SASFAA 2013 Session B7...plan to promote loan repayment and reduce default risk within the...

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SASFAA 2013 Session B7

Building a Successful Default

Management/Prevention Plan

John Pierson

Pierson Default Prevention

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In This Session

• Overview of CDRs

• Changes in Regulation

• Team and Data Driven Process

• Components of a Successful a Plan

• Take Home Exercise

Default Data

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Data Shows Increasing Risk

CDR

FY09 Official = 8.8 %

FY10 Official = 9.1% (3.4% increase)

Borrowers

FY09 Official = 320,194

FY10 Official = 374,940 ((17.1% increase)

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September 2012

FY 10/FY 09 CDR Official Rates

The Trend is not Our Friend

Rates - Up!

Number of Defaulters – Up!

Relationship Between

FY 10 Two-Year and FY 09 Three Year CDRs

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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 an enhanced benefit

• Transition to all-Direct Loan Origination and Servicing

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CDRs and the Economy

• CDR default data is retrospective, so the economic impact on borrower repayment will be seen in future CDR calculations

• Borrowers are having difficulty repaying

• Higher unemployment and economic problems are occurring concurrent with the change from a 2-year to a 3-year CDR calculation

• More schools may face compliance difficulties due to CDRs in coming years

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Understanding Cohort Default Rates (CDRs) – A

Quick Review

• CDR Definition

• The Cohort Periods

• The “current” formulas used for the Cohort

Default Rate calculations

• When are CDRs Released?

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CDR Calculation

A cohort of borrowers who enter repayment

on certain FFEL/DL loans during a given fiscal

year and default before the end of cohort

tracking period.

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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 during the cohort tracking period

Borrowers who entered repayment during the one-year cohort period.

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CDRs – Denominator in 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

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CDRs – Numerator in Formula

• Loan must be included in the denominator

• Determine default date (361 day of

delinquency or Claim Paid Date [CPD])

• Determine if default date falls within cohort

tracking period

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CDRs: 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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Calculation: For a school with 30 or more

borrowers entering repayment in a fiscal year

100 X 225

= 2.2%

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(D)

(N)

Using the Non-Average Rate Formula

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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 5

47 10.6%

FY06 FY07 FY08

100 X = =

20 + 17 + 10 (D)

(N)

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2 to 3-Year CDR (a scenario) Numerator = # of borrowers from the

denominator who default within FY tracking

period

Denominator = # of borrowers who enter

repayment within a FY

5,000

Year 1 355

5000 = .071 or 7.1%

To Be Released Sept

2013

605

5000 = .121 or 12.1%

To Be Released Sept 2013

125 230

125 230 250

5,000

Year 1 Year 2 Year 3

Year 2

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Three Types

of

Default Prevention Plans

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Involuntary: 34 CFR 668.14(b)(15)

1. Schools participating in the Direct Loan

programs for the first time,

2. Schools participating in the Direct Loan

program that have undergone a change

of ownership that resulted in a change in

control

3. Required to have a DP plan

1. Create your own (see 668.217)

2. Adopt the Department’s Sample Plan

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Involuntary: 34 CFR 668.217

•New cohort default rate regulation

requires that schools which achieve a

cohort default rate equal to or greater

than 30% are must develop a default

prevention plan.

•Specific elements required…details

later

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Voluntary

Schools may wish to create a voluntary default prevention

plan to promote loan repayment and reduce default risk within

the school’s loan portfolio.

There are no specific requirements for the development of a

voluntary plan although the Department strongly recommends

that schools follow the steps outlined in 34 CFR 668.217 (slide

24), as well as some or all of the non-regulatory ‘best practice’

measures described later in this session and in the

Department’s Sample Plan.

