Forecasting Your School’s Default Rate: A Proactive

Approach

November 2009

We Will Discuss

Why and how to forecast your institution’s cohort default rates

How to set a target default rate or maximum number of defaults within a cohort year

Tools for tracking your institution’s rate

Explanation of the new three-year default rate calculation

What is Forecasting?

Default Rate Forecasting

A proactive way of tracking your rate as it progresses throughout the year

Predicting what will happen to your rate if certain conditions exist

Why Forecast Your Default Rate?

Forecasting Your Rate

Enables you to make a difference while there’s still time

You have until September 30, 2010, to impact your 2-year 2009 cohort rate

Forecasting Your Rate

Allows you to be proactive with your default prevention efforts Implement or enhance default prevention

efforts to reach those borrowers in the cohort period

Helps you to determine if you need additional resources for default prevention

Helps to you make appropriate recommendations to your administration

Calculating Your 2009 CDR

Number of borrowers who enter repayment between 10/1/2008 and 9/30/2009

Number of borrowers who enter repayment between 10/1/2008 and 9/30/2009 and default between 10/1/2008 and 9/30/20102009 Cohort

Default Rate= x 100

How Can You Track Your Default Rate?

Tracking Your Rate

Default Rate Forecaster Allows you to calculate your rate

anytime during the year Enables you to assess the impact of

each defaultAllows you to calculate your rate anytime during the year

Enables you to assess the impact of each default

Default Rate Forecaster

Default Rate Forecaster available as Excel spreadsheet

You can track your cohort default rate for the CFY for loans guaranteed by any guarantor or FDLP

Available at mygreatlakes.org

Cohort Rate Elements

Borrowers who entered repayment in current cohort fiscal year (CFY) and have already defaulted

Borrowers who entered repayment in CFY and are >= 320 days delinquent

Borrowers who entered repayment in CFY

Loans Included in Your CDR?

Federal Loans Subsidized and unsubsidized loans Federal Supplemental Loans for

Students (SLS loans)

– Federal SLS loans have not been made since

July 1994. However, it is possible for a

Federal SLS loan to be included in a current

cohort default rate calculation under certain

circumstances. Direct Loans

Subsidized and unsubsidized loans

Not Included in Your CDR

Federal Consolidation Loans and Federal Direct Consolidation Loans

Federal PLUS Loans Federal Graduate/Professional PLUS

Loans Federal Direct Graduate/Professional

PLUS Loans Federal Insured Student Loans

(FISLs) Federal Perkins Loans c

How Do You Set Your Target Default Rate?

Set a Target Default Rate

Factors to consider when setting a target rate? Institution’s mission and goals Changes in enrollment Changes in the economy Prior year’s default rate Available resources to allocate to

default prevention Increase or decrease in borrowing

Maximum Number of Defaults Allowed

Target cohort default rate4.00

%

Number of borrowers who entered repayment between 10-01-08 and 9-30-09

5,000

Maximum number of defaults allowed by 9-30-10

200

Increase in 2009 cohort default rate for every borrower who defaults during the cohort period

0.02%

What Changes Will BeMade to the CDR Calculation?

When Two Becomes Three

Beginning with the FY 2009, the new default rate formula will include three years

Borrowers who enter repayment between October 1, 2008, and September 30, 2009, and default on or before September 30, 2011, will be used to determine the rate

Calculation Change Impact

Three-year rate calculation will mean higher default rates for virtually every postsecondary institution

Rates are expected to increase approximately 60%

How Much Higher?

2-Year 3-Year Increas

e

Public 2-year 5.7% 9.7% 70%

Public 4-year 3.5% 5.3% 51%

Private 4-year 2.8% 4.5% 61%

Proprietary 8.6% 16.7% 94%

OVERALL 5.1% 8.6% 69%Basis: FY2004 Cohort Default Rate data

Source: U.S. Department of Education data released by Inside Higher Ed

What Can You Do Now?

What You Can Do Now

Forecast your 2-year 2009 rate Inform your administration of the

changes to the rate Provide an estimate of your 3-year rate Show the 3-year rate average by school

type Develop or enhance your default

prevention efforts Send emails and letters to delinquent

borrowers Conduct in-person loan counseling

How to Estimate Your 3-year Rate

Start with your 2007 cohort default rate Keep your denominator (borrowers who

entered repayment in FFY 07) Add to your numerator (borrowers who

defaulted in FFY07 and FFY 08) with those additional borrowers who defaulted in FFY 09 (between 10/1/08 and 9/30/09)

Ask your guarantor or Direct Loan servicer for the number of default borrowers for FFY 09

Any questions or comments?