National Association of Student Financial Aid Administrators Presents … © NASFAA 2012 Direct Loans, The Rest of the Story

Slide 2 © NASFAA 2012 Goals of Workshop Understand topics presented and provide opportunities to exchange best practice tips with colleagues Ensure compliance with Direct Loan regulations Understand reconciliation and cash management Understand cohort default rates and appeals to the default rates Understand loan servicing Identify repayment strategies for students

Slide 3 © NASFAA 2012 Agenda Overview of Direct Loans Reconciliation Cohort Default Rate Loan Servicing Loan Repayment Conclusion

Slide 4 © NASFAA 2012 Section II Overview of Direct Loans

Slide 5 © NASFAA 2012 Types of Federal Direct Loans Direct Subsidized Stafford Loans Direct Unsubsidized Stafford Loans Direct PLUS Loans Direct Graduate PLUS (Grad PLUS)

Slide 6 © NASFAA 2012 Direct Subsidized Stafford Loans Most common Title IV loan based on demonstrated need Student does not pay interest accrued while enrolled half-time Student will be responsible for the accrued interest upon leaving school or dropping below half-time enrollment Annual loan amount determined by subtracting both EFC and other aid from school cost of attendance (COA) up to annual loan limit Interest rate is 3.4% for loans made prior to July 1, 2013

Slide 7 © NASFAA 2012 Direct Unsubsidized Stafford Loans Works similarly to subsidized loans but borrowers are charged all interest that accrues while in school Accrued interest may be paid during enrollment or capitalized and added to principal balance of the loan Eligibility not based on demonstrated need; may replace EFC

Slide 8 © NASFAA 2012 Direct Unsubsidized Stafford Loans (cont’d) Annual and cumulative maximum loan amounts are higher than subsidized loans for undergraduate programs Annual loan amounts are calculated by subtracting all other aid and subsidized loan amounts from the institutional COA Interest rate is 6.8%

Slide 9 © NASFAA 2012 PLUS Low interest education loans to parents of dependent undergraduates Parents must use loan funds to pay children’s higher education costs To qualify, parent borrower must not have adverse credit history (credit history not considered for Stafford loans) Loan amounts limited to the difference between the student’s institutional COA and all other anticipated aid Interest rate on Direct PLUS Loans is fixed at 7.9%

Slide 10 © NASFAA 2012 Direct Graduate PLUS (Grad PLUS) Low interest education loans to graduate/ professional students Loans available up to the full annual amount of the cost of education less any other financial aid received Borrower must first have Direct Unsubsidized Loan eligibility determined Interest rate on GRAD PLUS Loans is fixed at 7.9%

Slide 11 © NASFAA 2012 Entrance Counseling First-time Direct Loan borrowers are required to complete Entrance Counseling prior to receiving the first disbursement unless they have previously received the same type of loan through the FFEL Program Entrance Counseling available on the website Schools may offer Entrance Counseling through in- person sessions, audio-visual presentations, or other online counseling products

Slide 12 © NASFAA 2012 Entrance Counseling (cont’d) Counseling covers 12 separate topics relating to the student’s loan COD System receives and stores Entrance Counseling data, if the counseling is completed on the websitewww.StudentLoans.gov When a borrower completes the session, COD sends an acknowledgement to all schools selected in the counseling session

Slide 13 © NASFAA 2012 Exit Counseling Stafford Loan borrowers also required to complete Exit Counseling upon graduation or when grace period expires Schools have options to suggest how students complete exit counseling: –NSLDS –In-person counseling sessions –Third-party loan counseling product

Slide 14 © NASFAA 2012 Exit Counseling (cont’d) Schools assure each guarantor or servicer receives exit verification form, or sends it to NSLDS who will forward it to all appropriate entities When students don’t complete counseling as required, school must send written materials within 30 days Must also mail materials to correspondence and study abroad students

Slide 15 © NASFAA 2012 Overview of National Student Loan Database System (NSLDS) Authorized by the Education Amendments of 1986, NSLDS is a comprehensive database of the following: Loan-level information for Title IV borrowers Grant-level information for Pell Grant recipients Outstanding Pell Grant, FSEOG, and Perkins overpayments

