of time: • 2-year CDR: by the end of the next fiscal year • 3-year CDR: within the next two fiscal years

  7. CDR Window Illustration Stafford borrowers who enter repayment and default between 10/1/10 and 9/30/12 FY11 2-year CDR = Stafford borrowers who enter repayment between 10/1/10 and 9/30/11 Stafford borrowers who enter repayment and default between 10/1/10 and9/30/13 FY11 3-year CDR = Stafford borrowers who enter repayment between 10/1/10 and 9/30/11

  8. CDR: Why Does it Matter? • Schools: • May result in provisional certification or loss of Title IV eligibility • Negative publicity • Additional time and resources to work to manage and reverse high rates • Borrowers: • Damaged credit • Loss of Title IV eligibility • Wage garnishment, court costs, collection costs, treasury offset, loss of professional license, difficulty accessing other forms of credit

  9. Trial 3-year CDRs • ED published unofficial, trial 3-year CDRs on December 14, 2009 • Trial information available from the FSA Data center • http://federalstudentaid.ed.gov/datacenter/cohort.html • Data consists of trial rates for FY05, 06, and 07 • ED has indicated they will provide updated trial rates this winter

  10. When/How is a School Notified of its CDR? • Draft rates are released to schools in February of each year (non-public information) • Information is sent to schools via e-mail along with the Loan Record Detail Report (LRDR) • LRDR gives detail of each borrower included in the default rate: • Date Entered Repayment • Date of Default (if applicable) • Official rates are published in September of each year(public information)

  11. Transition Process • For FY 2008, only a 2-year rate was published • There will be two CDRs published each year for FY 2009, 2010, and 2011 • Draft and official rates will be released for a 2-year calculation, and also for a 3-year calculation • After FY 2011, 2-year rates will no longer be calculated

  12. Transition from 2-year to 3-year Rates

  13. Transition from 2-year to 3-year Rates

  14. Transition from 2-year to 3-year Rates

  15. Benefits of Low CDRs • Effective for Direct loans first disbursed on or after 10/1/2011, if a school’s three most recently published 2-year or 3-year CDRs are less than 15 percent: • Loans may be disbursed in one installment in some cases • No 30-day delayed disbursement requirement for first-year, first-time borrowers • The first CDRs on which these could be based are FY 2007, 2008, and 2009 two-year CDRs • Currently this benefit is available for CDRs less than 10 percent

  16. Benefits of Low CDRs • If a school’s most recent 2-year or 3-year CDR is less than 5 percent, for students in study-abroad programs: • No required 30-day delay of first disbursement for first-time, first-year undergraduate borrowers • May deliver loan funds in a single disbursement, regardless of the length of the student’s loan period • Benefit is currently available; no change to current policy

  17. Consequences of High CDRs • Effective 2012 (with publication of FY 2009 3-year rate), if a school’s 3-year CDR is equal to or greater than 30 percent: • 1st year: School must establish default prevention task force and prepare a plan to submit to the Department • 2nd year: Task force must review and revise plan and submit to the Department • 3rd year: School subject to sanctions (provisional certification or loss of eligibility)

  18. Consequences of High CDRs • Default prevention task force • Identify the factors causing the institution’s cohort default rate to exceed the threshold; • Establish measurable objectives and identify steps to take to improve the institution’s rate; and • Specify actions the institution will take to improve student loan repayment, including loan repayment counseling.

  19. Provisional Certification • Provisional certification may result when ED determines that “the school has impaired administrative capability.” (Cohort Default Rate Guide, page 4.5 – 13) • School may be subject to additional conditions in its Program Participation Agreement during provisional certification.

  20. Provisional Certification • During transition period • Single 2-year CDR of 25 percent or greater • Effective when the third 3-year rate is published in September 2014 • Two 3-year CDRs of 30 percent or greater in last three years

  21. Loss of Eligibility • During transition period, without a successful adjustment or appeal: • If school’s most recent 2-year CDR is greater than 40 percent, the school will lose eligibility to participate in the Direct Loan program. • If school’s three most recent 2-year CDRs equal or exceed 25 percent, the school will lose eligibility to participate in the Direct Loan and Pell Grant programs.

