1. Patrick Kennedy and David Hammond | Nov. 2012 U.S. Department of Education 2012 Fall Conference Default Aversion Activities Session 13

2. Today’s Agenda The Landscape Tools and Resources CDR resource materials NSLDS tools and data Financial Awareness Counseling Federal Loan Servicers School-based default aversion strategies High level considerations Traditional- and Student Success-based activities 2

3. The Landscape Loan default rates increasing for most schools Educational costs continue to rise More students borrowing more money One-in-five household hold student loan debt Increasing loan delinquency rates Regulatory transition to 3-year Cohort Default Rate calculation 3

4. National Cohort Default Rates 4

5. 2-Year CDR FY 08 = 7.0% FY 09 = 8.8 % (+25.7%) FY 10 = 9.1% (+3.4%) Borrowers FY 08 = 238,853 FY 09 = 320,194 (+34%) FY 10 Official = 374,940 (+17%) 5

6. National Cohort Default Rates 3-Year CDR FY 09 = 13.4 % Borrowers FY 09 = 489,040 6

7. Default Implications: Borrower/Student Credit report damage (7-year minimum) Wage garnishment Seizure of federal and state tax refunds Seizure of portion of any federal payment Legal action in federal district court Title IV ineligible 7

8. Default Implications: Borrower/Student May lose state occupational license No mortgage loans May have difficulty obtaining car loans May be unable to rent an apartment May be turned down for jobs Collection costs 8

9. Default Implications: Schools The CDR is a measure of a school’s administrative capability High CDRs can: Negatively reflect on perceived school quality Result in provisional certification Result in loss of Title IV eligibility Threaten access to private loan funds 9

10. CDR Transition By Year 10 2014 is the first year schools will be subject to sanction for FY 2011 3-Year cohort default rates

11. 2014 - Transition Period Completed Third year of 3-year rates released Two-year rates end Sanction threshold for loss of program eligibility becomes 3 years equal to or greater than 30% 11

12. 3-Year CDR Corrective Actions First year at 30% or more Default prevention plan and task force Submit plan to FSA for review Second consecutive year at 30% or more –Review/revise default prevention plan –Submit revised plan to FSA –FSA may require additional steps to promote student loan repayment Third consecutive year at 30% or more Loss of eligibility: Pell, DL School has appeal rights 12 Session # 12: Default Plans

13. Cohort Default Rate Guide 13

14. Challenges Incorrect Data Challenge (IDC) Participation Rate Index Challenge (PRI) Adjustments Uncorrected Data Adjustment (UDA) New Data Adjustment (NDA) Appeals Loan Servicing Appeal (LS) Erroneous Data Appeal (ER) Economically Disadvantaged Appeal (EDA) Participation Rate Index Appeal (PRI) Challenges, Adjustments, and Appeals 14

15. NSLDS Reports for Default/Delinquency Prevention 15

16. NSLDS Reports for Schools Reports for Data Accuracy Date Entered Repayment Report School Repayment Info Loan Detail School Cohort Default Rate History Enrollment Reporting Summary Reports for Default Prevention School Loan Portfolio Report Date Entered Repayment Report Borrower Default Summary Exit Counseling Delinquent Borrower Report 16

17. Main Menu – How to request a report 17

18. School Loan Portfolio ( SCHPR2 ) The School Portfolio Report provides details on borrowers and loans in your current loan portfolio Based on loan repayment begin date If your school has merged, previous school codes are included Available in Extract only 18

19. Delinquent Borrower Data (DELQ01) Use the Delinquent Borrower Report (DELQ01) to assist with default prevention. Use Web Page under Aid tab “Delinquent Borrowers” for current up-to-date data. 19

20. Exit Counseling on NSLDS (EXTC01) NSLDS Exit Counseling covers FFEL and Direct Loan Programs. Student Access at www.nslds.ed.govwww.nslds.ed.gov Uses student actual loan data Educates borrowers about their loan obligation, grace period, repayment, and deferment options 20

21. Financial Awareness Counseling 21

22. Financial Awareness Counseling COD July 2012 implementation Voluntary – not mandatory Undergraduate and Graduate students Intent is to educate borrowers about their current indebtedness and manage their student loans Log-in to display real time data Responses sent to schools via SAIG or COD Newsbox 22

