Presented by Larry B. Eadie Management Analyst Federal Student Aid

Objectives Understand how cohort default rates (CDRs) are calculated, released, and tracked over time. Identify how CDRs impact institutions. Identify proactive strategies that can be aligned with administrative activities to fully institutionalize CDR management. 2

Cohort Default Rates An Overview

Cohort Default Rate (CDR): What Is It? For schools with 30 or more borrowers entering repayment in a fiscal year, the CDR is the percentage of borrowers who: 1) Enter repayment on certain Federal Family Education Loans (FFELs) and/or William D. Ford Federal Direct Loans (DL) during that fiscal year, and 2) Default (or meet other specified conditions) within the cohort default period. 4

National CDR Rates 5

How CDR Information is Provided to Schools The Department of Education calculates CDRs twice a year. 6 Draft CDRsOfficial CDRs WhenFebruarySeptember (No later than the 30th) WhoReleased to schools onlyReleased to schools and made available to the public Possible School Action(s) Can identify and correct any inaccuracies Can challenge a potential loss of eligibility or potential placement on provisional certification A school that fails to challenge the accuracy of its draft CDR through an Incorrect Data Challenge (Cohort Default Guide Chapter 4.1) may not contest the accuracy of that same cohort data when it receives its official rate.Cohort Default Guide Chapter 4.1

The 3-Year Cohort Default Rate First cohort year where schools will be subject to sanction based on 3-Year Cohort Default Rates 7 CDRDenominator #Enter Repayment Numerator #Default Publish RatesCohorts used for Sanctions FY 2009 (3-Year) 10/1/08-9/30/0910/1/08-9/30/11September 2012No Sanction FY 2010 (3-Year) 10/1/09-9/30/1010/1/09-9/30/12September 2013No Sanction FY 2011 (3-Year) 10/1/10-9/30/1110/1/10-9/30/13September 2014FY 09, FY 10, FY 11 FY 2012 (3-Year) 10/1/11-9/30/1210/1/11-9/30/14September 2015FY 10, FY 11, FY 12 FY 2013 (3-Year) 10/1/12-9/30/1310/1/12-9/30/15September 2016FY 11, FY 12, FY 13 #1

Why Cohort Default Rates Matter CDR sanctions and benefits provide an incentive to institutions to work with their borrowers to reduce default: Institutions with high CDRs can incur sanctions and may lose their eligibility to participate in Federal Student aid programs. Institutions with low CDRs gain access to several disbursement benefits, depending on their rate. 8

Benefits For Institutions with Low Official CDRs: 9 InstitutionSanctions (CFR 34 § ) Most recent official CDR is less than 5.0 percent, and Is an eligible home institution that is originating loans to cover the cost of attendance in a study abroad program. May disburse loan proceeds in a single installment to a student studying abroad regardless of the length of the student’s loan period. May choose not to delay the disbursement of the first installment of loan proceeds for first-year, first-time borrowers studying abroad. Official CDR is less than 15.0 percent for each of the three most recent fiscal years for which data are available, including eligible home institutions and foreign institutions. May disburse, in a single installment, loans that are made for one semester, one trimester, one quarter, or a four-month period. May choose not to delay the first disbursement of a loan for 30 days for first-time, first-year undergraduate borrowers.

Sanctions For Institutions with High Official CDRs: 10 InstitutionSanctions (CFR 34 § ) Two most recent official CDRs are 30.0 percent or greater for the three-year calculation Provisional certification - Except in the event of a successful adjustment or appeal, may be subject to provisional certification Three most recent official CDRs are 30.0 percent or greater for the three-year calculation Loss of Direct Loan and Federal Pell Grant Eligibility - Except in the event of a successful adjustment or appeal, will lose Direct Loan and Federal Pell Grant program eligibility for the remainder of the fiscal year in which the institution is notified of its sanction, and for the following two fiscal years. Official CDR for the most recent fiscal year is 40.0 percent or greater for the three-year calculation Loss of Direct Loan Program Eligibility - Except in the event of a successful adjustment or appeal, will lose Direct Loan program eligibility for the remainder of the fiscal year in which the institution is notified of its sanction, and for the following two fiscal years. An institution is not subject to the loss of Federal Pell Grant Program eligibility if, prior to October 7, 1998, the institution lost its eligibility or requested in writing to withdraw from to participate in the FFEL and/or Direct Loan programs and has not subsequently participated in those programs.