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34 C.F.R 668.217

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 10/01/11)

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New: 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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34 C.F.R 668.217 Summary

1. Establish a default prevention team

2. Conduct an analysis to determine source

of default risk

3. Create measureable interventions/steps

4. Create a default prevention plan

5. Send plan to FSA for review

The 5 Things You Must Do if your CDR is equal

to/exceeds 30%:

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Developing a Successful Plan

Two Key Concepts

• Team Driven

• Data Driven

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Three components

that make up a complete plan

• Default Management

• Repayment Management

• Default Risk Reduction

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Default Prevention is Team Driven Things to consider

• DP Team should be cross-functional group.

– Who? Why?

• DP Team is in it for the long haul: – Analysis, Define Strategies, Implement, Review, Revise

• School may hire outside consultant that attends meetings to listen to discussions and provide feedback in areas of expertise.

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Default Prevention is Data Driven

“Evidence-Based Default Prevention”

Three sets of data you will need:

• Set I – data necessary to evaluate the

accuracy of your draft and official CDR

• Set II - data to support activities to improve

repayment outcomes across cohort years

• Set III - data to support long-term risk

reduction activities

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Elements of a Complete Plan

Default Management Component

Ensuring that your all NSLDS data and resultant CDRs are accurate

Team Driven: Team reviews CDR data to ensure that draft and official CDRs are accurate; makes appropriate challenges and appeals; works with FSA staff and data managers.

Data Driven: Team reviews portfolio reports during the cohort period to insure that NSLDS enrollment updates are accurate; team reviews loan record detail reports at draft and official calculations to ensure that CDRs, and underlying data, are accurate, and, where inaccuracies are identified, steps are taken to make corrections in NSLDS database.

Challenges, Adjustments, and Appeals

Challenges (Draft)

• Incorrect Data Challenge (IDC)

• Participation Rate Index Challenge (PRI)

Adjustments Official)

• Uncorrected Data Adjustment (UDA)

• New Data Adjustment (NDA)

Appeals (Official)

• Loan Servicing Appeal (LS)

• Erroneous Data Appeal (ER)

• Economically Disadvantaged Appeal (EDA)

• Participation Rate Index Appeal (PRI)

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CDR Challenges (cont’d)

Incorrect Data Challenges are submitted to data managers via eCDR Appeals for

FFEL loans held by the data manager and to the Department’s servicers for FFEL

loans held by ED and for Direct Loans.

Possible incorrect data:

1. Borrower did not enter repayment during cohort year

2. Borrower did not default during monitoring period

3. Other borrowers entered repayment during cohort period

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Submitting Appeals/Adjustments

•Starting in 2012, schools may submit challenges/appeals/adjustments for

both 2-year and 3-year CDRs

•Challenges/Appeals/Adjustments for both 2-year and 3-year CDRs will be

submitted SEPARATELY

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• Processes IDC, UDA, and NDA electronically

• First became available in February 2008

(FY 2006 draft CDR)

• Available at the following link:

https://ecdrappeals.ed.gov/ecdra/index.html

eCDR Appeals

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https://ecdrappeals.ed.gov/ecdra/index.html

eCDR Appeals

• Beginning with the FY 2009 cohort (draft CDRs

released in February 2011), all schools were required

to use eCDR Appeals to prepare and submit their IDC,

UDA, and NDA

• Check IFAP for upcoming electronic announcements

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eCDR Appeals Benefits

• Easy-to-use interface

• Protects Privacy Act data

• Automatically packages allegations

by data manager

• Compares draft/official LRDR

and populates UDA

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Elements of a Complete Plan

Repayment Management Component

Reducing likelihood of default for borrowers already in repayment

• Data Drive Identify and prioritize borrowers in repayment who are at risk of default; NSLDS/Loan Servicer data; cohort analysis and projections

• Team Driven: Identify, implement strategies; assess outcomes; revise as necessary

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Understand Repayment Portfolio

Conduct a self-assessment

• Schools can access raw loan portfolio reports available

through the National Student Loan Data System

(NSLDS), at http://www.nslds.ed.gov/nslds

• Make use of NSLDS reports and combine with school

data

Repayment Management

http://www.nslds.ed.gov/nslds

http://www.nslds.ed.gov/nslds

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• School Portfolio Report (SCHPR1)

• Delinquency Borrower Report (DELQ01)

• Repayment Loan Detail (DER001)

• School Cohort Default Rate History Report

(DRC035)

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Using the NSLDS data to project future CDRs:

1. Determine the total number of delinquencies for

each cohort period.

