1. and Student Loan Default
Risk Management
and Student Loan Default

2. Cohort Default Rate What is a Cohort Default Rate (CDR)?
A “cohort” is a group of Stafford Loan Borrowers who entered repayment within a given federal fiscal year (FY).
A Cohort Default Rate (CDR) is the percentage of those borrowers in a school’s cohort who defaulted within that federal fiscal year or within the next two fiscal years (24 months) and the next three fiscal years (36 months).

3. Cohort Default Rate Date Range
Fiscal Year
Borrowers Enter
Repayment
(Denominator)
Borrowers in Repayment
Who Default
(Numerator)
Official CDR Published
CDR Used
for School Sanctions
2009
10/1/ /30/2009
2-Year: 10/1/ /30/2010
3-Year: 10/1/ /30/2011
2-Year: Sept. 2011
3-Year: Sept. 2012
2-Year rate (25%)
2010
10/1/ /30/2010
2-Year: 10/1/ /30/2011
3-Year: 10/1/ /30/2012
2-Year: Sept. 2012
3-Year: Sept. 2013
2011
10/1/ /30/2011
2-Year: 10/1/ /30/2012
3-Year: 10/1/ /30/2013
2-Year: Sept. 2013
3-Year: Sept. 2014
3-Year rate (30%)
2012
10/1/ /30/2012
3-Year: 10/1/ /30/2014
3-Year: Sept. 2015
2013
10/1/ /30/2013
3-Year: 10/1/ /30/2015
3-Year: Sept. 2016
2014
10/1/ /30/2014
3-Year: 10/1/ /30/2016
3-Year: Sept. 2017
If a school’s default rate is above 30% for any single that a official calculation is provided a default management plan must be submitted to the Department of Education, beginning with the FY09 3-year rate. “Sanctions” apply when a school loses eligibility after 3 consecutive years above 30% which could not occur until the FY11 rate is released.
The default management plan is created and approved at the school level by a school based default management task force.
2011 is the first year a school can have 3 consecutive 3YR CDR rates.
Note: Students entering repayment today will be part of the official 2013 CDR which will not be released until September 2016.

4. 2-Year Cohort Default Rate Trends
Source : Jordan Weissmann, The Atlantic, “Student-Loan Defaults are Still Soaring Thanks to Washington’s Neglect

5. Public Institution Comparison
Comparison of FY 2011 Official National 2-Year Rates to Prior Three Years
School Classification
Source : U.S. Department of Education

6. FY 2010 3-Year CDR By School Type
Source : Jordan Weissmann, The Atlantic, “Student-Loan Defaults are Still Soaring Thanks to Washington’s Neglect”, 2013.

7. 3-Year Cohort Default Rate History
Source : U.S. Department of Education

8. 3YR CDR Danger Zone
Schools with a single-year CDR of 30% or greater must:
Establish a default prevention task force
Develop a default prevention/reduction plan with measurable objectives for lowering the CDR
Submit the default reduction plan directly to DOE
Schools with two consecutive years of CDRs of 30% or greater must:
Revise the default reduction plan
Implement additional measures to prevent and reduce defaults
May be subject to provisional certification

9. 3 YR CDR Danger Zone
Schools with three consecutive years of CDRs of 30% or greater would lose eligibility to participate:
Pell Grant
Federal Direct Loans
School with a SINGLE year CDR of 40% or greater would lose eligibility to participate:

10. Corrective Action and Sanctions
Year CDR >30%, by Sector
Year CDR >30%, by Sector
Source : Stephen Burd, Higher Ed Watch, “The Real Story Behind Corinthian Colleges’ Plummeting Default Rates” 2012.

11. Appeal Options Include
Loan Servicing Appeal
Within 15 days of notification of official rate
Fees may apply
Participation Rate Index
# Borrowers & # Students enrolled at least half-time
Economically Disadvantaged Appeal
Low Income & Placement Rate
Low Income & Completion Rate

12. Student Loan Risk Management
Why now?
Economy
Split servicing
Loans transitioned to different servicers
Graduate underemployment
Transition to 3-Year Cohort Default Rate (CDR)
Predatory practices – soliciting payments from students to counsel on default/delinquency resolution
Reduction in free outreach initiatives

13. % of Student Loan Balances 90+ Days Delinquent
Source: FRBNY Consumer Credit Panel/Equifax; Data displayed in maps are as of December 31, 2012.