  22. Loss of Eligibility • Beginning in September 2014, without a successful adjustment or appeal: • If school’s most recent 3-year CDR is greater than 40 percent, the school will lose eligibility to participate in the Direct Loan program (no change) • If school’s three most recent 3-year CDRs equal or exceed 30 percent, the school will lose eligibility to participate in the Direct Loan and Pell Grant programs.

  23. Can a School Challenge its Draft CDR? • Draft CDR challenges: • Incorrect data challenge • Participation rate index challenge • Challenges must be submitted within 45 days of the date the school receives its draft CDR in mid-February.

  24. Incorrect Data Challenges Of the borrowers who defaulted, 91% did not receive their full 6-month grace period due to late or inaccurate enrollment notification by the school. Source: ED's August 2008 Analysis of Federal Direct Loan Portfolio

  25. Can a School Adjust its Official CDR? • Adjustments—official CDR: • Uncorrected data adjustment: must be submitted to the Department or data manager within 30 days of the date the school receives its official CDR in mid-September. • New data adjustment: School must initiate request for new data adjustment within 15 days of the date the school receives its official CDR in mid-September

  26. Can a School Appeal its Official CDR? • Official CDR Appeals: • Erroneous data appeal • Loan servicing appeal • Economically disadvantaged appeal • Participation rate index appeal • Average rates appeal • Thirty or fewer borrowers appeal • Appeals are submitted to the Department for review

  27. Challenges and appeals

  28. Default Prevention Initiatives • School CDR management initiatives • “Split-loan servicing” considerations • Industry default prevention initiatives

  29. Default Prevention Initiatives • Within DL, of the borrowers who defaulted, 70% withdrew without completing their academic program. Source: ED's August 2008 Analysis of Federal Direct Loan Portfolio

  30. School CDR Management Initiatives • Renew focus on retention efforts • Enhance counseling sessions • Provide financial literacy workshops • Increase contact with delinquent borrowers • Hire private default prevention servicers to work cohort borrowers • Partner with guarantors to use online cohort management systems

  31. Split Loan Servicing Considerations • NSLDS will play a critical role in helping borrowers and schools manage split loan servicing • Split-loan servicing—borrowers with multiple loans serviced by multiple servicers • Split-loan servicing is not a new phenomenon • An increased focus in today’s environment due to: • Lenders exiting FFELP and selling federal portfolios • FFELP loans that have been purchased by ED • FFELP to FDLP transition

  32. Split Loan Servicing Considerations • Some borrowers in the FY 2009 and subsequent cohorts will have loans “Put” (sold) to the Department • Date of default=361st day of delinquency • Still FFELP loans, but guarantors do not have loan detail information for Put loans

  33. Split Loan Servicing Considerations • NSLDS is where borrowers can obtain information about their federal student loan(s) • Provides loan amount(s) and loan holder(s) • www.nslds.ed.gov • Remind them during exit counseling!

  34. Split Loan Servicing Considerations • NSLDS can also help schools: • Locate a borrower’s loan servicer • Obtain important reports pertaining to delinquency and Put loans • A school should refer to NSLDS Newsletters #25, #27, and #28 as those letters cover: • Delinquency reports available for Put and Direct loans • Delinquent Borrowers Page, Delinquent Borrower Report

  35. Industry Default Prevention Initiatives • Strategic call campaigns • Drop-out vs. graduate strategies • Unemployment deferment focus

  36. Industry Default Prevention Initiatives • Early withdrawal counseling • Calls during grace period • Early-stage delinquency program • Late-stage delinquency team

  37. CDR Resources • ED's Default Prevention and Management page • http://ifap.ed.gov/DefaultManagement/ DefaultManagement.html • TG's Default Prevention Resources page • www.tgslc.org/default/resources.cfm • TG's Managing Your Cohort Default Rate webinar • www.tgslc.org/training/ webinars

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