2. Project default rates for FY 2011 (2 & 3 year),

and FY 2012 (2 & 3 year) using existing and

projected delinquency counts.


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General strategies to reduce repayment risk:

• Assist borrowers to have stronger relationship with loan and loan servicer – Establish on-line accounts in school

• Additional loan counseling

• Financial Literacy

• Delinquency Outreach – Prioritize: At Risk/Early; Everyone ‘Late’

• Collect/refresh borrower contact information

Repayment Management:

Enrollment Updates

• If schools delay in submitting timely and accurate NSLDS

enrollment changes it may increase default risk. Servicers

may be less able to identify, contact and prepare these

borrowers for repayment.

• Default Prevention strategy - Don't delay! Send enrollment

changes to NSLDS immediately.

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2 Key Defaulter Characteristics

By examining large populations of

defaulted borrowers FSA determined

that the majority had contact issues:

• Half had bad telephone numbers

• Most defaulters were not successfully contacted by phone during the 360-day collection effort leading up to default

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Ensure Borrowers Can Be Found

Schools should create a separate form to collect additional borrower contact information

– Supplement what is obtained via the MPN

– Collect info during Admissions

– Refresh at ‘leverage points’

Important Note: Although you may collect this

information, you must not make a borrower’s receipt of

aid contingent upon providing it.

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Borrower Contact Sheet

• All of the borrower’s email addresses

• Contact information for siblings, parents, grandparents,

etc., including email and cell phone numbers

• Ask borrower for the one phone number through which

he/she can always be reached

• Identify all social networking sites where borrower has an

account

• Can send example…

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Outreach Tips

• Telephone calls are most effective

• Use a light touch – remember you are calling to help,

not to collect

• Mailing handwritten notes can be successful

• Letters and email may be used with varying degrees of

success

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Outreach Tips

Sending Letters

Get the borrower to open it!

– It should not look like a bill

– Hand-address regular envelopes

– Consider colored envelopes or paper

– Use a stamp – not a postage meter

– Personalize the letter – sign it

– Postcards can also be effective

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Default Risk Reduction Component

Evidence-Based Strategy

Utilizing NSLDS And School Data

To Understand

Who is Defaulting and Why

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Default Risk Reduction

Team Driven: Team collects NSLDS and School data; evaluates data about past defaulters; understands which current and future students are at greater risk of future default; creates interventions to alter risk profile during in-school, grace and repayment

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Data Driven

NSLDS (portfolio report) and school data are

collected and analyzed to create profile of default risk

in school’s portfolio; evidence-based interventions are

based upon school data; data on interventions and

outcomes are tracked; interventions are modified as

necessary to achieve desired results.

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Create a picture of who is at-risk, and why

• ‘Why’ will require review of data by team members who

represent academic and student affairs professionals

as well as financial aid

• Knowing ‘why’ is necessary to create useful and

measureable interventions

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Establish Tracking method

• Identify person responsible for specific task

• Establish timeline for completion

• Reporting outcomes

• Make changes based upon monitored results

• Team manages the process over time

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Default Risk Reduction Plan Should Include:

• Targeted interventions…evidence-based activities

aimed at identified risk populations: could be ‘best

practices’ or could be tool expressly created to address

situation at your school; and,

• General Interventions: Using ‘best practices’ because

of their general default prevention benefits for all

student borrowers

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Several ways ways to think about reducing default risk:

• Assist borrowers to improve educational outcomes

• Assist borrowers to improve employment outcomes

• When? In school, In grace, In repayment…

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Default Risk Reduction: General

Improve Educational Outcomes

• Focus is on helping borrowers to develop a healthy relationship with their education (student success solutions) and include:

– Increasing program completion rates

– Decreasing program completion time

– Helping non-completers find a job

• Successful students become successful borrowers!

