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/ 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 default Allows 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 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 and ,000 Maximum number of defaults allowed by Increase in 2009 cohort default rate for every borrower who defaults during the cohort period 0.02%

What Changes Will Be Made 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-Year3-YearIncrease Public 2-year5.7%9.7%70% Public 4-year3.5%5.3%51% Private 4-year2.8%4.5%61% Proprietary8.6%16.7%94% OVERALL5.1%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 s 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?