Financial Literacy, Debt Management and Default Aversion Finding Synergy for Success. Financial Literacy DeVry University

Transcription

1 Financial Literacy, Debt Management and Default Aversion Finding Synergy for Success Financial Literacy DeVry University

2 Why Financial Literacy Financial Literacy programs are necessary in today s economy. The majority of students are not necessarily experienced in making informed, independent financial decisions. Remember, Financial Literacy is critical, today's students are: Making uninformed financial decisions Working and lacking money management skills Supporting a family without budgeting Living Pay check to paycheck

3 Get Started Today Don t Wait Assess your student demographics and behaviors Implement FL throughout the student life cycle Take a collaborative approach Communicate Internal staff Students Financial Literacy Debt Management Internal Team External 3 rd Party Vendors Analytics Work together to keep students on track Utilize various communication channels Speak their language Analyze results of outreach efforts and adjust Understand your students behaviors Default Aversion

4 How to get started Be proactive and don t wait, get started today: 1. Identify the high risk students 2. Identify who will play a roll! Communicate the WIFM everyone shares in students education, career and financial success! Start from the top and get the buy in 2. Determine and integrate core financial competencies! increase awareness of and access to effective financial education 3. Identify, enhance, and share effective practices! Centralize processes where necessary! Create specific FL and Default Management strategies! Align FL and Default Management goals with Campus goals President Admissions Student Finance Academics Faculty Student Organizations Alumni Affairs WIFM Students graduate with a an education and are financially aware and prepared Gains trust from students by providing upfront financial tools to help them understand what their education will cost can set the school apart from others Impact completion by ensuring students do not drop out as a result of insufficient funding and students trust SF cares about their success For example Registrars gain trust from students by providing pathway to assistance before they leave school Exit Counseling Course completion increases by educating students of the financial impact by withdrawing and attending less than half time. Build student trust and relationships resulting in engaged students who matriculate and leave school with the tools to begin student loan repayment. Continue to build student trust and long term relationships which may result in return student for graduate level degrees.

5 Keep In Mind 1. Analytics, Reporting (CDR,!"#$%&"'()!$(")"(*+),-)."/$01()2$'$3"&"'() 4-)5617*%)8"9"16#&"'(:)*0;;7*010&:) *6&&0'7*$<6'=)*$&#$73'=)>?'(";'$1)$'8) A-)."9"16#)=(;$("37"=)BC7*C)7'9619")&01<#1") 8"#$;(&"'(=:)8"&63;$#C7*)3;60#=)"(*-)

6 What tools and resources are available? Customized and Existing! Customized! Can cost more but can specifically be built to meet your students needs! Can be modified based on real time analysis and measures! Consider semi-customized Existing! Turn key implementation saves time! Reduced cost! Existing Analysis of what works vs. what does not work Where can these resources be found Utilize GA, Servicer, other consumer and money management advocacy organization sites for information! Seek rights to utilize and repurpose content from existing sources! usually free:! link free websites to your school website! order their free pamphlets, booklets, posters etc! partner with these organizations for in person support

7 Align FL & DM Goals with Campus Goals FL & DM Goals Mandatory Course for 1 st yr & transfer students FLO in select courses Partner w/career Services Ensure FL & DM collateral is available High Risk Student Outreach triggers Implement targeted Counseling Outreach Work FL content into select student communications Predictive Modeling based on student demographics and behaviors.(align Default Management models with Academic models) Campus Goals 1st yr experience class/orientation Quality Academics Increase career search knowledge Increase use of Student Support Services Retention /Persistence!"#$%&'%($%')*%'( +,",*,-%(.(/%"0$&1,-%(20)3%"0(/4**)",#&54"'( Predictive Modeling based on student demographics and behaviors.(align Academic models with Default Management models)

8 Be creative, speak their language, communicate the WIFM, gain their trust

9 Guarantor Agencies Play A Part in Your Outreach Efforts

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11 Financial Literacy Impacts Student Success Default Prevention Financial Literacy Student Success

12 Surf the web Guarantor Agencies continue to work with borrowers in repayment starting at early stage delinquencies. All maintain web site services with financial literacy offerings to both borrowers and financial aid administrators Many Guarantor Agencies offer reporting to supplement NSLDS delinquent/default identifiers

13 3. Challenges Limited resources Limited time Difficulty reaching students Unsure how to ensure attendance

14 GA Financial Literacy Programs Brochures IBR Repayment Calculators Pre formatted Web Ex Presentations Consequences of Default Literature Budgeting Guides Tips for a successful Repayment..a word about exit counseling..