• Leverage existing school efforts to increase retention and graduation rates

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Borrowers Who Do Not Complete

• Historically, the majority of borrowers who default

withdrew from school without completing their academic

program.

• While different measures of success exist,

this is an important indicator that students who fail to

complete have a higher risk of loan default.

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Borrowers Who Do Not Complete

• Did not achieve academic credential • May have reduced earning power • May not benefit from school job placement • Have one or more loans to repay • May not receive exit counseling • May not respond to communication attempts by their loan

servicer • May lose part or all of their grace period if they fail to notify

the financial aid office and NSLDS is not updated timely and accurately

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Characteristics: Students At Risk

• Finances/Need

• Relationship Issues

• Physical & mental health

challenges

• Dependent-care

• Transportation

• Housing

• Transition difficulties

• Poor study habits

• Under-prepared, basic skill needs

• Language barriers

• Feel unwelcome, no “campus connection”

• First generation: No role models or family support

Schools may have unique factors which must be identified and considered

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Example: Late Registration

• Has student missed classes?

• Does a late start indicate poor or no

preparation?

• Do your late registration policies increase or

decrease default risk?

• If late registration increases default risk, what

can you do about it?

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Default Risk Reduction:

Identifying Students in Trouble

• Does your school have an “early warning” system?

– Take attendance?

– Issue mid-term grades which provide clues as to whether or not student will persist?

– Alerts from faculty members, student support staff: who has missed classes? failed tests? had adjustment challenges?

• Don’t allow academic or social problems to become default risk

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Helping Students in Trouble

• Reach out immediately!

• Help them remain in school

• If they’ve already left, help them to return

– May involve help to overcome obstacles

• If they will not return, help them to understand their repayment obligations – some think they don’t owe anything because they left

• Learn what you can about their experiences and use this information to help other students stay in school

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Promoting Student Success

• Explore the unique connections between

loan default and student success at

your school.

• Identify the allies at your school: enrollment

management, student success, academic

affairs and student support services. Your

goals are the same and your efforts should

be in alignment.

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Promoting Student Success

The rest of the story…

This does not mean that you never admit at-risk students. It only means that you must do your homework. You must understand who is at risk and why, and based upon that, that you take proactive steps to address and reduce the attendant risk so that it does not translate (later) into a loan default problem.

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Increasing Employment Outcomes Examples:

• Keep Employment Opportunity Analysis Current

• Strengthen Relationship with Potential Employers

• Provide Employment Readiness Counseling When

Necessary

• Career Placement for both Graduates and Non-

Graduates

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Take Home Exercise

Evaluating Your Current Plan

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1. What were my FY 09 (3 yr) and FY 10 (2yr) CDRs? Am I at risk to hit 30% in 2012 or 2013? 2. Do I have a functionally representative task force? 3. What is the source of my default risk? Data/Evidence? 4. What default prevention strategies are in my plan

that address the source of my default risk? How? Are they measureable?

5. What ‘traditional’ strategies are included in my plan? 7. What ‘student success-focused’ strategies are

included in my plan? 6. How will team track results and make adjustments?

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Briefing Management

1. Our CDR risk (Data/Evidence) profile suggests…

2. Our traditional default prevention approaches include…

3. Our student-success focused default prevention approaches include…

4. In order to create a regulation compliant plan, our next steps will be to….

Default Prevention Plans B7

Evaluation System APP or Web

Enter Poll ID 102697

Enter Password sasfaa

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https://answerqwik.com/login.html

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Contact Information

John Pierson

Pierson Default Prevention

404-395-9991

[email protected]

www.piersondefaultprevention.com

mailto:[email protected]

http://www.piersondefaultpreventon.com/

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