14. Delinquency Rates for Community Colleges
*Does not include borrowers with consolidation loans.
Source: Delinquency: The Untold Story of Student Loan Borrowing. March Report by the Institute for Higher Education Policy

15. The Biggest Risk Factor
Students who do not graduate
62% of borrowers who default did not complete their program of study!
Risk factors affecting persistence and attainment:
Delayed enrollment
Part-time enrollment
Working full-time while enrolled
Single parent status

16. Other Risk Factors Pell recipients Parent educational attainment
Students have limited financial resources to use to repay loans if they do not graduate, if unemployed or if wages do not increase following program completion.
Parent educational attainment
Default is less likely if at least one parent
has a Bachelor’s degree.
Larger household size
Students from larger households may be at higher risk of default.

17. Challenges to Keeping CDR Low
Colleges are open access
Retention and graduation rates are critical
Default rates may be considered a “Financial Aid” issue by administration
Staffing and technological resource constraints
Borrowers who become delinquent are no longer your students

18. Reducing Risk Option 1 Cease student loan program participation
Negative impact on enrollment and access
CDR rates and defaults continue for several years

19. Reducing Risk
Option 2
Develop default management plan and devote resources to manage risk
Default management task force
Holistic approach – school wide
Create plan/work the plan
Know your RISK
Make it an institutional priority
Best Practice

20. Where to Start Student Success Retention Financial Literacy
Early Intervention & Grace Counseling
Default Prevention / Repayment Counseling
CDR Challenges / Appeals
School-based products to help students understand financial products and services. Goal: to change student attitudes toward debt and reduce over-dependence on student loans.
Only 10% of schools currently challenge draft CDR data. The DOE estimates that 40% of challenges submitted are accepted.
College completion is the best default prevention tool in a school’s tool kit!
Retention
Online entrance and exit programs are not enough – in person counseling, budgeting and borrower education needed
Outreach to delinquent borrowers to offer solutions- emphasizing affordable repayment options.

21. Risk Management & Student Success
Increase resources for financial aid counseling
Institutional control of loan process
Staff training and technology
Gather reference data
Outsource or Insource outreach initiatives
Post enrollment
Repayment education and assistance
Helps borrowers be successful long term
Re-enrollment counseling/collaboration with Retention Office

22. California Community Colleges (CCC)
72 Districts, 112 Colleges
2.35 million students ( )
19 colleges no longer in federal loan program
93 colleges still participating in federal loan program
63,000 loan borrowers – 2.68%

23. California Community Colleges (CCC)
Three colleges had FY09 rates above 30%
12 colleges had FY10 rates above 30%
Three reached their 2nd year above 30%
One school is at its 3rd year above 30%
Several other colleges are trending to above 30% in future years
All colleges will be eligible for low participation rate appeals if they reach three years above 30%

24. CCC Default Prevention Initiative
Have retained consultant to assist
Tier 1 = over 30% for two years
Tier 2 = over 30% for one year
Default prevention plans
Risk analysis
Third-party service contract negotiation
Tier 3 = between 20% and 30%
Discuss need for third-party services

25. CCC Default Prevention Initiative
The System Office is considering purchasing financial literacy services for all colleges.
The Chancellor’s Office is recommending that all schools be involved in the initiative including those no longer actively participating in the federal loan program.

26. Future Regulatory Considerations
Gainful Employment
College support loan limit reductions for community colleges
DOE may consider program level default rates
Legislator rhetoric regarding “risk share”

27. Contact Information
Judith Witherspoon, Senior Vice President
Edfinancial Services
Rhonda Mohr, Specialist, Student Financial Aid
California Community Colleges Chancellor’s Office