Loan Default – A Broader Economic Picture 11 Source: FRB of NY, Quarterly Report on Household Debt and Credit, August 2014

Managing the CDR Leadership Strategies

Prioritizing Default Management Establish an ongoing institutional commitment to default management by treating it as a complex web. 13 Community Servicers Institution Default Manage ment Task Force

Create a Default Management Task Force Your Institution’s Task Force drives the default management process by: - Conducting data analysis to determine reasons for default - Formulating a set of intervention strategies Select a senior administrator as the leader for the group. Select a coordinator to maintain day-to -day operations. 14

Default Management Task Force Composition Participation should stretch across campus. Team members may include representatives from various offices: - Financial Aid - Enrollment Management / Admissions - Academic Affairs - Student Services - Career Counseling - Senior School Officials - Others 15

Conduct a Risk Analysis Use data to create a picture of borrowers at risk of default, and identify WHY they are at risk. ‘Why’ will require additional input from academic departments, student affairs and other professionals. Knowing ‘why’ is necessary to create targeted, useful and measureable interventions. Do the leg work. Let your data lead the way. 16

Examples of ‘Who’ and ‘Why’ Food For Thought: Typical Risk Findings 17 Never Contacted Developmental Courses Late Admits Did Not Graduate Graduated but No License Late Majors Exit Counseling Level of Indebtedness Poor Study Habits Academic Preparedness Grad with Minimum GPA Feel unwelcome, no “campus connection” No Jobs in Profession College Majors Attendance Factors Student Employment Transportation

Getting Started with Your Institution’s Plan Develop your own unique plan based on your data. Look at default prevention plans from similar schools. Create a realistic, executable, written plan. Develop intervention strategies. Make steps measureable. Access FSA’s Default Prevention and Management assessment tools and resources. Access FSA’s Default Prevention and Management assessment tools and resources 18

Elements of an Effective Default Prevention Plan 19

Timely and Accurate Enrollment Reporting Critical for administration of Title IV loan programs. Essential for school cohort management and preventing defaults. Working NSLDS and Servicer reports on a timely and consistent basis is critical to catching errors early and making corrections. 20

Impacts of Delayed / Inaccurate Reporting Delays in submitting timely and accurate NSLDS enrollment changes may increase default risk. Servicers may be less able to identify, contact, and prepare borrowers for repayment. Many defaulted borrowers do not benefit from their full 6- month grace period due to late or inaccurate enrollment notification by the institution. 21 DCL: Gen ~ “Beginning July 1, 2014, we will request enrollment information from schools every 60 days and schools will be required to respond to those requests within 15 days of the date that we send the electronic enrollment reporting roster to the school or to its designated third-party servicer.”

Challenge the Draft CDR Effectively 22 What’s ImportantWhat’s the Problem? Making the right challenge Institutions often do not know what avenues to pursue for a successful challenge Making the right impact Institutions may focus time and resources submitting challenges that ultimately may not produce the desired results on the CDR SOLUTION Create a descriptive list of possible challenges. Include the impact on the CDR for pursuit by the institution. Use an Excel spreadsheet format so calculations can be automated and easily tracked.

Active NSLDS Management NSLDS provides a centralized, integrated view of Title IV loans and grants during their complete life cycles. Student enrollment status, exit counseling, and grant overpayment data are also reported. - Establishes eligibility for in-school deferment of student loans. - Alerts loan servicers when student leaves school and must begin repayment. Financial aid administrators, students, lenders, guarantee agencies, and state agencies use the system. Regular update and reporting are critical to successful default prevention. 23

Supplement Standard Communication Tools Some institutions have reported great success by creating a separate form to collect additional borrower contact information, for all borrowers. Goal is to supplement what is obtained via the MPN. Collect info during admissions process and any other time students come into contact with school offices. Share this information institution-wide between offices. 24 Although an institution may collect additional information, you may not make a borrower’s receipt of aid contingent upon providing it.

