1 Reducing Delinquency and Default Prevention Mark C. Walsh Default Prevention Team U.S. Department of Education Federal Student Aid

2 Incorrect Data Challenges ED’s Default Prevention Plan Characteristics of Defaulted Borrowers Three Quick Prevention Tips Late Stage Delinquency Assistance Topics

3 $400 billion in outstanding federal student loans Nearly 30 million borrowers 50% + in FFEL and DL consolidation Average outstanding consolidation balance is $18,240 Defaults in the Stafford Loan Program

4 Demands our attention Equally important as the CDR Dollars in default continue to grow even Beyond the CDR – Dollars in Default as the national cohort default rate has decreased over a period of years

5 Beyond the CDR – Dollars in Default What is your school’s contribution? You can estimate the approximate dollars in default at your school. $1,000,000 (origination volume) x 5% (estimated school CDR) ___________ $50,000 (approx dollars in default)

6 Definition of CDR For schools having 30 or more borrowers entering repayment in a fiscal year, the CDR is the percentage of borrowers entering repayment on certain FFEL and/or DL Program loans during that fiscal year and default within the CDR period. For schools with 29 or fewer borrowers entering repayment in a fiscal year, the CDR data includes borrowers entering repayment over a three-year period.

7 CDR – Included Loans Federal Family Education Loan Program Subsidized Stafford Loan Unsubsidized Stafford Loan Supplemental Loans for Students Loan William D. Ford Federal Direct Loan Program Subsidized Stafford Loan Unsubsidized Stafford Loan

8 Cohort Default Rate Periods CDR Guide – Page /1/03 – 9/30/05 10/1/03 – 9/30/04 FY 2004 (N) (D)

9 CDR Review Loan data for CDR calculation stored in NSLDS Formula For FY 2004 N Default during 2 year period 10/1/2003 – 9/30/2005 DEnter repayment during 1 year period10/1/2003 – 9/30/2004 N X100%=CDR D FFEL & DL Guide—page 2.1-6

10 CDR – Denominator in the Formula Determine Date Entered Repayment (DER) Date of graduation, withdrawal, or less than half-time status plus 181 days (6 months + 1 day) = DER Using the DER, determine the correct cohort year in which the student will be counted

11 CDR – Numerator in the 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

12 Quick CDR Review Calculated 2 times/year Draft CDR February (FY 04 = 1/7/06, 2/13/06) Calculated/released Official CDR September (FY 04 = 7/29/06, 9/11/06) Calculated/released Public Sanctions Benefits Not public No sanctions No benefits

13 CDR – Applying the Formula Non-Average Rate 30 or more borrowers in repayment Average Rate less than 30 borrowers in repayment 3 years of data

14 Example: Using the Non- Average Rate Formula Calculation: For a school with 30 or more borrowers entering repayment in a fiscal year 100 X 225 = 2.2% 5 (D) (N)

15 Example: Using the Average Rate Formula Calculation: For a school with less than 30 borrowers entering repayment in a fiscal year % FY04 FY03 FY X= = The sum of the three most recent cohort periods (D) (N)

16 Sanctions Associated with High CDR 3 most recent official CDRs 25.0% or greater (e.g. FY 2004, 2003, 2002) Loss of eligibility to participate in FFEL, Direct Loan, and Pell Grant Programs Current year official CDR is greater than 40.0% Loss of eligibility to participate in FFEL and Direct Loan programs

17 Incorrect Data Challenge An incorrect data challenge is the process by which a school challenges any errors contained in its draft cohort default rate data.

18 Incorrect Data Challenge Eligibility All schools are eligible to challenge Time frames The challenge must be postmarked within 45 calendar days of receiving the most recent draft CDR. (For FY 04, challenge timeframe ends on 4/7/06.)

