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Student DefaultImpact on Schools
Sailing away the winter blues with ISFAA …
2015 Winter Conference
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 three fiscal years (36 months)
• Know your rate: http://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html
• Think student loan “Risk Management”
Cohort Default Rate
Benefits of a Low Rate
• Consumer Perception– Low default rate school viewed as quality education
• CDR below 15% allows flexibility.– will allow schools to disburse loan proceeds in a single installment
made for one semester, one trimester, one quarter, or a four-month period.
Cohort Default Rate - Facts
High CDR Risks • School with a single-year CDR of 30% or greater must:
– Establish a default prevention task force– Develop a default prevention/reduction plan with measureable
objectives for lowering CDR– Submit the default reduction plan directly to DOE
• School with two consecutive years of CDR of 30% or greater must:– Revise the default reduction plan– Implement additional measure to prevent and reduce defaults– May be subject to provisional certification
Cohort Default Rate - Facts
Sanctions• Schools with three consecutive years CDR of 30% or greater =
loss of eligibility to participate:– Pell Grant– Federal Direct Loan Programs
• Schools with a single year CDR of 40% or greater = loss of eligibility to participate:– Federal Direct Loan Programs
Cohort Default Rate – Danger Zone
Comparison of FY 2011 Official National 3-Year Rates to Prior Three Years
Public Institution Comparison
2009 2010 20110%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%19.4%
12.1%
9.3%
13.0%
14.5%
18.6%
9.3%
12.5%12.1%
11.0%
13.0%12.9%
Less than 2 years2 - 3 years
4 yearsAll Public Schools - national average
Source : U.S. Department of Education
School Classification
CDR Comparison
2009 2010 20110%
5%
10%
15%
20%
25%
14.4%
20.0%21.0%
13.4%14.7% 13.7%
Indiana University East
National
FY 2011 3-Year CDR By School Type
% of Student Loan Balances 90+ Days Delinquent
Source: FRBNY Consumer Credit Panel/Equifax; Data displayed in maps are as of December 31, 2012.
Sample Report - Academic Details• The single greatest risk factor is non-
completion- Factors affecting persistence and
attainment• Delayed enrollment• Part-time enrollment• Working full-time while enrolled• Single parent status
Borrower Repayment ScheduleThe greatest number of borrowers who default are in standard repayment – suggesting that they have not attempted to revise repayment terms for more affordable month payments.
Risk Factor
Cease Student Loan Program Participation• Negative impact on enrollment and access (TICAS Report – 2014)• CDR rates and defaults continue for many years
Institute Educational Program for Borrowers• CDR is a lagging indicator• 5 years or more before full impact can be assessed• Early withdrawals are marginally impacted
Look to the Institution for “The Solution”• Budget limitations• Data & Technology• Depth of Knowledge
CDR Risk Management – “Knee Jerk”
Develop Default Management Plan and Devote Resources to Manage Risk • Top Down• Make it an institutional priority• Default management task force• School wide representation• Create plan/work the plan• Devote resources to align with borrowing rate• Maintain participation in federal loan
programs
CDR Risk Management – Best Practice
Best Practice
Increase Resources for Financial Aid Counseling• Institutional control of loan process
• Staff training
• Gather reference data
Outsource or Insource Outreach Initiatives• Re-enrollment counseling
• Repayment education and assistance
• Triage for delinquent or defaulted borrowers
Risk Management & Student Success
Options include:• Data Challenges (Incorrect, Uncorrected, etc.)• Loan Servicing Appeal• Participation Rate Index • Economically Disadvantaged Appeal
These challenge/appeal options require evaluation of student enrollment and/or repayment data• Financial aid leadership• Institutional research• Third party servicers
CDR Challenge and Appeals
Student Success
Where to Start?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.
College completion is the best default
prevention tool in a school’s tool kit!
Online entrance and exit programs are not enough – in person counseling, budgeting
and borrower education needed
Only 10% of schools currently challenge draft CDR data. The
DOE estimates that 40% of challenges submitted are
accepted.
Retention
Outreach to delinquent borrowers to offer solutions- emphasizing affordable repayment options.
