Welcome to Teaching + Learning Tuesdays April 15, 2014 I 2:30PM to 4:00 PM

Title: Direct Loan Program and Default Prevention Presenters: Ray Jones, Anne-Harvin Gavin, and Chuck Sanders South Carolina Student Loan

Direct Loan Program and Default Prevention South Carolina Technical College System April 15, 2014

Direct Loan Program Overview Initially established during Reauthorization of the Higher Education Act in 1992 The Healthcare and Education Reconciliation Act of 2010 required all federal student loans to be originated directly through the Federal Direct Loan Program, eliminating state-based originations New student loans are now assigned to federal loan servicers at the time the loan is disbursed to the borrower. These assigned servicers will work with borrowers to manage the billing and repayment options of the student loans. 4

Direct Loan Servicers TIVAS (Title IV Additional Servicers) –Nelnet –FedLoan Servicing (PHEAA) –Sallie Mae –Great Lakes Educational Loan Services, Inc. NFPs (Not For Profit Servicers) –Aspire Resources Inc. –Cornerstone –ESA/Edfinancial –Granite State – GSMR –MOHELA –OSLA Servicing –VSAC Federal Loans IFAP Servicing Contact information 5

DL Loan Servicing – Student Loan Repayment In-school period –Payments are postponed during periods of half-time enrollment –Undergraduate subsidized loans do not accrue interest –Unsubsidized loans accrue interest from time of disbursement Grace period –Six-month grace period begins as soon as student graduates, withdraws, or becomes less than half-time –Only one six-month grace period per loan Repayment –Begins immediately after grace period end date –Loan disclosures provide full terms of loan repayment obligation –First payment usually becomes due days after converting to repayment 6

DL Servicing Repayment Options Repayment Plans –Standard Repayment Plan Initial borrower plan; level payment amount with 10-year loan term –Graduated Repayment Plan 10-year loan term; payment starts lower than standard and gradually increases –Extended Repayment Plan Extends loan term up to 25 years for balances greater than $30,000 –Income-Driven Repayment Plans Pay as You Earn (PAYE) Income-Based Repayment (IBR) Income-Contingent Repayment (ICR) Additional plans based on borrower’s annual income 7

Payment Postponement Deferments: –Entitlements –Limited time –Eligibility based on situation of borrower in-school, unemployment, economic hardship, military, etc. –Subsidized portion of undergraduate loan does not accrue interest Forbearance –Usually discretionary –36-month limit –May be offered if borrower is not eligible for deferments –Interest accrues on entire balance, including subsidized portion 8

Cohort Default Rate – Changing Climate More students borrowing money Increasing educational costs Slow economy, higher unemployment No local default prevention and financial literacy efforts due to elimination of state-based originations by organizations like SC Student Loan Increasing delinquency rates Loan default rates have increased for most institutions Transition to 3-year cohort default rate calculation 9

2014 – 3 year cohort transition will be completed Third year of 3-year rates are released 2-year rates end Sanction threshold for loss of program eligibility becomes 3 consecutive years equal to or greater than 30% 10

Required corrective actions Year 1 at 30% or higher: –Default prevention plan and task force required –Submission of plan to FSA is required Second consecutive year at 30% or higher: –Review and make necessary changes to default prevention plan –Submit changed plan to FSA for review –FSA may require additional steps as needed Third consecutive year at 30% or higher: –Loss of eligibility for DL Loans (also lose Pell eligibility) –Institution may go through appeal rights –34 CFR

Two Year CDR Cohort Fiscal YearBorrowers in the Numerator/ Borrowers in the Denominator 2-Yr Time Period (Numerator) 1-Yr Time Period (Denominator) 2009Borrowers who entered repayment in 2009 and defaulted in 2009 or 2010 divided by Borrowers who entered repayment in /01/2008 to 9/30/ /01/2008 to 9/30/ Borrowers who entered repayment in 2010 and defaulted in 2010 or 2011 divided by Borrowers who entered repayment in /01/2009 to 9/30/ /01/2009 to 9/30/ Borrowers who entered repayment in 2011 and defaulted in 2011 or 2012 divided by Borrowers who entered repayment in /01/2010 to 9/30/ /01/2010 to 9/30/

Three year CDR Cohort Fiscal YearYear PublishedBorrowers in the Numerator divided by Borrowers in the Denominator 3-Yr Time Period (Numerator) 1-Yr Time Period (Denominator) Borrowers who entered repayment in 2009 and defaulted in 2009, 2010 or 2011 divided by Borrowers who entered repayment in /01/2008 to 9/30/ /01/2008 to 9/30/ Borrowers who entered repayment in 2010 and defaulted in 2010, 2011 or 2012 divided by Borrowers who entered repayment in /01/2009 to 9/30/ /01/2009 to 9/30/ *Borrowers who entered repayment in 2011 and defaulted in 2011, 2012 or 2013 divided by Borrowers who entered repayment in /01/2010 to 9/30/ /01/2010 to 9/30/

Preventing Default – A School Approach Financial aid office initiatives –Entrance/Exit Counseling –Updated contact information –Understanding loan repayment –Updating enrollment status changes Focus efforts through entire borrowing experience –In-school –During grace –During repayment 14