19 Incorrect Data Challenge Borrower incorrectly reported n Borrower incorrectly included n Borrower incorrectly excluded

20 Complete Incorrect Data Challenge Send to each data manager Letter Spreadsheet Page(s) of LRDR Supporting documentation

21 Sample Letter There are specific requirements for the letter format and content.

22 Sample Spreadsheet FY 2004 Incorrect Data Challenge 1. Borrower’s SSN 2. Borrower’s Name 3. Number and type of loans 4. Earlier of LTH or LDA 5. Date entered repayment 6. CPD, DD or N/A 7. FY(s) appl. 8. Effect on CDR calc. 9. Comments David Smith1 SF and 1 SU11/12/20005/12/2001 4/10/2003 FY 2002 FY B +D Borrower was incorrectly included and should be removed from the B of the FY 2002 calculation and added to the D of the FY 2001 calculation. Electrical Training Institute OPE ID# Guarantor/servicer code: 111 Number of borrowers: 1 Number of loans: 2

Loan Record Detail Report (LRDR) 1 U.S. DEPARTMENT OF EDUCATION CALCULATION DATE: 07/31/2004 NATIONAL STUDENT LOAN DATA SYSTEM (NSLDS) PAGE NO: 1 COHORT YEAR 2002 OFFICIAL LOAN RECORD DETAIL REPORT (SCHOOL) 0 Attention: ALEXANDER PEACHUM Organization ID Number: Name: GRAPHIC TECHNOLOGY Address: 9765 ARTS LANE City: CORAL CITY State: IOWA Sort Selection: SSN Country: Postal Code: Program Type: FFEL/DL Years: STUDENT Original CLASS Academic SSN Last name First/M.I. D.O.B School Begin Date End Date Level LENDER/SVCR/HOLDER - -- Loan - Claim Rsn/ DEFAULT/ Guarantor/ Guaranty Enrollment Stat/ Usage Originating Current Type Stat Code NegAm Date Repay Date Amount Servicer Loan/Date Code Date CHARM JIM K 06/07/ /18/ /11/ SU RP 00/00/ /12/2002 $ 2, /24/2000 G 12/13/2001 D FD CHARM JIM K 06/07/ /21/ /10/ SU RP 00/00/ /12/2002 $ /12/2000 G 12/13/2001 E E NOON SUN M 06/07/ /21/ /10/ SF DF DF 11/22/ /12/2002 $ 2, /12/2000 G 12/13/2001 B FB NOON SUN M 06/07/ /20/ /13/ SF DF DF 11/22/ /12/2002 $ 1, /24/2001 G 12/13/2001 E E TREAT DENZEL A 06/19/ /23/ /11/ SF FB 00/00/ /07/2001 $ 2, /08/2000 G 12/13/2001 D FD TREAT DENZEL A 06/19/ /21/ /10/ SF FB 00/00/ /07/2001 $ 3, /30/2001 G 12/13/2001 E E XU MARK R 02/28/ /16/ /10/ SF DA 00/00/ /17/2002 $ 1, /05/2001 W 12/12/2002 D FD XU MARK R 02/28/ /16/ /10/ SU DA 00/00/ /17/2002 $ 1, /05/2001 W 12/12/2002 E E -Default Rate Usage 1: D = Denominator, B = Numerator/Denominator, N = Not Used, E = Eligible but not counted Default Rate Usage 2: FD = FFEL Denominator, FB=FFEL Numerator/Denominator, DD = Direct Denominator,DB=Direct Numerator/Denominator, IC = ICR (Negative Amortization Only), N = Not Used, E = Eligible but not counted INFORMATION PROTECTED BY THE PRIVACY ACT OF 1974 AS AMENDED School InformationOPEID Number Line 1 Line 2 Line 1 Abbreviations

