MichiganDefault Prevention Project

A Holistic Approach to Default Aversion

U.S. Department of Education

Federal Student Aid

John Pierson FSA Default Prevention

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• Some Interesting Data• The Changing Landscape• What schools can do

– Understanding the two broad approaches to successful default prevention.

•Today’s Program

Session Content

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Official Cohort Default Rates8.8%

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%

1997 1998 1999 2000 2001 2002 2003 2004

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Composition of Cohort Default Rate

0%

20%

40%

60%

80%

100%

1998 1999 2000 2001 2002 2003 2004

Cohort Default Contribution By School Type

Career AllPublic <4 YearPrivate <4 YearPublic 4+ YearPrivate 4+ Year

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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.

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Data: Michigan vs National

% Change

•National CDR FY03 4.5% FY04 5.1% +13.3%

•National $$ FY03 647.7m FY04 801m +23.6%

•Michigan CDR FY03 3.7% FY04 4.2% +13.7%

•Michigan Dollars FY03 18.1m FY04 22.7m +25.4%

•Michigan Defaulters FY03 3,212 FY04 4,056 +26.3%

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FY 2005 Draft Calculation

Some things to consider

Draft Data Embargoed!

Your Data: How did your draft 2005 data look? Up? Down?

Anomalies….

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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?

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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

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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

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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

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• 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

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Campus Wide Solutions

• Core Functions: – Admission, Recruitment, Education,

Student Support Services, Retention, Graduation, Career Placement

• Reduce loan default by doing these things well.

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A Holistic Approach to Default Aversion

Understanding the intersection between student (and institutional) success and loan default…and how to do something about it.

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Michigan: Part of a National Initiative

• 2005: Nevada and Puerto Rico

• 2006: Ohio, Michigan, Georgia, Florida, Arkansas

• 2007: California, New York,

Career Schools

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Default Prevention and Management

• Operations Team

• Challenges/Adjustments/Appeals Team

• Default Prevention Team

Phone: (202) 377-4259

Email: fsa.schools.default.management@ed.gov

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DP Team Contact Information:• Mark Walsh (816) 268-0412

mark.walsh@ed.gov• Eileen Marcy (215) 656-3249

eileen.marcy@ed.gov• John Pierson (404) 562-6269

john.pierson@ed.gov• Craig Rorie (215) 656-5916

craig.rorie@ed.gov