Michigan Default Prevention Project A Holistic Approach to Default Aversion U.S. Department of Education Federal Student Aid John Pierson FSA Default Prevention

2 Some Interesting Data The Changing Landscape What schools can do –Understanding the two broad approaches to successful default prevention. Today’s Program Session Content

3 Official Cohort Default Rates 8.8% 6.9% 5.6% 5.9% 5.4% 5.2% 4.5% 5.1% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%

4 Composition of Cohort Default Rate

5 LSDA School Sample A word about the data you will see on the following slide : To derive the “dollars in default” figures you will see on the following slides, the loans that entered into repayment during the FY04 period (between 10/1/03 and 9/30/04) and met the criteria for being included in the Cohort Default Rate were identified. The "Outstanding Principal Balance" was totaled to get the total dollars in repayment. And, for those loans with a default claim, the "Outstanding Principal Balance“ was totaled to get the dollars in default. The dollars-in default included in this presentation are based on the "Outstanding Principal Balance“ at the time the FY04 Cohort Default Rate was calculated, July 29, 2006.

6 Data: Michigan vs National % Change National CDRFY03 4.5% FY04 5.1% +13.3% National $$FY mFY04 801m+23.6% Michigan CDR FY033.7% FY04 4.2% +13.7% Michigan Dollars FY m FY m +25.4% Michigan DefaultersFY033,212FY044, %

7 FY 2005 Draft Calculation Some things to consider Draft Data Embargoed! Your Data: How did your draft 2005 data look? Up? Down? Anomalies….

8 A Changing Climate: Inconvenient Truths Educational costs: rising (costs to borrowers) Dollars entering default: rising (cost to FSA et al.) Borrowers entering default: rising (costs to FSA et al.) Total indebtedness: rising (costs to borrowers) –Stafford and Private loans Impact on You: Continued Institutional Viability –Are you ready?

9 Defaulter Characteristics 89% did not receive the advantage of the full 6-month grace period as a result of late enrollment notification (sample) 93% were not successfully contacted by telephone during the 360-day collection effort (sample) January 2007 Analysis of Federal Direct Loan Portfolio

10 Defaulter Characteristics The Crucial Link: Of the borrowers who defaulted, 71% withdrew from school and did not complete their academic studies. (figure derived from actual population) This is more than just a financial aid issue! January 2007Analysis of Federal Direct Loan Portfolio

11 Two Broad Approaches to Successful Default Prevention Financial Aid Solutions: Support… –Borrower Relationship to Loan LSDA, Enrollment Update, Financial Literacy Campus Wide Solutions: Support… –Borrower Relationship to Education Analysis, Strategic, Student Success

12 For both DL and FFEL My lender was unsuccessful Can I make a difference? How and why does it work? Are there LSDA best practices? Contact your GA or the DL Servicer Late Stage Delinquency Assistance

13 Campus Wide Solutions Core Functions: –Admission, Recruitment, Education, Student Support Services, Retention, Graduation, Career Placement Reduce loan default by doing these things well.

14 A Holistic Approach to Default Aversion Understanding the intersection between student (and institutional) success and loan default…and how to do something about it.

15 Michigan: Part of a National Initiative 2005: Nevada and Puerto Rico 2006: Ohio, Michigan, Georgia, Florida, Arkansas 2007: California, New York, Career Schools

16 Default Prevention and Management Operations Team Challenges/Adjustments/Appeals Team Default Prevention Team Phone: (202)

17 DP Team Contact Information: Mark Walsh (816) Eileen Marcy (215) John Pierson (404) Craig Rorie (215)