Federal Student Loans Maintaining Access and Preventing Default

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1 Federal Student Loans Maintaining Access and Preventing Default

2 Student Loan Cohort Default Rates What is a Cohort Default Rate (CDR)? A cohort is a group of school borrowers who entered repayment on certain FFEL and Direct Loan Program loans 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 three fiscal years (36 months).

3 Official Default Rate National 3-yr Cohort Default Rates 25.0% 20.0% Public Two-Year, 19.1% 15.0% For-Profit Four-Year, 14.7% All Institutions, 11.8% 10.0% 5.0% Public Four-Year, 7.6% Private, Non-Profit Four-Year, 6.3% Source: Office of Federal Student Aid, U.S. Department of Education (July 16, 2014). Comparison of FY2011 Official National Cohort Default Rates to Prior Two Official Cohort Default Rates.

4 Cohort Calculation Example

5 % of Student Loan Balances 90+ Days Delinquent Source: FRBNY Consumer Credit Panel/Equifax; Data displayed in maps are as of December 31, 2012.

6 Student Loan Cohort Default Rates Rates of 30% or greater: Requires response to FSA (default management plan) for 1 st and 2 nd occurrence 3 rd occurrence of 30% triggers loss of Pell and DL funds Note: To date no community college has lost access Colleges can file appeals and/or challenges Rates can be challenged based on: Low participation rates in federal loan programs Economically disadvantaged student base Improper loan servicing

7 Options for Responding to a CDR Crisis Cease student loan program participation Negative impact on enrollment and access (TICAS Report ) CDR rates and defaults continue for many years Look to the Financial Aid Office for The Solution Budget limitations Competing staff priorities current vs former students Data and technology Depth of knowledge

8 Options for Responding to a CDR Crisis Develop default management plan and devote resources to manage risk Default management task force led by President School-wide representation/faculty buy-in Enhance advising and retention add early alert system Create plan/work the plan Make it an institutional priority Leverage borrower outreach initiatives to improve retention/completion

9 Borrower Outreach Post Enrollment Phone calls, letters and s to delinquent borrowers Skip tracing to find up-to-date contact info share with loan servicers as well as Admissions and Business Office Build trust and determine factors that are negatively impacting ability to repay Determine best solution for borrower Counselors act as student advocates with loan servicer(s) Quality over quantity where student interaction is concerned

10 New River Community and Technical College Case Study NRCTC facts: Rural multi-campus college with isolated service region Unemployment or underemployment Loss of industry (mining) Danger of losing access to federal funds based on CDR President did not want to exit the loan program due to negative impact on enrollment, access and completion

11 New River Community and Technical College Case Study

12 The Myths of Student Loan Default The risk of loan default is more closely tied to completion not the level of debt burden. ACCT recently conducted a study of student loan default for the FY2011 cohort.

13 Borrowing Rates by Sector Public 2-Year Public 4-Year 17% 48% Private 4-Year Private For-Profit 60% 71% Source: U.S. Department of Education National Postsecondary Student Aid Study (NPSAS:12) Student Financial Aid Estimates for Table 3. and the authors calculations using NPSAS:12 and variables FEDCUM1, T4LNAMT1, and SECTOR4, weighted by WTA000.

14 Undergraduate Borrowing Limits First year Academic Level Dependent Students Independent Students Second year Third year and beyond Aggregate limit $5,500 $9,500 ($3,500 of which can be a subsidized loan) $6,500 $10,500 ($4,500 of which can be a subsidized loan) $7,500 $12,500 ($5,500 of which can be a subsidized loan) $31,000 $57,500 ($23,000 of which may be in subsidized loans) Source: Office of Federal Student Aid, U.S. Department of Education. How much can I borrow?

15 Debt Levels and Default Rates Debt Range Number of Borrowers Number of Defaulters Default Rate Less than $5,000 10,475 3, % $5,000 to $9,999 9,412 2, % $10,000 to $14,999 4, % $15,000 to $19,999 1, % $20,000 or more 1, % Total 27,675 7, % Source: A Closer Look at the Trillion based on National Student Loan Data System (NSLDS). 43.2% of all defaulters borrowed less than $5, % of all defaulters borrowed less than $10,000

16 Default Rate Credits Earned The highest default rates occur for those who earn 15 or fewer credits. Sixty percent of defaulters fall into this group. 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Zero Default Rate 58.0% 42.5% 28.5% 21.3% 14.8% 10.8% 11.0% 10.5% 9.3% 11.5% 12.8% 7.6% 151 or more Source: National Student Loan Data System (NSLDS) and Iowa community colleges student information systems.

17 Servicers Servicer Total Borrowers Defaulted Borrowers Default Rate ED/ACS 4,596 3, % Missing % ED/PHEAA 8,699 1, % ED/Great Lakes 3, % ED/Nelnet 1, % Multiple 2, % FFEL (grouped) % ED/Navient 2, % ED/TPD % ED/VSAC % ED/Granite State % ED/Edfinancial % ED/MOHELA 1, % ED/Cornerstone % ED/Aspire % ED/OSLA % Total 27,599 6, % Note: These data are from the Loan Record Detail Report, which contains the student s servicer before the loan goes into default. The School Portfolio Report does not contain this information. The sample size is slightly different due to variations in the report specifications and how defaults are counted in the official CDR. Source: National Student Loan Data System (NSLDS).

18 Payment Plans Ninety three percent of defaulters had the Standard Plan as their last payment plan. Repayment Plan Type Number of Borrowers Number of Defaulters Percent of Defaulters Default Rate Standard 20,684 7, % 34.5% Graduated 2, % 13.0% Missing 1, % 12.0% Alternative % 6.6% Extended % 4.7% Multiple % 3.4% Income-Driven 1, % 3.2% Total 27,675 7, % 27.8% Source: A Closer Look at the Trillion based on National Student Loan Data System (NSLDS).

19 Postponements Used by Defaulters Almost three-fifths of defaulters do not use a deferment or forbearance. 3.6% 19.4% Deferment only Forbearance only 58.5% 18.5% Deferment and Forbearance No postponement Source: A Closer Look at the Trillion based on National Student Loan Data System (NSLDS).

20 Payments on Defaulted Loans Payments Made Number of Defaulters Percent Median Debt No Payment 5, % $7,493 At Least One Payment 2, % $8,191 Total 7, % - Source: A Closer Look at the Trillion based on National Student Loan Data System (NSLDS). Two-thirds of students who default made no payment on their debt. Overall, 43.3 percent of defaulters neither made a payment nor used a deferment or forbearance.

21 Lessons Learned Low-debt borrowers are the most likely to default. Many defaulters take no action on their debt no deferment, forbearance or payment. Default is highly correlated with progression and completion. Servicer information is limited. Institutions have the data to refine their default management processes but may lack the capacity to analyze and act on it.

22 Monthly Analysis

23 Servicer Trends

24 Repayment Schedule Details

25 Loan Status Details

26 Policy Considerations for Institutions In Financial Aid Offices: Build loan counseling into other financial aid processes Conduct default management activities using NSLDS reports Carefully monitor borrowers in current CDR periods Create one-page servicer and loan information sheets Consider a third-party default management contract Create action-oriented delinquent borrower letters Across campus: Create a first-year experience or money management course Actively counsel students who fail to make SAP Include financial aid staff in school-wide committees Create academic maps for all programs of study Create a feedback loop between administrators and faculty Implement an early warning system

27 Contact Information Judith Witherspoon Senior Vice President Edfinancial Services

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