Slide 16 © NASFAA 2012 Overview of National Student Loan Database System (NSLDS) NSLDS receives data from the following: Guarantee Agencies (GAs) –FFEL data Lenders (or their servicers) –Additional FFEL data through their guarantors Schools –Perkins and income contingent loan-level data –Pell Grant and FSEOG overpayments –Enrollment status reports

Slide 17 © NASFAA 2012 Overview of National Student Loan Database System (NSLDS) (cont’d) NSLDS receives data from the following: Federal Direct Loan Program Servicers –Direct Loan data Other Title IV systems –Title IV applicant data –Pell Grant recipient data –Loans assigned to U.S. Department of Education (ED)

Slide 18 © NASFAA 2012 NSLDS Functions Data collected by NSLDS supports these functions: Prescreening for Title IV aid eligibility Default rate calculations Monitoring GA and lender billings for reasonability Support research studies and policy development ED budget analysis and development Audit and program review planning Assessment of FFEL Program administration by GAs, schools, and lenders

Slide 19 © NASFAA 2012 NSLDS Functions (cont’d) Data collected by NSLDS supports these functions: Refund/cancellation support Borrower tracking Loan transfer tracking SSCR Financial aid history Credit Reform Act (CRA) support Organizational contacts Aid overpayments

Slide 20 © NASFAA 2012 Section III Reconciliation

Slide 21 © NASFAA 2012 It’s Your Check Book! Reconciliation is like balancing your check book every month!

Slide 22 © NASFAA 2012 Simple as Balancing Your Own Checkbook, Honest! You have your own records and the bank’s records for the same time. Just make them match!

Slide 23 © NASFAA 2012 Translated to the Office You have all your Direct Loan awards and transactions in your financial aid software system You have your originations and disbursements in Common Origination and Disbursement (COD)

Slide 24 © NASFAA 2012 It’s a Puzzle Just like your checkbook, there are missing entries: Hunt them down and make sure both COD account and financial aid software agree Balance financial aid software with COD first, then take that work and reconcile to the institutions General Ledger Take that body of work and balance the G5 account If you follow this every month then you can have vacation next summer!

Slide 25 © NASFAA 2012 Monthly Reconciliation The process by which the Direct Loan Cash Balance recorded on the ED system is reviewed and compared with a school’s internal records on a monthly basis School must: –Identify and resolve discrepancies –Document reasons for their Ending Cash Balance each month

Slide 26 © NASFAA 2012 Total Net Drawdowns – Total Net Booked Disbursements = Ending Cash Balance Ending Cash Balance (ECB)

Slide 27 © NASFAA 2012 Reconciliation Tools and Resources School Account Statement COD Website DL Tools Student Files Financial Aid Office Reports Business Office Reports

Slide 28 © NASFAA 2012 Reconciliation Tools and Resources COD Customer Service Representative Reconciliation Team Weekly monitoring s Looks up those pesky accounts stuck in “pending”

Slide 29 © NASFAA 2012 School Account Statement (SAS) Generated by COD on 1 st weekend of the month Contains data through the end of the previous month Separate SAS for each open award year

Slide 30 © NASFAA 2012 School Account Statement (SAS) Four Primary SAS Components –Cash Summary –Disbursement Summary by Loan Type –Cash Detail –Loan Detail (Loan or Disbursement Activity Level) Different Report Options –Format –Content

Slide 31 © NASFAA 2012 Reconciliation: A Process Flow

Slide 32 © NASFAA 2012 Cash Summary Comparison

Slide 33 © NASFAA 2012 Cash Summary Comparison Compare: Cash Summary from School Records/EDExpress Compare School Records to SAS Cash Summary What did you find?

