Building Bridges for a Better Tomorrow MASFAA 2005 Late Stage Delinquency Assistance: A Bridge Over Troubled Water Mark Walsh Amy Kerwin FSA Default Prevention Team Great Lakes Higher Education U.S. Department of Education Guaranty Corporation

MASFAA 2005 Building Bridges for a Better Tomorrow 2 What We’ll Talk About The Big Picture Reducing delinquent loans through LSDA –Why should I get involved? –What should I do?

MASFAA 2005 Building Bridges for a Better Tomorrow 3 Student Loan Statistics Approximately $400 billion in outstanding federal student loans Nearly 30 million borrowers More than 50% of the outstanding FFEL and DL balance is in consolidation The average outstanding loan balance in consolidation is $18,240

MASFAA 2005 Building Bridges for a Better Tomorrow 4 Composition of the Outstanding Loan Portfolio Source: NSLDS and Common Services for Borrowers (CSB) Data Mart (July 31, 2005)

MASFAA 2005 Building Bridges for a Better Tomorrow 5 Composition of the Outstanding Loan Portfolio Source: NSLDS (July 31, 2005)

MASFAA 2005 Building Bridges for a Better Tomorrow 6 Composition of the Outstanding Loan Portfolio Source: CSB Data Mart (July 31, 2005)

MASFAA 2005 Building Bridges for a Better Tomorrow 7 Comparisons : 21% of undergraduates received Title IV financial aid : 46% of undergraduates received Title IV financial aid

MASFAA 2005 Building Bridges for a Better Tomorrow 8 Comparisons Average Defaulted Loan as of 9/30/03: $3,830 Average Defaulted Loan as of 9/30/04: $3,940 Average Defaulted Loan as of 9/12/05: $4,130

MASFAA 2005 Building Bridges for a Better Tomorrow 9 Cohort Default Rates All-Time High? 1990 CDR 22.4% All-Time Low? 2003 CDR 4.5%

MASFAA 2005 Building Bridges for a Better Tomorrow 10 4 Year Private 4 Year Public 2 Year Public 2 Year Private Career Represents Direct Loan & FFEL Portfolio Cohort Default Contribution by School Type

MASFAA 2005 Building Bridges for a Better Tomorrow 11 Defaulter Characteristics 84% did not receive their full 6 month grace period due to late enrollment notification 71% withdrew without completing studies 56% had bad phone numbers 83% were not successfully contacted by phone during the 360-day collection effort during delinquency Represents Direct Loan Portfolio Only

MASFAA 2005 Building Bridges for a Better Tomorrow 12 Delinquency Management: Should I Be Concerned? All schools contribute to the problem –It’s not just about CDR –Dollars and Accounts Unnecessary costs to: –Borrowers –Schools –Servicers –Department of ED –Guaranty Agency

MASFAA 2005 Building Bridges for a Better Tomorrow 13 What Schools Can Do Take advantage of the opportunities to minimize delinquent borrowers at three stages: #1 While borrower is enrolled #2 Before borrower leaves school #3 After borrower is gone

MASFAA 2005 Building Bridges for a Better Tomorrow 14 Secretary’s Sample Default Prevention and Management Plan Revised 9/30/05 Useful information for all schools Promotes student and school success Available on IFAP

MASFAA 2005 Building Bridges for a Better Tomorrow 15 Borrowers Who Leave Early Exit Counseling For those who leave early –Find out why they left and use this information! –Collect updated contact numbers and addresses so you can reach them later

MASFAA 2005 Building Bridges for a Better Tomorrow 16 After The Borrower Leaves Promptly update the enrollment change Important Note: Most defaulters do not receive their full grace period –Why not? –Why is this important? –What is the solution?

MASFAA 2005 Building Bridges for a Better Tomorrow 17 Borrowers in Late Stage Delinquency Who are these borrowers? My lender was unsuccessful – How can I make a difference? Late Stage Delinquency Assistance (LSDA) Why and how does it work?

MASFAA 2005 Building Bridges for a Better Tomorrow 18 Why is Late Stage Delinquency Assistance Working? Schools feel it is the right thing to do Students respond well to schools Minimal resources and effort required The results are dramatic!

MASFAA 2005 Building Bridges for a Better Tomorrow 19 Stafford Borrower Delinquency Pattern 12 Month Average 0% 5% 10% 15% 20% 25% 30% 35% Days Past Due Percentage of Total Delinquency Borrower Delinquency Pattern Represents Direct Loan Portfolio Only

MASFAA 2005 Building Bridges for a Better Tomorrow 20 Late Stage Delinquency Tools and Techniques Amy Kerwin Great Lakes Higher Education Guaranty Corporation

MASFAA 2005 Building Bridges for a Better Tomorrow 21 Where to Start? What is the maximum number of defaults included in your target cohort default rate? How can you project your cohort default rate through the end of the cohort period? Which delinquent borrowers do you want to target? What default prevention activities can you perform?

MASFAA 2005 Building Bridges for a Better Tomorrow 22 What is the maximum number of defaults included in your target cohort default rate?

MASFAA 2005 Building Bridges for a Better Tomorrow 23

MASFAA 2005 Building Bridges for a Better Tomorrow 24 How can you project your cohort default rate through the end of the current cohort period?

MASFAA 2005 Building Bridges for a Better Tomorrow 25

MASFAA 2005 Building Bridges for a Better Tomorrow 26 Which delinquent borrowers do you want to target?

MASFAA 2005 Building Bridges for a Better Tomorrow 27 Delinquent Borrower Segments Borrowers >= 320 days delinquent who can impact your current CDR Borrowers < 320 days delinquent who can impact your current CDR Borrowers who entered repayment before or after the start of the current cohort year PLUS borrowers

MASFAA 2005 Building Bridges for a Better Tomorrow 28 Why a Late Stage Delinquency Focus? The segment of borrowers more than 320 days delinquent is the smallest and most manageable. Most delinquencies are resolved before the borrower becomes 150 days delinquent. Lenders and guaranty agencies try independently to reach delinquent borrowers until the claim is filed. At claim time, a new strategy is needed.

MASFAA 2005 Building Bridges for a Better Tomorrow 29 What default prevention activities can you perform?

MASFAA 2005 Building Bridges for a Better Tomorrow 30 Send Letters, Postcards or s Customize your text to match the targeted borrower segment. For late stage: –Indicate that a default will be reflected on the borrower’s “permanent record” –Describe the consequences of default –Ask the borrower to contact you to learn about options available to avoid default. Provide your phone number and the number of your guarantor. Personalize each piece of correspondence.

MASFAA 2005 Building Bridges for a Better Tomorrow 31 Make Phone Calls Enlist your guarantor’s support. –“Connecting With Delinquent Borrowers (A Step-by-Step Guide to Making Default Aversion Calls)” –“What Happens When a Borrower Defaults” –“Repayment Options for Student Loans” –Transfer calls to your guarantor or initiate a 3- way call

MASFAA 2005 Building Bridges for a Better Tomorrow 32 Take Advantage of Other Resources Your guarantor’s website FSA Assessments – Management/DefaultManagement.html

MASFAA 2005 Building Bridges for a Better Tomorrow 33 Thank You

MASFAA 2005 Building Bridges for a Better Tomorrow 34 Contact Us: Mark Walsh Lead - FSA Default Prevention U.S. Department of Education (816) Amy Kerwin Chief Guaranty Officer Great Lakes Higher Education Guaranty Corporation