• Where are you starting from?– CDR > 15 – lose benefits
– CDR > 22% – urgent
– CDR > 30% – emergency
• Validity of enrollment reporting data
• Validity of borrower data
• How much and how fast you can impact repayment behavior?
Tipping Points
At Indiana University, it’s a Campus-wide initiative• Board of Governors
• Presidents Council
• Management Council
• Enrollment Management Committee- Instruction / Faculty
- Student Services
- Business Office
- Registrar
It takes an Institution…
Default Management Plan• Enrollment Management Committee
- Implementation- Analysis- Metrics
It takes a Village…
Default Management Plan Outcomes
Outcome ResponsibilityStudents Contacted vs. Cured Financial Aid / 3rd Party Servicer
Workshops for HS Counselors Recruiters & Student Services
Mandatory Financial Aid Orientation Financial Aid & Instruction
Borrower Education & Strategic Disbursement Financial Aid
Student Advisory Group Dean of Student Services
Transitional Courses Instruction / Faculty
Track Loan Repayment Behavior Financial Aid
Enhanced Borrower Messaging Public Information Office
Scholarship Funding & Awarding Strategy Financial Aid & Advancement
Accurate Enrollment Reporting Registrar
Metrics tied to Outcomes
Default Management Plan: Sample Outcome
Mandatory Financial Aid Orientation• Developing interactive financial aid assignment as part of the
revitalized STU103 initiative• Money Management learning objective will include:
– 9-10 hours of content– Utilizing “Cash Course”, which will also be featured on MCC’s new financial
literacy webpage
Responsibility: • Financial Aid & Instruction
Outcomes to Track: • # Incoming Students required to attend orientation and STU versus
# of students who successfully complete the courses/sessions • # of students who successfully complete financial aid orientation
It takes a Village…
Other Resources• Loan Servicers• U.S. Department of Education• Default Prevention: free and paid• Financial Literacy: free and paid
- Must be mandatory to be effective
• Do you know your CDR’s for the last 3 years?• Are your CDR’s trending upward?• Who are your defaulters?• What is the current financial position of the college?• Do staffing models / budget reflect necessary default
management efforts?• Do financial models need to change to prepare for
potential loss of Title IV funds?• Form relationships with Director of Financial Aid
– Regular CDR and Regulatory Updates
Take Aways
• College support loan limit reductions for community colleges
• Legislator rhetoric regarding “skin in the game” (i.e. Risk Sharing)
• College ranking/scorecards
Future Regulatory Considerations
Who We Are
• Administrative body behind some of the changes to FA business practices and required component
• Provides Financial Education services for all 7 campuses, 114,000 students at IU
• Collaborates with liaisons/teams from all IU campuses to implement effective programming
Office of Financial Literacy IU MoneySmarts• Dynamic tool to make financial
education more accessible for students
• Established to assist students in making informed financial decisions before, during, and after college
• Brand established to make program identifiable and approachable
• Adopts a holistic approach to promote overall student wellness
IU Office of Financial Literacy
2012• Student Debt Task
Force
• Establishment of Office
• Launch of IU MoneySmarts Website
2013• Required Financial
Literacy piece implemented
• IU MoneySmarts Team created
• Establishment of campus teams
• Development of Podcast
2014• Partnership with
School of Public Health
• Borrowing reduction of 12.4% between 2013 - 2014
Financial Literacy Deliverables
• Transit• MoneySmarts.iu.edu• “How Not to Move Back in With Your Parents”• For-Credit Courses• IU MoneySmarts Team• Campus Teams & Program Funding• Staff Professional Development• “Business Practices” Changes
National Summit on Collegiate Financial WellnessJune 28-30, 2015 – Bloomington, IN
• Connect those tackling financial wellness in Higher Ed and progress the field
• 160 attendees from 33 states in 2014• Keynote from Tahira Hira, international financial
literacy expert• Call for proposals goes live January 20, with
registration opened at a later date
Phil SchumanDirector of Financial LiteracyIndiana [email protected]
Steve QueisserVice PresidentEdfinancial [email protected]
Contact Information