23. Financial Awareness Counseling Financial Awareness Counseling on StudentLoans.gov was developed to: Provide a centralized, online source of financial literacy information for students Assist borrowers in making informed postsecondary funding decisions Provide schools with educational resources about federal student aid Support the government-wide efforts to improve financial capability in the U.S. through the Financial Literacy Education Commission 23

24. Financial Awareness Counseling Functional Overview On July 7, 2012, the Financial Awareness Counseling (FAC) was made available on StudentLoans.gov Available whether signed in or not Signed-in students view their financial information from NSLDS Disbursement of funds cannot be tied to FACT session completion Does not replace Entrance Counseling requirement 24

25. Financial Awareness Counseling Each module has been designed to communicate key financial management concepts to increase students’ financial literacy. Your Student Loans Loan Basics Free Money First Types of Student Loans Your Student Loans Loan Basics Free Money First Types of Student Loans Manage Your Spending while in School Live Within Your Means Borrow Smart Manage Your Spending while in School Live Within Your Means Borrow Smart Estimate What You will Owe, Spend & Earn Monthly Expenses Monthly Income Understand Repayment Estimate What You will Owe, Spend & Earn Monthly Expenses Monthly Income Understand Repayment Avoiding Default Postpone or Lower Your Payments Forgive or Cancel Your Debts Delinquency & Default Avoiding Default Postpone or Lower Your Payments Forgive or Cancel Your Debts Delinquency & Default Plan for the Future Your Income & Taxes Your Credit & Identity Credit Cards & Other Borrowing Plan for the Future Your Income & Taxes Your Credit & Identity Credit Cards & Other Borrowing Understand Your Loans Manage Your Spending Plan to Repay Avoid Default Make Finances a Priority 25

26. Focused on … FAC - Module 1: Understand Your Loans The ”Understand Your Loans” module will show a customized breakdown of the student’s loans, cover basic loan terminology, the most effective ways to pay for school, and the different types of student loans. Their outstanding debt and loan details That they must repay the money they have received with interest The differences between federal and private loans Ways to maximize their aid/minimize their loans Common loan terms and concepts Jane Doe, Jane Doe, 26

27. FAC - Module 2: Manage Your Spending The “Manage Your Spending” module will help students budget for school, live within their budget, and borrow smart. Focused on … The difference between educational and other expenses How to identify all sources of funding The benefits of paying interest while in school and reducing interest costs The benefits of reducing debt and avoiding additional debt Budgeting basics and factors they can control to make their budget work Students will be able to input their own expense information and the graphs will dynamically update. 27

28. FAC - Module 3: Plan to Repay The “Plan to Repay” module has tools to help students navigate their repayment options and forecast post-graduation loan commitments. Focused on … How to compare repayment plans and estimate their repayment amount Their post-graduation expenses and when repayment begins That their repayment term can impact the total amount of interest paid Who their servicer is, what they do, how to contact them, and how to change a repayment plan How their projected monthly income compares to their loan expenses Different tabs allow students to explore the relationship between their loan payments, anticipated expenses and projected monthly income. 28

29. FAC - Module 4: Avoid Default The “Avoid Default” module helps students understand how to avoid delinquency and default, how to postpone or lower payments, and the terms of loan forgiveness and cancellation. Focused on … Delinquency, default and the related consequences How to reduce the likelihood of default Loan cancellation and forgiveness terms Deferment and forbearance options Who to contact about different payment options 29

30. FAC - Module 5: Make Finances a Priority The “Make Finances a Priority” module is designed to explain the basics of income and taxes, how to protect their credit and identity, and how to develop a sound financial plan. Focused on … Financial planning, saving, and spending wisely Taxes and its impact on income How to prevent identity theft Credit scores and credit basics Educational tax benefits for parents and students 30

31. Schools can choose to receive Financial Awareness Counseling acknowledgements via the “Options” screen on the COD website. “Y” or “N” Daily or on-demand “Y” and Daily are the default settings FAC School Functionality - Responses 31

32. The existing Entrance Counseling Report was modified to include Financial Awareness Counseling data Renamed the “Counseling Report” - Posted weekly to school’s COD Reporting NewsBox in CSV format New Counseling Type Indicator differentiates counseling type There can be multiple Entrance Counseling or FAC records per borrower FAC – COD Counseling Report 32