15 Debt Management and Default Aversion Aging Reports: early, mid, late stage Scripts that guarantors use with their own borrowers Skip tracing results Letter writing tools

16 Guarantors, Guarantors who are also Servicers, Servicers, Federal Asset Department of Education Servicers. Basically.. Each partner assists the borrower at all or various stages of the loan including grace, repayment, delinquency and default. Each partner offers support and school based tools and education materials to enhance your own interactions with various student loan borrowers.

17 Quick conclusion and questions Guarantor agencies, keep in touch with your contacts Review tools on web pages Attend webinars, many if not most are free to participate Many pre-written financial literacy materials are provided by guarantor agencies for school use

18 Third Party Servicers

19 Financial Literacy, Debt Management and Default Aversion - Finding Synergy for Success!!! Performance Management for Student Loans 2011 WASFAA Conference

20 Performance Management Program Overview The program is a holistic portfolio management concept: " The portfolio is defined as the institution s entire body of current or former students having Title IV loans " At any point in time, up to 4 cohorts are actively touched by program activities " Each cohort moves through the program with strategies targeted to the life cycle of the loans " Program activity begins at entry into the loan grace period " Program activity terminates at the end of the 3 year cohort measurement period 45 Month Performance Management Program Preventive Mode (In School / Grace) Remedial/Maintenance Mode (Repayment / Delinquency) REPAYMENT COHORT 1 Status Changes Message and media are tailored to loan stage and action/response activity REPAYMENT COHORT 2 Cohorts are dynamically defined as loan records indicate changes in graduation dates Status Changes REPAYMENT COHORT 3 Status Changes REPAYMENT COHORT 4 Campaign Dynamics High Intensity/Broad Scope Lower Intensity/Targeted Scope

21 Cohort Treatment Model Loans in a given cohort are treated based on their stage of life: Each cohort receives communication strategies based on borrower status Cohort is dynamically defined as drop-outs introduce themselves to a cohort and expected graduation dates change Strategies adapt to changes in loan status, previous outreach activity, and cohort membership Lifecycle Strategies Activity begins 90 days before Grace Preventive Mode Remedial/Maintenance Mode Risk based intensity Remind/Educate/Call to Action Remediate Tone varies from complimentary to urgent Message Response Cycle Message Response Cycle Message Response Cycle Message Response Cycle Message Response Cycle Message Response Cycle Message Response Cycle Message Response Cycle DELINQUENT OR DEFAULT IN-SCHOOL GRACE Loan Status Changes Loan Status Changes Loan Status Changes High intensity Establish relationship Create awareness Remind/Inform/ Educate Informative tone Status changes drive loans into campaign strategy segments ESTABLISHED PAYERS Results are measured from movement of account statuses End of Measurement Period 21

22 Model Communication Strategy Communication Channel and Intensity: Actual strategies will utilize all the available contact information Intensity is front-loaded the emphasis is to pre-emptively avoid delinquency Segmentation of intensity and channel will evolve with each portfolio Model Communication Strategy Preventive Mode Remedial/Maintenance Mode Auto Messaging Auto Messaging Auto Messaging Auto Messaging SMS SMS SMS SMS Phone Calls Phone Calls DELINQUENT OR DEFAULT IN-SCHOOL GRACE 1-3 times/month 2-6 times/month ESTABLISHED PAYERS 2-4 times/month 1 time/month 1-2 times/quarter 1-2 times/year 22