Extensive Borrower Communication Borrower communication and engagement is a key factor in successful default prevention! Ensure that your administration has established processes to address the following: 25 While the borrower is in school: Educate about repayment and Ensure that borrowers know that they must repay their loans, regardless of whether they complete their education. Leverage financial literacy resources and tools. Update contact information and enrollment status changes. Reiterate the importance of communicating with the loan servicer(s). While the borrower is in grace: Validate student and servicer contact information. Update enrollment status changes. Provide re-enrollment and transfer assistance. Prepare borrower for repayment and ensure they establish a relationship with servicers. Reiterate the importance of communicating with the loan servicer(s).

Retention is Inversely Linked to Default… Historically, the majority of borrowers who defaulted, withdrew without completing their academic program. Did not achieve academic credential Often have reduced earning power May not benefit from job placement Have one or more loans to repay May not receive exit counseling 26

…So Focus on Retention and Student Success Strategies for developing successful retention and default prevention practices: - Assess what is working - View all students as success stories - Personalize orientation programs - Develop a seamless process - Extend the orientation experience - Develop comprehensive early alert systems - Student success workshops 27

28 University of Utopia

29 What’s working? Entering student variables Academic history. Geographic and demographic variables. Test scores. Financial-aid information. Initial impressions of institution. Enrollment factors.

Assessments Institutional Who are you and how proactive are you? Student Who are your students and how do you show students you care? 30

Successful programs Highly structured Interlocked with other programs and services Are based on a strategy of student engagement. Rely on extended, intensive student contact. 31

Non-Completers Historically, the majority of borrowers who default, withdrew from school without completing their academic program. Poor Educational Outcomes = Poor Employment Outcomes = Poor Repayment Outcomes 32

Analyzing the Data The “Student Success” Approach 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; and ‒ Helping non-completers find a job. 33

Academic Success and Outcomes Currently, the Department uses information from IPEDS to respond to information requests about borrower academic success (graduation, completion, etc.) The Administration and Congress wants more insight into the academic success specific to individual Title IV recipients. NSLDS is the only source that links individual enrollment statuses to individual persons Recently, The Consolidated Appropriations Act of 2014, directed the U. S. Department of Education to report information on Pell Grant recipients’ academic success (graduation) to CongressThe Consolidated Appropriations Act of

Consult with FSA’s Default Prevention Team The Default Prevention Team was created 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 their default prevention plan Preparing challenges and appeals 35

Takeaways Question and Answer

Key Takeaways Executive leadership is critical to successful CDR management. Prioritize default management by creating a Task Force to address the complex web of factors at play across the institution. Use Analysis, Planning, Action, and Collaboration processes to operationalize default management. Other actions for success: - Timely and accurate enrollment reporting - Challenge the draft CDR - Active NSLDS management - Extensive borrower communication - Focus on retention - Implement financial literacy programs 37

Key Takeaways (Continued) Default Prevention is Everybody's Business… Especially the Leadership’s. - Default prevention is a school-wide effort and not the sole responsibility of the financial aid office. You NEED DATA! - In order to conduct risk analysis and identify your defaulters, you need data. Proactive Communication is Key at Every Level. - Establishing regular points of contact with borrowers and servicers lowers the likelihood of issues that lead to default. Partner with the Federal Loan Servicers. - Your default prevention plan should incorporate the products and services offered by the Federal Loan Servicers. 38

Resources Chapter 2.1Chapter 2.1 of the Cohort Default Rate Guide Provides an overview of CDRs, describes calculations, and lists special circumstances. Chapter 2.4Chapter 2.4 of the Cohort Default Rate Guide Describes effects of an institution’s CDR, sanctions, and benefits. Chapter 3.1Chapter 3.1 of the Cohort Default Rate Guide Contains information about CDR suggested review processes for institutions. 39

Contact for Assistance! 40 Default Prevention Team If schools need assistance please send a request to the following address: Additional resources:

Contact Information We appreciate your feedback and comments. We can be reached at: Larry B. Eadie

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Questions? 43