33. Federal Loan Servicers 33

34. Educate and inform borrowers regarding the tools and options available to assist in the management of their student loans Offer multiple repayment options tailored to borrower preferences (i.e. online payments, ACH, check, etc.) Provide self-service tools for borrowers and options to receive bills and/or correspondence electronically Offer dedicated services to schools to help manage cohort default rates Comply with legislative regulatory requirements and provide unique services 34 Federal Loan Servicers:

35. Servicer Default Prevention Activities 35 Provide outbound targeted calling campaigns along with inbound call center representatives to help borrowers become current Utilize electronic communication methods, such as e- mail, to keep borrowers informed about account status Work with schools to obtain current available contact information - Utilize a variety of tools to get the most current data to contact borrowers (skip tracing on delinquent accounts) Work in partnership with the school community to assist borrowers in the later states of delinquency

36. Servicer Repayment Counseling Establishes a relationship with the borrower Ensures the correct repayment status Discusses the appropriate repayment plan Promotes self-service through the web Updates and enhances borrower contact information Discusses consolidation options 36 During the grace period a loan servicer:

37. Servicer Tools for Borrowers Websites designed to assist the borrower:  Understand the various repayment plans and options  Understand Options Deferments Forbearances Discharges Forgiveness Programs Loan Consolidation 37

38. Communication Channels for Borrowers All servicers have toll free numbers for borrowers to contact (phone, fax, and e-mail) Use IVR (integrated voice response) systems Allow self service-for those that prefer Make payments over the phone Includes option to speak to a representative All servicers have a dedicated staff to assist borrowers Financial literacy (budgeting, credit tips, etc.) 38

39. School – Servicer Partnership All servicers work to gather feedback and find ways to partner with schools on default prevention Face to face meeting on school campuses Financial aid conference attendance Presentations at conferences Proactive phone calls E-mail communication Partner with the servicers! 39

40. Individual Servicer Reports 40 Provide greater level of detail Offer customization options Include only loans serviced by that organization 40

41. 41 School-Based Default Aversion Strategies

42. Reducing Default Risk - High Level Considerations Strategies for reducing default risk – Assist borrowers to have a better understanding of responsibilities, timelines and processes Assist borrowers to improve educational and employment outcomes When? In school, In grace, In repayment 42

43. Form a Default Prevention Team Develop or adopt a default prevention plan Traditional financial aid office-based default prevention strategies Student success-based default prevention strategies 43 Reducing Default Risk - High Level Considerations

44. Reducing Default Risk - the Team determine the source of your default risk determine what steps your school will take to reduce default risk represent all parts of the institution (including management), which will contribute to risk reduction activities allocate school resources to default reduction activities assess the effectiveness of default reduction activities over time: are they working? 44

45. Default Prevention Team Team members may include Senior school official ~ buy-in and sponsorship Representatives from appropriate offices Student representation Regularly scheduled meetings Provide agenda/minutes, discussion of agreed upon assignments Training about default and prevention Evaluate progress and adjust the plan Celebrate and promote your successes 45

46. Reducing Default Risk - the Action Plan Conduct Risk Analysis: Understanding who is defaulting, and why Create a picture of who is at-risk Create a picture of what works Increase effectiveness of DP efforts Reduce wasted time/resources Aiming at the right targets 46

47. Review combined NSLDS (default and delinquency) data and school data about defaulters and non defaulters ‘Why’ will require input of academic and student affairs professionals Knowing ‘why’ is necessary to create measureable and targeted interventions 47 Reducing Default Risk - the Action Plan

48. Identify intervention points to reduce default risk – be specific Leverage Intervention Opportunities In-school/Grace/Repayment Make steps measureable You need to know if interventions are working Create a written realistic executable plan 48 Reducing Default Risk - the Action Plan

49. “Traditional” Approach Primarily involves the financial aid office Focus is on helping borrowers to understand the use of debt financing Understanding loan repayment Entrance and Exit Counseling Updating enrollment status changes Engaging at-risk borrowers Financial literacy program 49

50. Financial Literacy Correlation exists between increased financial literacy and decreased defaults Schools can play an important role Make it part of your first year curriculum Offer a class for credit, if possible There are many free resources available federal, non-profits, lenders, guarantors Consider online financial literacy programs Counsel students on credit card usage 50

51. Federal Financial Literacy Information 51 Money Smart - A Financial Education Program U.S. Federal Reserve System

52. Protecting the Grace Period Of the borrowers who defaulted, most did not receive their full 6-month grace period due to late or inaccurate enrollment notification by the school. 52