23 Communications Design and Content: Communication is done on a first-party basis in the name of the school School provides naming and branding guidelines for customization of communications Communications cycle can be coordinated with school-based outreach communications or programs (e.g. exit counseling) Based on lifecycle and previous activity, communications contain elements of: Consumer credit education (responsible use of credit) Specific loan education (options for dealing with their particular loans) Guidance ( how to get a forbearance, request loan forgiveness program, etc.) Calls to action ( protect your credit rating, update your address, call your servicer with your enrollment status ) Congratulations (linking the value of academic success to their loan responsibilities) Feedback and Segmentation Cycle: A borrower s response to a particular communication will drive subsequent iterations of the communication strategy. Acknowledgement New Strategy Segment Transfer to Servicer New Strategy Segment Communication Delivery Borrower Response Opt out / Do not call Special Handling Segment No Response Base Strategy Segment

24 Program Delivery Data and Analytics : Program is built upon a robust foundation of servicer, NSLDS, and school information systems data to provide the most accurate up-to-date data available for identifying loan status. Program activity information is fed back into the data warehouse and tagged to each loan. Ongoing data analysis refines segmentation and messaging. Reporting focuses on changes in loan statuses over time to manage effectiveness of the program. Implementation of Loan Science s Federal Loan Data Warehousing solution is a prerequisite to the program. Key Considerations: Program is primarily preventive, not remedial, so allocation of student population in every cohort to the program by March 1 each year is essential. Program can be customized to integrate school based activities.

25 Case Study: Early Intervention Cut Early Charge-offs by 50% " Early intervention communication campaigns run during the grace period " Control group set aside for performance measurement " Communications emphasized staying in touch and value of managing credit responsibly Borrower Response: Demographic Update Activity 90% Cumulative % of Total Loans with Updates 80% 70% 60% 50% 40% 30% 20% 10% Action Group Control Group Notes " Response to program action is indicated by loans having an address or phone number update event. " Recipients of early intervention communications were much more likely to keep their contact information updated. " Positive behavioral difference in action group persists up to 24 months after last communication. 0% Months Since Program Action Loan Performance: Status of Loans after 10 Months in Repayment* Current Delinquent Forbearance Defaulted Action Group 37.6% 26.1% 3.0% 4.6% Control Group 34.7% 29.3% 3.1% 9.3% Variance % 8.3% -10.9% -2.8% -51.0% Notes " Action group loans have experienced half the defaults of the control group. " Action group loans are more likely to be current and less likely to be delinquent. " Action group loans are no more likely to use forbearance than control group loans. December, 2010 Loan Science Proprietary and Confidential 25

26 Case Study: Portfolio Performance Comparison Key Portfolio Performance Metrics " Compares the net flow rates, delinquency and losses of two pools* of PSL DTC loans. " Portfolio A receives full active portfolio management while Portfolio B receives typical loan servicer due diligence treatment. 60% Cycle 2 to Write-off Net Flow Rates** 50% 40% Net Flow Rates** measure the effectiveness of collections over all stages of delinquency. The result is directly reflected in portfolio delinquency rates... 30% 20% 20% 18% 30+ Delinquency Rates 10% 0% Portfolio A Portfolio B Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 16% 14% 12% 10% 8% 6% Millions $25 $20 Cumulative Gross Credit Losses per $100MM in Repayment 4% 2% 0% Portfolio A Portfolio B Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 $15... and dollars of credit losses. $10 $5 $0 Portfolio A Portfolio B Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Pool Comparative Statistics - As of 1/2010 Avg FICO Avg Balance Pct Cosigned Pct In Repayment Avg Interest Rate Pct Graduate Pct 4 yr Undergrad Portf olio A 722 $ 11, % 37.2% 6.0% 19.6% 80.4% Portf olio B 726 $ 13, % 50.0% 5.7% 18.0% 82.0% * Both pools are direct-to-consumer Private Student Loans issued during with essentially the same terms, pricing and credit parameters. ** Cycle 2 to Write-Off Net Flow Rate is the cumulative percent of 30 day delinquent accounts (2 cycles past due) that roll to charge off at 6 cycles past due (150+ days past due). December, 2010 Loan Science Proprietary and Confidential 26

27 Financial Literacy, Debt Management and Default Aversion - Finding Synergy for Success!!! Performance Management for Student Loans 2011 WASFAA Conference