Managing Loan Default: Making a Difference in 60 Minutes

Facing the Facts

Fact 1: The Three-Year CDR is Here Sanctions for FY year CDR over 30%  1 st year – create default prevention plan  2 nd year – revise plan  3 rd year – lose TIV

Fact 2: Rates are Trending Upward Source: Department of Education FY 2009 Official Cohort Default Rate FY 2010 Official Cohort Default Rate

Fact 2: Rates are Trending Upward Source: Department of Education

Fact 3: Loan Default is Receiving National Attention Student-Loan Default Rates Continue Steady Climb Student-Loan Defaults Rise in U.S. as Borrowers Struggle Surging Student-Loan Debt Is Crushing the System Student-Loan Defaults Surge to Highest Level in Nearly Two Decades

Fact 4: More Default Prevention is Needed

Fact 5: You Have Work Overload Policies and Procedures Manual FISAP Regulatory Reporting Packaging Return of Title IV Verification Professional Judgment Counsel Students Loan Processing Policies and Procedures Manual FISAP Regulatory Reporting Packaging Return of Title IV Verification Professional Judgment Counsel Students Loan Processing Verification Policies and Procedures Manual FISAP Regulatory Reporting Packaging Return of Title IV Professional Judgment Counsel Students Loan Processing Policies and Procedures Manual Regulatory Reporting Packaging Return of Title IV Verification Professional Judgment Counsel Students Loan Processing

Make a Difference in 60 Minutes By allocating 60 minutes each month, you can help your borrowers decrease their chances of defaulting

We Will Discuss Within 60 minutes you can:  Reach out to borrowers during their grace period  Promote income-driven repayment plans to mid-stage delinquent borrowers  Inform late-stage delinquent borrowers of their options to avoid default

Grace Period Outreach

What Happens During the Grace Period Federal loan servicers  Establish relationship with borrower  Send correspondence about repayment plans  Promote online capabilities through the web  Update borrower contact information

Borrowers and Their Grace Period Non-completers don’t realize in grace Defaulted borrowers didn’t receive full grace due to inaccurate reporting Borrowers develop financial habits not including student loan payments

Outreach Campaigns During Grace Significant in helping prepare for repayment

remind Outreach Campaigns During Grace Letters, s, and postcards encourage, inform, and remind Validate contact information inform encourage

Outreach Campaigns During Grace Borrowers need to know:  Online account access  Create a budget  Review repayment plans Choose during grace Defaults to standard repayment Change plan Change due date

Outreach Campaigns During Grace What borrowers need to know:  Postpone payment with deferment or forbearance  Longer repayment periods cost more in interest  Contact servicer

Outreach Campaigns During Grace Most importantly: THEY HAVE OPTIONS  Most borrowers who default: Standard repayment plan Never obtain deferment or forbearance

Outreach Campaigns During Grace Sending letters:  Stand out Colored envelopes School’s logo or mascot  Highlight in bold or color  Encourage to contact servicer

Outreach Campaigns During Grace Sending s:  Utilize school’s address  Use creative subject line  Keep it precise  Avoid identifiable information

Outreach Campaigns During Grace Sending postcards:  Reminder  Simple yet informative  Creativity  Ask for a call back  Don’t mention “loan”  Avoid identifiable information

Grace Period Outreach What types of information do you include in your grace period correspondence?

Connecting with Mid-Stage Delinquent Borrowers

Mid-Stage Delinquent Borrowers More than 150, less than 270 Early intervention not successful Monthly payments not affordable Not aware of options Delinquency damaging credit

Options for Mid-Stage Delinquent Borrowers Instructions to change to income-driven plan  IBR  Pay As You Earn  ICR  Go online:  Sign in using FAFSA PIN Forgot your PIN -

Helping Late-Stage Delinquent Borrowers Avoid Default

Late-Stage Delinquent Borrowers Greater than 271 days Never responded to servicer Avoiding other creditors More willing to communicate with school

Late-State Delinquency Initiative Technical default occurs at day 270 Can be saved until day 360 (Direct Loans) Essential in helping avoid default

What They Need to Know TIME’S RUNNING OUT Consequences:  Federal tax refund withheld  Wages garnished  Collection costs assessed  Damaged credit history Options to avoid default

Make Your Letters Stand Out Sign by hand Hand write envelopes Use stamps Get creative  Colors  Special messages HEY!…Open Me!

Responding to Your Borrowers When borrowers call:  Stress options  Encourage to call their servicer  Conduct a three-way call with servicer

Conclusion and Resources

Don’t Let Time be a Stumbling Block Allocating 60 minutes a month can:  Help prepare for repayment  Share income-driven repayment plan information  Save late-stage borrowers from default

Resources Cohort Default Rate Guide  DefaultManagement/ CDRGuideMaster.html

Resources NLSDS Reports DRC015 DRC016 Repayment Loan Info Detail Report provides the current repayment status of certain borrowers in the FFEL and Direct Loan programs who attended a school during a specific period, either 24 months (DRC015) or 36 months (DRC015) DER001The Date Entered Repayment Report is a list of student borrowers who are scheduled to go into repayment during a specific date range. SCHDF2The Borrower Default Summary Report provides a list of loans that currently have a default loan status and a loan status date that falls within the requested range SCHPR2The School Portfolio Report provides school users with information about all Direct or FFEL loans for a specified school. DELQ01The Delinquent Borrower Report provides school users a report of borrowers who have been reported as delinquent in making loan payments to one of the federal loan servicers

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