Slide 34 © NASFAA 2012 What Did You Find? Discrepancies: Difference in Refund of Cash = ($725) Difference in Booked Adjustments = $1,250 Difference in Unbooked Disbursements = $862

Slide 35 © NASFAA 2012 Cash Discrepancies: Common Causes Timing Issues Cash transactions in wrong year or split between years Funds sent as refunds of cash that should have been a payment (or reverse) Funds recycled for disbursement in a different award year

Slide 36 © NASFAA 2012 Cash Discrepancies: Research Tools Cash Detail Comparison Report SAS Cash Detail Cash Management Tool COD Website Business Office Cash Report Bank Statements Cancelled Checks

Slide 37 © NASFAA 2012 Documenting Discrepancies One discrepancy – school sent refund of cash to COD on 4/29/10 for $725 COD Received and Processed on 5/1/10 Add to Action Item List: –Track refund of cash timing difference for May SAS Reconciliation

Slide 38 © NASFAA 2012 Disbursement Detail Comparison

Slide 39 © NASFAA 2012 Disbursement Discrepancies: Research Tools Disbursement Detail Comparison Report Financial Aid Office Disbursement Report Business Office Disbursement Report SAS Disbursement Detail COD Website – Award/Disbursement Detail Student Account Files Business Office Ledgers/Statements of Account

Slide 40 © NASFAA 2012 Disbursement Discrepancies: Common Causes Unsent/unacknowledged disbursement batches Rejected disbursements Disbursements recorded in Business Office –Not in Financial Aid system Unbooked records School data loss

Slide 41 © NASFAA 2012 Documenting Discrepancies Two discrepancies – ($1,250) in booked adjustments entered via COD web – $862 disbursement batched, not sent to COD (unbooked) Additional $3,264 Unbooked on SAS Add to Action Item List: – Record ($1,250) adjustments at school – Send $862 disbursement for Jesse James to COD – Document booked $3,264 amount in new month

Slide 42 © NASFAA 2012 Ending Cash Balance (ECB) Every month! Clean monthly balances lead to easier closeouts – REALLY!

Slide 43 © NASFAA 2012 Perform Internal Reconciliation Compare Business Office and Financial Aid Office Records Develop procedures/schedule for internal reconciliation and assign responsibilities Compare based on overall cash/disbursement totals and/or student detail Troubleshoot discrepancies

Slide 44 © NASFAA 2012 Documenting Differences and Reasons Examples of reasons ECB is not $0: ECB Differences of Financial Aid Office to SAS –Entered Refund of Cash on 4/29 on G5, processed on COD 5/1 –Adjustments done via COD website, not entered in school database –Disbursements credited in the Business Office, but not entered in Financial Aid Office or sent to COD

Slide 45 © NASFAA 2012 Examples of Differences and Reasons Examples of reasons ECB is not $0: Unbooked Differences Financial Aid Office to SAS –Disbursement not sent to COD

Slide 46 © NASFAA 2012 How Do I Know I Am Finished? All discrepancies have been identified and resolved or in process of resolution Timing issues are tracked for reconciliation in next month’s SAS Reasons for any Ending Cash Balance have been identified All monthly reconciliation efforts have been documented DONE

Slide 47 © NASFAA 2012 Monthly Reconciliation: Other Reports and Tools COD Resources and Tools COD Customer Service: –Issue identification and resolution –Outreach s –Ad hoc Reports COD website,

Slide 48 © NASFAA 2012 Program Year Closeout The process by which schools complete final processing at the end of a Direct Loan award year –Extension of the monthly reconciliation process –$0 Ending Cash Balance (DL funds received = DL funds disbursed) –Final deadline: July 31 st of the year following end of the award year (7/31/2012 for 2010–2011) Note: 30 Day reporting requirement supersedes both reconciliation and closeout requirements

Slide 49 © NASFAA 2012 Year End Closeout It’s as simple as keeping your Monthly Balances clean!

Slide 50 © NASFAA 2012 Section IV Cohort Default Rates

Slide 51 © NASFAA 2012 Introducing Student Loan Defaults A borrower defaults on their federal student loan when they fail to make an installment payment when due or show other reasons to conclude that they no longer intend to honor their obligation to repay, provided that this failure persists for 270 days

Slide 52 © NASFAA 2012 Introducing Cohort Default Rates (CDR) A school’s cohort default rate is the percentage of a school’s federal student loan borrowers who enter repayment within the cohort fiscal year and default within the cohort default period

