Loan Rehabilitation Metrics and the ED Rehab Assignment Process Moderator: Tim Fitzgibbon, NCHER Speakers: Susan High, TG Len Hyde, ECMC Hope Merry, Great Lakes Higher Education Corporation Kevin Tharp, USA Funds 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

USA Funds Loan Rehabilitation Metrics 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Loan Rehabilitation Landscape has Changed 1993 Loan Rehabilitation became a new recovery tool for guarantors to use on behalf of ED and more importantly, the taxpayer. Eligibility requirements were more stringent for qualifying borrowers for the Loan Rehabilitation program. Defaulted borrowers were only eligible for the Loan Rehabilitation program if they were considered good candidates for this “second chance” type of a repayment program. 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Loan Rehabilitation Landscape has Changed Guarantors were provided greater flexibility in establishing repayment terms under the Loan Rehabilitation program. In 2006, Loan Rehabilitation eligibility requirements were changed. Qualifying payment requirements for the Loan Rehabilitation program were reduced from 12 to 9 monthly payments. 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Loan Rehabilitation Landscape has Changed Borrowers were allowed to miss a payment within the 10 consecutive month qualifying repayment period. Borrower due date “grace” period was expanded from 15 days to 20 days. In 2014, new regulations dramatically changed and transformed the Loan Rehabilitation program into an entitlement program. 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Loan Rehabilitation Landscape has Changed Two repayment calculation options were created (15% Rule or Reasonable & Affordable Payment). The Reasonable & Affordable repayment options were broadened by ED and thus the $5.00 monthly qualifying payment was born. 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Loan Rehabilitation Landscape has Changed Guarantors are required to suspend AWG action after the 5th qualifying payment of the Loan Rehabilitation Repayment Agreement. Guarantors are required to notify the Lender to remove the record of default from consumer reporting agencies once the Loan Rehabilitation process is complete. 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Loan Rehabilitation Landscape has Changed The percentage of collection costs assessed was reduced to 16%. Guarantor retention was eliminated – only compensation is collection costs (and accrued interest if purchased by a FFEL lender). The taxpayer took on greater liability as a result of these changes. 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Pertinent Metrics Under New Rehab Rules 27.7% of USA Funds rehabs are AGI-Based (Option 1) 72.3% of USA Funds rehabs are FDF-Based (Option 2) Of those AGI-Based, 73% pay the minimum of $5/month. Overall, 66% (both options) are in a negative-amortization status. USA Funds Avg. payment per month for AGI-Based rehabs: $32.00 USA Funds Avg. payment per month for FDF-Based rehabs: $30.00 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Pertinent Metrics Under New Rehab Rules USA Funds percent of recoveries through loan rehabilitation FY 2014 = 73% FY 2015 = 76% FY 2016 = 72% USA Funds percent of recoveries through loan consolidation FY 2014 = 15% FY 2015 = 16% FY 2016 = 19% 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Pertinent Metrics Under New Rehab Rules 76% of USA Funds rehab agreements sent lead to signed agreements with required documentation. To date, USA Funds has not assigned any rehab accounts to ED under the new statutory authority. USA Funds cumulative rehab default rates Year 1 = 20.03% Year 2 = 35.84% Year 3 = 50.36% Year 4 = 41.44% 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

USA Funds Delinquency Cure Rates 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Observations/Best Practices Remember that borrowers in the Loan Rehabilitation program are an “at risk” population and have shown a propensity for delinquency and/or redefault. Maintain borrower contact throughout the loan rehabilitation process. Fully inform borrowers of their repayment options, available information resources and what to expect once the loan rehabilitation process is completed. 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Observations/Best Practices Guarantors should work closely with the lender/servicer to establish Income-Driven Repayment (IDR) information during the transfer process. Lender/Servicer should consider segmentation of rehabbed loans. Early out-reach by the lender/servicer after the loan rehabilitation is completed is critical. 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