53. Ensure Ongoing Borrower Contact Some schools have reported great success by creating a separate form to collect additional borrower contact information. Goal is to supplement what is obtained via the MPN Collect info during admissions process Inform borrowers that you may verify this info (to improve accuracy) and spot check if time permits Important Note: Although you may collect this information, you must not make a borrower’s receipt of aid contingent upon providing it. 53

54. Reducing Default Risk - Specific Actions Borrower responsibilities and processes - Examples: Enhanced Entrance and Exit Counseling Financial Literacy Education Collecting Enhanced Contact Information Early Stage Delinquency Outreach Late Stage Delinquency Outreach Promoting Loan Rehab for Defaulters 54

55. “Student Success” Approach Focus is on helping borrowers academic and vocational success (student success solutions): Increasing program completion rates Right program for the right student Decreasing program completion time Helping non-completers find a job Successful students become successful borrowers Leverage efforts to increase retention, graduation, and employment 55

56. School Reported Characteristics – Student at Risk 56 Finances/Need Physical or health challenges Dependent-care Transportation Housing Transition difficulties Poor study habits Under-prepared, basic study-skill needs Language barriers Missing “campus connections” First generation: No role models or family support Schools may have unique factors which must be identified and considered.

57. Borrowers Who Do Not Complete Did not achieve academic credential May have reduced earning power May not benefit from school job placement Have one or more loans to repay May not receive exit counseling May not respond to communication attempts by their loan servicer May lose part or all of their grace period if they fail to notify the financial aid office and NSLDS is not updated timely and accurately 57

58. Identifying Students at Risk Does your school have an “early warning” system? Take attendance? Issue mid-term grades which provide clues as to whether or not student will persist? Alerts from faculty members, student support staff: who has missed classes? failed tests? had adjustment challenges? 58

59. Engaging At-Risk Borrowers School engagement can help reduce risk at any stage of the borrowing cycle. Questions: Who are my at-risk borrowers? Learning to identify risk factors When should I intervene, and how? The right time and the right strategy 59

60. Engaging At-Risk Borrowers - In School Target at-risk borrowers with early/extra exit loan counseling, financial literacy training, and collect additional contact information Which at-risk borrowers? Students on academic probation Students who express intention to withdraw Students currently enrolled in programs producing a disproportionate number of defaulters 60

61. Engaging At-Risk Borrowers - In Grace Steps to take: Validate contact information Re-enrollment assistance Transfer assistance Prepare borrower for repayment Provide employment counseling and search preparation Job placement assistance 61

62. Engaging At-Risk Borrowers - In Repayment Reach out to at-risk borrowers and facilitate the critical contact with the loan servicer to prevent default. Early in repayment: Target borrowers who did not complete Late in repayment: Target borrowers who are 240+ days delinquent 62

63. Reducing Default Risk - Specific Actions Borrower educational and employment outcomes – Examples: Increase Student Success Review Policies/Procedures Reduce Program Completion Time Strengthen Relationship with Potential Employers Career Placement for both Graduates and Non- Graduates 63

64. Resources 64 Cohort Default Rate  The Cohort Default Rate Guide http://www.ifap.ed.gov/DefaultManagement/guide/CDRG uideMasterVersion.html http://www.ifap.ed.gov/DefaultManagement/guide/CDRG uideMasterVersion.html Delinquency and Default Management  Electronic Announcement – Delinquency Prevention Activities and Webinars -- Monitor IFAP for updates http://www.ifap.ed.gov/eannouncements/071411DefaultP reventionResourceInfoSite.html http://www.ifap.ed.gov/eannouncements/071411DefaultP reventionResourceInfoSite.html Assessments  FSA Assessments http://www.ifap.ed.gov/qahome/qaassessments/defaultm anagement.html http://www.ifap.ed.gov/qahome/qaassessments/defaultm anagement.html

65. FSA Contact Information Patrick Kennedy Patrick.Kennedy@ed.gov Federal Loan School Support Team 214-661-9480 dlops@ed.gov David Hammond David.Hammond@ed.gov FSA Default Prevention Team 404-974--9429 defaultpreventionassistance@ed.govdefaultpreventionassistance@ed.gov. 65

66. QUESTIONS? 66