Slide 53 © NASFAA 2012 CDR Measurements Schools annual CDR is based on a “cohort” of students who borrowed FFEL or Direct Loans who entered repayment during a particular federal fiscal year FY2010 CDR uses those students who entered repayment between October 1, 2009 and September 30, 2010

Slide 54 © NASFAA 2012 CDR Measurements: 2-year Total borrowers who entered repayment in FY2010 who defaulted in FY2010 and FY2011 Total borrowers who entered repayment during FY2010

Slide 55 © NASFAA 2012 CDR Measurements: 3-year Total borrowers who entered repayment in FY2010 who defaulted in FY2010, FY2011 and FY2012 Total borrowers who entered repayment during FY2010

Slide 56 © NASFAA 2012 CDR Announcements Draft default rates are sent out to schools annually in February – Opportunity to collect data and review the rate measurements for accuracy Official default rates are electronically issued in September School must be enrolled in the eCDR process for electronic delivery

Slide 57 © NASFAA 2012 Impact of High Cohort Default Rates Currently schools are not considered to be “administratively capable” when – CDR exceeds 25% for the three most recent fiscal years – Or if most recent year CDR is greater than 40% Such schools may become “provisionally certified” to administer Title IV aid Can make school ineligible to participate in Direct Loan and Federal Pell Grant programs

Slide 58 © NASFAA 2012 Impact of Low Cohort Default Rates 30-day delay required in disbursing Direct Loans to first-time, first-year undergraduate borrowers unless: – School had a CDR of less than 15% for the three most recent fiscal years – School’s CDR was less than 5% for the most recent fiscal year if desiring to disburse funds for a student’s study abroad program Single disbursement allowed: – If CDR is less than 15% for three most recent years

Slide 59 © NASFAA 2012 Impact on schools – 3-year CDRs Schools with a single-year CDR of 30% or greater will be required to establish a default prevention task force Schools with CDRs of 30% or greater for two consecutive years will have to revise their plans to implement additional procedures and may be subject to provisional certification

Slide 60 © NASFAA 2012 Appeals What can be appealed? How do I make an appeal? Is it worth the effort? If we lose eligibility, can we reestablish our participation in the Title IV programs?

Slide 61 © NASFAA 2012 What Can Be Appealed? Appeals can be made about the accuracy of the data used to calculate your CDR 45-day window from issuance of draft CDR rates to submit a challenge to the data – correcting bad data reported in NSLDS Common errors to look for: – Incorrect separation date – Duplicate loan information – Inconsistent data between servicers

Slide 62 © NASFAA 2012 Information Available from NSLDS Several detailed reports are available from the NSLDS that can outline your students’ repayment information The Loan Record Detail Report (LRDR) is a key piece for your review

Slide 63 © NASFAA 2012 How Do I Make an Appeal? Schools must challenge data during the Draft Cycle or forfeit the right to question the data during the Official Cycle Student loan data that appears to be incorrect must be documented to clearly show the accurate loan status A letter from your school’s president or CEO must accompany the appeal Appeals are made electronically

Slide 64 © NASFAA 2012 How Do I Make an Appeal? Tools are available from various sources that can help you focus your attention on the students that most likely have inaccurate student loan data reported Use of these can help you succeed in cleaning your calculated CDR to an accurate figure

Slide 65 © NASFAA 2012 How Do I Make an Appeal? The 45-day window requires a quick turnaround for your appeal Reviewing your students’ loan information throughout the year can help you maintain the accuracy without a frantic push during the spring packaging season

Slide 66 © NASFAA 2012 Is It Worth the Effort? Reviewing the data takes time during February and March If your institution’s CDR has crossed a line which will lead to benefit loss or penalties, the time invested may be very worthwhile Most of the data is likely to be accurate, but some schools have reported reducing their CDR s by up to 4%

Slide 67 © NASFAA 2012 Section V Loan Servicing

Slide 68 © NASFAA 2012 Terms Federal Loan Servicer PUT loans Commercial loans TIVAS NFP LDE Split Servicing

Slide 69 © NASFAA 2012 Federal Loan Servicing Federal Loan Servicing is intended to: Be borrower-centric Centralize information for schools and borrowers Create a competitive environment among servicers Ensure quality control