ECMC Loan Rehabilitation Metrics 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Pertinent Metrics Under New Rehab Rules 61% of rehabs are IDR-Based Rehabs (15%) 39% of rehabs are FDF-Based (R&A) Of those IDR-Based, 85% pay the minimum of $5/month Overall, 99% (both options) are in a negative-amortization status Avg. payment per month for IDR-Based rehabs: $20 Avg. payment per month for FDF-Based rehabs: $26 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Pertinent Metrics Under New Rehab Rules 86% of rehab agreements sent lead to signed agreements with required documentation We have seen quarter over quarter reduction of post-rehab delinquencies Successful R&A rehabilitation borrower transition is important 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Pertinent Metrics Under New Rehab Rules Percent of gross recoveries through loan rehabilitation 2014 = 56% 2015 = 64% 2016 = 67% (YTD through Sept) Percent of gross recoveries through loan consolidation 2014 = 33% 2015 = 30% 2016 = 27% (YTD through Sept) 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

November 7 – 9, Sheraton Downtown, Nashville, TN Payment Starts by Type 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Rehabilitation Retention Rates 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Observations/Best Practices Rehabilitation transition team to educate borrowers Electronic signature for rehab agreements Proof of income service partners Manage and increase IDR% and monthly payment amounts 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

TG Loan Rehabilitation Metrics 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Pertient Metrics Under New Rehab Rules 62% of rehabs are IDR-Based (Option 1) 37% of rehabs are FDF-Based (Option 2) Of those IDR-Based, 63% pay the minimum of $5/month Avg. payment per month for IDR-Based rehabs: $62 Avg. payment per month for FDF-Based rehabs: $113 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Pertient Metrics Under New Rehab Rules 10% of IDR-Based rehabs have defaulted 3% of FDF-Based rehabs have defaulted 79% of rehab agreements sent lead to signed agreements with required documentation. We have assigned 0 rehab accounts to ED under the new statutory authority. 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Pertient Metrics Under New Rehab Rules Percent of recoveries through loan rehabilitation FY 2014 = 43% FY 2015 = 48% FY 2016 = 39% Percent of recoveries through loan consolidation FY 2014 = 25% FY 2015 = 27% FY 2016 = 33% 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

November 7 – 9, Sheraton Downtown, Nashville, TN Rehab Comparison 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Observations/Best Practices The borrowers that need the most hand holding have a higher propensity to re-default. Educate the borrowers why they need to know how to reach their servicer and the annual certification process. 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

PHEAA Loan Rehabilitation Metrics 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Pertinent Metrics Under New Rehab Rules 40% of rehabs are IDR-Based (Option 1) 59% of rehabs are FDF-Based (Option 2) Of those IDR-Based, 46.0% pay the minimum of $5/month Avg. payment per month for IDR-Based rehabs: $68.20 Average balance for IDR-Based rehabs: $29,877 Avg. payment per month for FDF-Based rehabs: $26.07 Avg. balance for FDF-Based rehabs: $37,282 Note that the data above is derived from 10/1/2015-9/30/2016 rehabilitation fundings 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Pertinent Metrics Under New Rehab Rules While only 0.10% of IDR-Based rehabs have defaulted, 32.5% are currently delinquent While only 0.05% of FDF-Based rehabs have defaulted, 36.6% are currently delinquent 88.5% of rehab agreements sent lead to signed agreements with required documentation. PHEAA has not assigned any accounts to ED under the new statutory authority. Default data is derived from rehabilitation fundings from 7/1/2014-6/30/2015 Rehab agreement data is derived from letters sent 7/1/2015-6/30/2015 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Pertinent Metrics Under New Rehab Rules Percent of recoveries through loan rehabilitation FY 2014 = 44.8% FY 2015 = 58.2% FY 2016 = 67.1% (through Aug 2016) Percent of recoveries through loan consolidation FY 2014 = 33.8% FY 2015 = 21.5% FY 2016 = 15.0% (through Aug 2016) 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Observations/Best Practices The most significant challenge with this process is in getting borrowers to submit IDR applications after their account is transferred to servicing. 57.3% of IDR-based rehabs are still on a level repayment 63.7% of FDF-based rehabs are still on a level repayment This is the main driver for the high delinquency rates. 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

November 7 – 9, Sheraton Downtown, Nashville, TN Questions? 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN