DEFAULT MANAGEMENT AND PREVENTION SARAH BAUDER ASST. VICE PRESIDENT FOR FINANCIAL AID AND ENROLLMENT SERVICES UNIVERSITY OF MARYLAND 11/6/2012

STUDENT LOANS IN THE MEDIA 11/6/2012

AGENDA Cohort Default Rate Overview Does Default Prevention Help? The Consequences The Changes, Risks and Challenges Default Prevention Strategies Financial Literacy Case Study 11/6/2012

A COHORT DEFAULT RATE OVERVIEW 11/6/2012

CDRs ARE RELEASED TWICE A YEAR February (DRAFT) Not public No sanctions No benefits September (Official) Public Sanctions apply Benefits apply 11/6/2012

CDRs: THE FORMULA Numerator: Denominator: Borrowers who entered repayment in one year, and defaulted in that year or the next Borrowers who entered repayment during the one-year cohort period 11/6/2012

CDRs: DENOMINATOR IN FORMULA Determine Data Entered Repayment (DER) Date of graduation, withdrawal, or less than half-time status Plus 181 days (6 months + 1 day) = DER Using DER, determine the correct cohort year in which the student will be counted 11/6/2012

CDRs: NUMERATOR IN FORMULA Loan must be included in denominator Determine default date (361 day of delinquency or Claim Paid Date [CPD]) Determine if default date falls within cohort period 11/6/2012

CDRs: TWO FORMULA’S: APPLYING THE FORMULA Non-Average Rate 30 or more borrowers in repayment Average Rate Less than 30 borrowers in repayment 3 years of data 11/6/2012

USING THE NON-AVERAGE RATE FORMULA Calculation: For a school with 30 or more borrowers entering repayment in a fiscal year % x= (N) (D) 11/6/2012

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 % x= (N) (D) = 5 47 FY06 FY07FY08 11/6/2012

2 TO 3 YEAR CDR (A SCENARIO) Numerator = # of borrowers from the denominator who default within a FY Denominator = # of borrowers who enter repayment within a FY 125 Year 1 Year 2 5, Year 1 Year 2 5, Year ,000 =.071  7.1% Released Sept ,000 =.121  12.1% Released Sept /6/2012

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 10/1/11) 11/6/2012

CDR DISBURSEMENT WAIVERS FOR LOW DEFAULT RATES New threshold: Schools with a default rate less than 15% for the 3 most recent fiscal years May disburse a single term loan in a single installment, and Need not delay the first disbursement to a first- year undergraduate borrower until the borrower has completed the first 30 days of their program of study Effective for loans first disbursed on or after October 1, /6/2012

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 11/6/2012

INSTITUTIONAL CDR CALCULATIONS BY CDR YEAR CDRDenominator: Enter Repayment Numerator: Default Publish 2-Year Rates Rate Used for Sanctions FY /1/08 - 9/30/0910/1/08 - 9/30/11September 2012N/A FY /1/09 - 9/30/1010/1/09 - 9/30/12September 2013N/A FY /1/10 - 9/30/1110/1/10 - 9/30/13September year rate FY /1/11 - 9/30/1210/1/11 – 9/30/14September year rate FY /1/12 – 9/30/1310/1/11 – 9/30/15September year rate FY /1/13 – 9/30/1410/1/12 – 9/30/16September year rate Table 2. Publications of 3-year CDR 11/6/2012

NATIONAL STUDENT LOAN DEFAULT RATES

DOES DEFAULT PREVENTION HELP? The changes, risks and challenges 11/6/2012

THE CONSEQUENCES OF DEFAULT FOR THE SCHOOL The CDR is a measure of a school’s administrative capability High CDRs can: Negatively reflect on school quality Result in provisional certification Result in loss of Title IV eligibility 11/6/2012

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 enhanced benefit Transition to all Direct loan Origination and Servicing 11/6/2012

DEFAULT PREVENTION STRATEGIES 11/6/2012

FINANCIAL LITERACY 11/6/2012

WHAT WE DO TO KEEP OUR RATES LOW Be Proactive:  Know Who Could Default  Financial Literacy Classes for New Students  Satisfactory Academic Progress  Cash Course Requirement  8% rule – Profile Students  One-on-One Counseling  Encourage Limited Borrowing 11/6/2012

GOOD RESOURCES Default management sample plan from FSA Cohort Default Rate: The Cohort Default Rate Guide Default Prevention Resources Operations Performance Management Service Group (CDR Calculations and data challenges) Main line: Hotline: Web: ml ml 11/6/2012

CASE STUDY - UMD Default Rate GraduatedDidn’t GraduateTotal Any Academic Probation8%19%14% (20) Undergraduate Studies Major6%22%12% (21) High School GPA > 1.4 < 2.39%19%12% (15) Last Cum UG GPA >1.4 < 2.37%13%10% (178) Black/Af. American7%17%9% (207) 30+ Years Old6%12%8% (36) Any Alternative Loan3%18%7% (49) Unmet Need > $7,000 < $10,5005%14%7% (85) Average EFC <=$2,5005%14%7% (225) Independent5%12%7% (129) Enrolled 13+ Terms4%20%6% (112) Cumulative Loan Amount > $20,0004%20%6% (81) Total3%10%4% (404) 11/6/2012

QUESTIONS ? Contact: Sarah Bauder /6/2012