Loan Record Detail Report (LRDR) 1 U.S. DEPARTMENT OF EDUCATION CALCULATION DATE: 07/31/2004 NATIONAL STUDENT LOAN DATA SYSTEM (NSLDS) PAGE NO: 1 COHORT YEAR 2002 OFFICIAL LOAN RECORD DETAIL REPORT (SCHOOL) 0 Attention: ALEXANDER PEACHUM Organization ID Number: Name: GRAPHIC TECHNOLOGY Address: 9765 ARTS LANE City: CORAL CITY State: IOWA Sort Selection: SSN Country: Postal Code: Program Type: FFEL/DL Years: STUDENT Original CLASS Academic SSN Last name First/M.I. D.O.B School Begin Date End Date Level LENDER/SVCR/HOLDER - -- Loan - Claim Rsn/ DEFAULT/ Guarantor/ Guaranty Enrollment Stat/ Usage Originating Current Type Stat Code NegAm Date Repay Date Amount Servicer Loan/Date Code Date CHARM JIM K 06/07/ /18/ /11/ SU RP 00/00/ /12/2002 $ 2, /24/2000 G 12/13/2001 D FD CHARM JIM K 06/07/ /21/ /10/ SU RP 00/00/ /12/2002 $ /12/2000 G 12/13/2001 B FB NOON SUN M 06/07/ /21/ /10/ SF DF DF 11/22/ /12/2002 $ 2, /12/2000 G 12/13/2001 E E NOON SUN M 06/07/ /20/ /13/ SF DF DF 11/22/ /12/2002 $ 1, /24/2001 G 12/13/2001 E E TREAT DENZEL A 06/19/ /23/ /11/ SF FB 00/00/ /07/2001 $ 2, /08/2000 G 12/13/2001 D FD TREAT DENZEL A 06/19/ /21/ /10/ SF FB 00/00/ /07/2001 $ 3, /30/2001 G 12/13/2001 E E XU MARK R 02/28/ /16/ /10/ SF DA 00/00/ /17/2002 $ 1, /05/2001 W 12/12/2002 D FD XU MARK R 02/28/ /16/ /10/ SU DA 00/00/ /17/2002 $ 1, /05/2001 W 12/12/2002 E E -Default Rate Usage 1: D = Denominator, B = Numerator/Denominator, N = Not Used, E = Eligible but not counted Default Rate Usage 2: FD = FFEL Denominator, FB=FFEL Numerator/Denominator, DD = Direct Denominator,DB=Direct Numerator/Denominator, IC = ICR (Negative Amortization Only), N = Not Used, E = Eligible but not counted INFORMATION PROTECTED BY THE PRIVACY ACT OF 1974 AS AMENDED E FA C B D G H CDR Guide – Chapter 2.3

Loan Record Detail Report (LRDR) L I K J ST 1 U.S. DEPARTMENT OF EDUCATION CALCULATION DATE: 07/31/2004 NATIONAL STUDENT LOAN DATA SYSTEM (NSLDS) PAGE NO: 35 OPEID: COHORT YEAR 2002 OFFICIAL LOAN RECORD DETAIL REPORT (SCHOOL) STUDENT Original CLASS Academic SSN Last name First/M.I. D.O.B School Begin Date End Date Level LENDER/SVCR/HOLDER - -- Loan - Claim Rsn/ DEFAULT/ Guarantor/ Guaranty Enrollment Stat/ Usage Originating Current Type Stat Code NegAm Date Repay Date Amount Servicer Loan/Date Code Date YOUTH JAZZ D 11/28/ /21/ /10/ D2 DA 00/00/ /17/2001 $ 2, /21/1995 G 05/31/1996 E E WISHING STAR B 11/17/ /23/ /11/ SF DF DF 08/31/ /21/2002 $ 1, /02/2000 W 05/10/2001 B FB WISHING STAR B 11/17/ /21/ /10/ SF RP 00/00/ /21/2002 $ 1, /21/2000 W 05/10/2001 E E FFEL DIRECT DUAL TOTAL DOLLARS IN DEFAULT : 20,360 14,895 35,255 (Based on Outstanding Principle Balance) TOTAL DOLLARS IN REPAYMENT : 345,943 52, ,957 (Based on Outstanding Principle Balance) TOTAL INSURANCE CLAIM PAYMENTS: 0 ************* = Not Available -Actual Numerator Count : 20 Report Count : 20(B Usage 1 Codes only) Actual Denominator Count: 147 Actual Default Rate: 13.6 Report Count : 147(D & B Usage 1 Codes) INDIVIDUAL PROGRAM TALLY: FFEL: 15/135 DIRECT: 5/19 Appealed Rate flag: N (D=Direct, I=Indirect, N=No Appeal, U=Unknown) IC: 0 (Negative Amortization Only) 0 End of Loan Record Detail Report Report Generation Date: 09/30/04 -Default Rate Usage 1: D = Denominator, B = Numerator/Denominator, N = Not Used, E = Eligible but not counted Default Rate Usage 2: FD = FFEL Denominator, FB=FFEL Numerator/Denominator, DD = Direct Denominator,DB=Direct Numerator/Denominator, N = Not Used, E = Eligible but not counted CDR Guide – Chapter 2.3 M N P Q O R UV