What is your graduation rate? At-risk students often do not complete programs of study Historically, higher percentages of defaulting students did not complete their academic program –Did not benefit from job placement services offered by school –Reduced wages due to lack of degree/certification –No exit counseling –Communication attempts were not received from the servicer due to incorrect contact information –Withdrawal may be reported late to NSLDS, resulting in reduced efforts to contact during grace 15

Borrowers in school – start early Implement student loan awareness as part of orientation process Include information in a “university 101” class Offer financial literacy awareness throughout student enrollment –Students that understand how to budget are less likely to default Show loan payment amount estimates based on total loan balances Consistently review and update student contact information Increase efforts for retention, graduation, and employment 16

Borrowers in Grace Periods Steps to take –Validate contact information –Re-enrollment assistance –Transfer assistance –Prepare borrower for repayment –Provide employment counseling and search preparation –Job placement assistance Note: Delays in schools submitting timely enrollment information to NSLDS may increase default risk. Send these changes immediately. Servicers are required to submit to NSLDS weekly. 17

Borrowers in Repayment Consistently run and review NSLDS reports –Delinquency reports –Demographic reports –Contact loan servicer with updated borrower contact information –Direct phone calls, s, letters, etc. Early in repayment: Target borrowers who did not complete school Late in repayment: Target borrowers who are 180+ days delinquent Skip tracing efforts on bad contact information Once contacted, discuss individual borrower situation, provide warm transfer to servicer 18

Counseling Entrance/Exit counseling is a regulatory requirement Determine the method of counseling that works best for your students. Limited staffing resources often plays a role. –Online –Group Sessions –Combination Determine at-risk borrowers and consider additional entrance and exit loan counseling. Require entrance counseling for every new loan. Performing exit loan counseling earlier or more often to these students may help as well. 19

Contact Information Enhance skip tracing efforts when incorrect demographic information is found Continue to supplement contact and reference information found on the MPN to the borrower’s servicer Work with all departments to collect borrower contact information when an office visit is made Inform borrowers that the contact information may be verified  Note: SCSL finds that almost all defaulted student loans could have been corrected if we had been able to contact the borrower 20

NSLDS Institutional Reports ReportDescription DRC015 DRC016 Repayment Loan Info Detail Report provides the current repayment status of certain borrowers in the FFEL and Direct Loan programs who attended a school during a specific period, either 24 months (DRC015) or 36 months (DRC016) DER001The Date Entered Repayment Report (DER001) is a list of student borrowers who are scheduled to go into repayment during a specified date range, with their loan histories SCHDF2The Borrower Default Summary Report (SCHDF2) provides a list of loans that currently have a defaulted loan status (DB, DL, DO, DT, DU, DW, DF, or DZ) and a loan status date that falls within the requested date range SCHPR2The School Portfolio Report (SCHPR2) provides school users with information about all Direct Loan and/or FFEL program loans for a specified school DELQ01The Delinquent Borrower Report (DELQ01) provides school users a report of borrowers who have been reported as delinquent in making loan payments to one of the federal loan servicers Reviewing your data is valuable: Allows you to identify and correct errors before the draft and official cohort default rates are released Is an opportunity for immediate feedback on prevention initiatives Real-time insight into At-Risk borrowers and their characteristics Opportunity to prepare for release of Draft and Official rates 21

Consequences of Default for a borrower: The consequences of default can be severe: The entire unpaid balance of the loan and any interest may be immediately due and payable. Lose eligibility for deferment, forbearance, and repayment plans. Lose eligibility for additional federal student aid. The loan will be reported as defaulted to credit bureaus, damaging the borrower’s credit rating. Federal and state taxes may be withheld through a tax offset. This means that the Internal Revenue Service can take a federal and state tax refund to collect any of the defaulted student loan debt. They also have the ability to withhold any federal payment such as federal retirement benefits. The student loan debt will increase because of the late fees, additional interest, court costs, collection fees, attorney’s fees, and any other costs associated with the collection process. A borrower’s employer (at the request of the federal government) can withhold money from their pay and send the money to the government or holder of the loan. This process is called wage garnishment. The loan holder can take legal action against the borrower, and they may not be able to purchase or sell assets such as real estate. Federal employees face the possibility of having 15% of their disposable pay offset by their employer toward repayment of their loan through Federal Salary Offset. City, County, State, and Federal workers could face job termination. It will take years to reestablish credit and recover from default. 22

EdManage - SC Student Loan’s Default Prevention Program for Schools 40 years of student loan servicing experience Tiered offerings allow schools to determine the specific needs of the institution at different pricing levels Knowledgeable representatives to discuss repayment options with delinquent borrowers Blast campaigns during enrollment, grace, and repayment Warm transfers to the borrower’s servicer after high level options are discussed Local presence allows us to provide counseling, financial literacy awareness, high school financial aid nights in-person Established skip tracing efforts already in place Historically among the lowest default rates in the nation 23

24 Trigger Rate indicates loan balance defaulted during a federal fiscal year divided by loan balance in repayment at the beginning of such fiscal year. Under the Higher Education Act, as currently in effect, if a guaranty agency's Trigger Rate exceeds 5% then the applicable percentage at which the Secretary reinsures loans guaranteed by that guaranty agency begins to decline below the otherwise applicable level. FFELP Default Rates Cohort Default Rate is defined as the percentage of borrowers who enter repayment during a federal fiscal year and subsequently default within that same fiscal year or the following fiscal year.

Questions? Contact Information for Colleges Ray Jones (803) Anne Harvin Gavin (803)