DEFAULT MANAGEMENT AND PREVENTION SARAH BAUDER ASST. VICE PRESIDENT FOR FINANCIAL AID AND ENROLLMENT...

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DEFAULT MANAGEMENT AND PREVENTION SARAH BAUDER ASST. VICE PRESIDENT FOR FINANCIAL AID AND ENROLLMENT SERVICES UNIVERSITY OF MARYLAND 11/6/2012

Transcript of DEFAULT MANAGEMENT AND PREVENTION SARAH BAUDER ASST. VICE PRESIDENT FOR FINANCIAL AID AND ENROLLMENT...

DEFAULT MANAGEMENT AND PREVENTION

SARAH BAUDER

ASST. VICE PRESIDENT FOR FINANCIAL AID AND ENROLLMENT SERVICES

UNIVERSITY OF MARYLAND

11/6/2012

11/6/2012

STUDENT LOANS IN THE

MEDIA

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AGENDA

• Cohort Default Rate Overview

• Does Default Prevention Help?

• The Consequences• The Changes, Risks and Challenges

• Default Prevention Strategies

• Financial Literacy

• Case Study

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A COHORT DEFAULT RATE OVERVIEW

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CDRs ARE RELEASED TWICE A YEAR

February(DRAFT)

•Not public

•No sanctions

•No benefits

September(Official)

•Public

•Sanctions apply

•Benefits apply

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CDRs: THE FORMULA

Numerator:

Denominator:

Borrowers who entered repayment in one year, and defaulted in that year or the next

Borrowers who entered repayment during the one-year cohort period

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CDRs: DENOMINATOR IN FORMULA

• Determine Data Entered Repayment (DER)

• Date of graduation, withdrawal, or less than half-time status

• Plus 181 days (6 months + 1 day) = DER

• Using DER, determine the correct cohort year in which the student will be counted

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CDRs: NUMERATOR IN 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

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CDRs: TWO FORMULA’S: APPLYING THE FORMULA

• Non-Average Rate

• 30 or more borrowers in repayment

• Average Rate

• Less than 30 borrowers in repayment

• 3 years of data

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USING THE NON-AVERAGE RATE FORMULA

Calculation:

For a school with 30 or more borrowers entering repayment in a fiscal year

5

225100 2.2%x =

(N)

(D)

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USING THE AVERAGE RATE FORMULA

Calculation:

For a school with less than 30 borrowers entering repayment in a fiscal year

The sum of the three most recent cohort periods

3 + 1 + 1

20 + 17 + 10100 10.6%x =

(N)

(D)=

5

47

FY06 FY07 FY08

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2 TO 3 YEAR CDR (A SCENARIO)

Numerator = # of borrowers from the denominator who default within a FY

Denominator = # of borrowers who enter repayment within a FY

125 125

Year 1 Year 2

5,000

125 125

Year 1 Year 2

5,000

125

Year 2

3555,000 = .071 7.1%Released Sept 2011

6055,000 = .121 12.1%Released Sept 2011

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THE 3-YEAR CDR CALCULATION

• Expands the default tracking window from 2 years to 3 years

• Creates a transition period (FY09/10/11)

• Raises penalty threshold from 25% - 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 10/1/11)

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CDR DISBURSEMENT WAIVERS FOR LOW DEFAULT RATES

• New threshold: Schools with a default rate less than 15% for the 3 most recent fiscal years

• May disburse a single term loan in a single installment, and

• Need not delay the first disbursement to a first-year undergraduate borrower until the borrower has completed the first 30 days of their program of study

Effective for loans first disbursed on or after October 1, 2011

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3-YEAR CDR CORRECTIVE ACTIONS• First year at 30% or more

• Default prevention plan and task force• Submit plan to FSA for review

• Second consecutive 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

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INSTITUTIONAL CDR CALCULATIONS BY CDR YEAR

CDR Denominator: Enter Repayment

Numerator: Default

Publish 2-Year Rates

Rate Used for Sanctions

FY 2009 10/1/08 - 9/30/09 10/1/08 - 9/30/11 September 2012 N/A

FY 2010 10/1/09 - 9/30/10 10/1/09 - 9/30/12 September 2013 N/A

FY 2011 10/1/10 - 9/30/11 10/1/10 - 9/30/13 September 2014 3-year rate

FY 2012 10/1/11 - 9/30/12 10/1/11 – 9/30/14 September 2015 3-year rate

FY 2013 10/1/12 – 9/30/13 10/1/11 – 9/30/15 September 2016 3-year rate

FY 2-14 10/1/13 – 9/30/14 10/1/12 – 9/30/16 September 2017 3-year rate

Table 2. Publications of 3-year CDR

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NATIONAL STUDENT LOAN DEFAULT RATES

DOES DEFAULT PREVENTION HELP?

The changes, risks and challenges

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THE CONSEQUENCES OF DEFAULTFOR THE SCHOOL

• The CDR is a measure of a school’s administrative capability

• High CDRs can:• Negatively reflect on school quality• Result in provisional certification• Result in loss of Title IV eligibility

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THE CHANGING LANDSCAPE

• 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 enhanced benefit

• Transition to all Direct loan Origination and Servicing

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DEFAULT PREVENTION STRATEGIES

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FINANCIAL LITERACY• http://www.financialaid.umd.edu/literacy/

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WHAT WE DO TO KEEP OUR RATES LOW

Be Proactive:

Know Who Could Default

Financial Literacy Classes for New Students

Satisfactory Academic Progress

Cash Course Requirement8% rule – Profile Students

One-on-One Counseling

Encourage Limited Borrowing

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GOOD RESOURCES• Default management sample plan from FSA

http://ifap.ed.gov/dpcletters/GEN0514.html

• Cohort Default Rate: The Cohort Default Rate Guidehttp://ifap.ed.gov/drmaterials/finalcdrg.html

• Default Prevention Resourceshttp://ifap.ed.gov/DefaultPreventionResourceInfo/

• Operations Performance Management Service Group (CDR Calculations and data challenges)

• Main line: 2020-377-4258• Hotline: 202-377-4259• Email: [email protected]• Web:

http://ifap.ed.gov/DefaultManagement/DefaultManagement.html

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CASE STUDY - UMDDefault Rate

Graduated Didn’t Graduate Total

Any Academic Probation 8% 19% 14% (20)

Undergraduate Studies Major 6% 22% 12% (21)

High School GPA > 1.4 < 2.3 9% 19% 12% (15)

Last Cum UG GPA >1.4 < 2.3 7% 13% 10% (178)

Black/Af. American 7% 17% 9% (207)

30+ Years Old 6% 12% 8% (36)

Any Alternative Loan 3% 18% 7% (49)

Unmet Need > $7,000 < $10,500 5% 14% 7% (85)

Average EFC <=$2,500 5% 14% 7% (225)

Independent 5% 12% 7% (129)

Enrolled 13+ Terms 4% 20% 6% (112)

Cumulative Loan Amount > $20,000 4% 20% 6% (81)

Total 3% 10% 4% (404)

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QUESTIONS?

Contact:

Sarah Bauder

[email protected]

301-314-8279

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