Slide 70 © NASFAA 2012 Borrower-Centric All of a borrower’s federally-held loans are maintained by a single servicer – The servicer is assigned to the borrower; the borrower cannot select the servicer Schools – Must work with multiple servicers – Schools cannot select the servicer for the borrower

Slide 71 © NASFAA 2012 Availability of Information Single point of contact for school and borrowers Consolidated delinquency information Greater level of detail Counseling support

Slide 72 © NASFAA 2012 Competitive Environment Improved customer service Enhanced website functionality Development of outreach activities Expanded default prevention activities Increased and creative communications

Slide 73 © NASFAA 2012 Ensure Quality Control Future loan allocations tied to performance Performance measures depend upon customer satisfaction and default rates Satisfaction is measured by surveys of –Schools –Borrowers –Federal personnel

Slide 74 © NASFAA 2012 Metrics TIVAS Satisfaction among –Borrowers –Financial Aid Personnel at postsecondary schools –Federal Student Aid agency personnel Default prevention efforts –Percentage of borrowers –Percentage of dollars

Slide 75 © NASFAA 2012 Metrics NFPs Satisfaction among –Borrowers –Federal Student Aid agency personnel Default prevention efforts –Percentage of borrowers 30 or fewer days delinquent –Percentage of borrowers 90 days delinquent –Percentage of borrowers with delinquency greater than 180 days resolved

Slide 76 © NASFAA 2012 Contact Federal Student Aid Research and Customer Care Center (RCCC) 800/

Slide 77 © NASFAA 2012 Section VI Loan Repayment

Slide 78 © NASFAA 2012 Direct Loan Repayment Plans Standard Graduated Extended Income Based Income Contingent Alternate

Slide 79 © NASFAA 2012 FFEL Repayment Plans Standard Graduated Extended Income Based Income Sensitive

Slide 80 © NASFAA 2012 Repayment Plan Examples

Slide 81 © NASFAA 2012 Standard Repayment Example: Loan Balance$30,000 Monthly Payment $ 345 Total Interest Paid$11,428 Total Paid (P&I)$41,428

Slide 82 © NASFAA 2012 Graduated Repayment Example: Loan Balance$30,000 Monthly Payment 1-2 year$ year$ year$ year$ year$ 517 Total Interest Paid$13,666 Total Paid (P&I)$43,666

Slide 83 © NASFAA 2012 Extended Repayment Example: Loan Balance$35,000 Monthly Payment (For 30 years) $ 243 Total Interest Paid$37,878 Total Paid (P&I)$72,878

Slide 84 © NASFAA 2012 Income Based Repayment (IBR) Example of IBR Calculation: Family Size = 1 Monthly AGI $3, % of State poverty line– $1,397 $1,603 15% of $1,603 = 240 Standard payment = $345 QUALIFY ? YES

Slide 85 © NASFAA 2012 Other Repayment Options and Forgiveness Programs

Slide 86 © NASFAA 2012 Repayment Options - Consolidation Loans Gives borrowers with multiple servicers a single monthly loan payment on federal loans May give borrowers a lower monthly payment, however, –The interest rate may increase when the weighted average of the consolidated loans are rounded to the nearest eighth percent, and –Borrower may pay more in accrued interest

Slide 87 © NASFAA 2012 Public Service Loan Forgiveness Borrowers who work for a public service employer may have part of their Direct Loan debt forgiven –After making 120 qualifying monthly payments on or after October 1, 2007 Public Service Employers or Organizations Private organization that provides public services

Slide 88 © NASFAA 2012 Teacher Loan Forgiveness Borrowers who teach in an elementary or secondary school that serves low-income families, may have be eligible to have a portion of their Stafford loan debt forgiven

Slide 89 © NASFAA 2012 Loan Forgiveness Programs for Federal Employees Permits federal agencies to repay federal student loans as a recruitment or retention incentive for candidates or current employees Visit opm.gov/oca/pay/StudentLoan for more information

Slide 90 © NASFAA 2012 Section VII Conclusion

Slide 91 © NASFAA 2012 Questions?

Slide 92 © NASFAA 2012