26 Supporting Documentation Certified by School Status Status First Started Term Begin Term EndAnticipated Graduation Date School Code School Name 01/15/2001W11/12/200009/04/200012/19/ Electrical Training Institute David Smith SSN:

27 Incorrect Data Challenge Receive draft LRDR Review and analyze the data shown on the LRDR against the school’s records Identify inaccurate data and provide supporting documentation and relevant LRDR Prepare a spreadsheet and cover letter for each data manager where inaccuracies occur Send the incorrect data challenge(s) to each data manager where inaccuracies occur Send within 45 calendar days of receiving the draft CDR data Data manager responds within 30 calendar days

28 Defaulter Characteristics 84% did not receive the full 6 month grace period due to late enrollment notification 71% withdrew without completing studies 56% had bad telephone numbers 83% were not successfully contacted by telephone during the 360 day collection effort Represents Direct Loan Portfolio Only

29 Defaulter Characteristics 84% did not receive the full 6 month grace period This statistic is directly related to untimely and/or inaccurate enrollment reporting

30 Withdrawals These students are at extremely high risk for default Early identification is a key Retention effort 71% withdrew without completing their studies

31 Defaulter Characteristics 56% had bad telephone numbers 83% were not successfully contacted by telephone during the 360 day collection effort

32 Default Prevention and Management Plan The new sample plan includes activities that:  Promote student, school, and loan program success  Are easy to implement and do not require much in the way of resources  DCL GEN-05-14

33 Default Prevention and Management Plan Section I. Overview Increase retention Reduce borrower defaults Promote school success

34 Default Prevention and Management Plan Section II. Early Stages of Enrollment Entrance Counseling Financial Literacy for Borrowers Early Identification of At-Risk Borrowers Communication Across Campus Default Prevention/Retention Staff

35 Default Prevention and Management Plan Section III. Late Stages of Enrollment Exit counseling Withdrawals Timely and accurate enrollment reporting

36 Default Prevention and Management Plan Section IV. After students leave school Early Stage Delinquency Assistance (ESDA) Late Stage Delinquency Assistance (LSDA) Maintain Contact with Former Students Analyze Defaulted Loan Data to Identify Defaulter Characteristics

37 Default Prevention and Management Plan Section V. Enhanced Entrance/Exit Counseling Requests for borrower information Information about repaying the loan Reminders about personal financial management and Title IV loans

38 Default Prevention and Management Plan Section VI. Tools and activities for schools Assessments for default prevention and management General connections/publications Loan counseling Enrollment reporting and data accuracy Default prevention

39 Three Quick Prevention Tools Loan Record Detail Report NSLDS Reports Late Stage Delinquency Assistance

40 Date Entered Repayment Report School Repayment Info Loan Detail School Cohort Default Rate History Enrollment Reporting Summary NSLDS Reports

41 Late Stage Delinquency Assistance (LSDA) Identify borrowers who did not respond to Lender, GA or DL Servicer loan counseling Contact and support student to take constructive action: they will listen to you.

42 Borrower Delinquency Pattern 0% 5% 10% 15% 20% 25% 30% 35% Days Past Due Percentage of Total Delinquency Stafford Borrower Delinquency Pattern 12 month average

43 Schools feel it is the right thing to do It is achievable Students typically respond well to schools It doesn't take a lot of resources The results are dramatic! Why does LSDA Work?

44 Contact Information Default Prevention and Management Main: Hotline: Web: ifap.ed.gov/DefaultManagement/DefaultManagement.html

45 Federal Student Aid’s Default Prevention Team Mark WalshEileen Marcy Craig RorieJohn Pierson Let us know how we can help you!

46 Questions? Thank you!