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DEFAULT MANAGEMENT AND PREVENTION
SARAH BAUDER
ASST. VICE PRESIDENT FOR FINANCIAL AID AND ENROLLMENT SERVICES
UNIVERSITY OF MARYLAND
11/6/2012
11/6/2012
STUDENT LOANS IN THE
MEDIA
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AGENDA
• Cohort Default Rate Overview
• Does Default Prevention Help?
• The Consequences• The Changes, Risks and Challenges
• Default Prevention Strategies
• Financial Literacy
• Case Study
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A COHORT DEFAULT RATE OVERVIEW
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CDRs ARE RELEASED TWICE A YEAR
February(DRAFT)
•Not public
•No sanctions
•No benefits
September(Official)
•Public
•Sanctions apply
•Benefits apply
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CDRs: THE FORMULA
Numerator:
Denominator:
Borrowers who entered repayment in one year, and defaulted in that year or the next
Borrowers who entered repayment during the one-year cohort period
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CDRs: DENOMINATOR IN FORMULA
• Determine Data Entered Repayment (DER)
• Date of graduation, withdrawal, or less than half-time status
• Plus 181 days (6 months + 1 day) = DER
• Using DER, determine the correct cohort year in which the student will be counted
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CDRs: NUMERATOR IN FORMULA
• Loan must be included in denominator
• Determine default date (361 day of delinquency or Claim Paid Date [CPD])
• Determine if default date falls within cohort period
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CDRs: TWO FORMULA’S: APPLYING THE FORMULA
• Non-Average Rate
• 30 or more borrowers in repayment
• Average Rate
• Less than 30 borrowers in repayment
• 3 years of data
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USING THE NON-AVERAGE RATE FORMULA
Calculation:
For a school with 30 or more borrowers entering repayment in a fiscal year
5
225100 2.2%x =
(N)
(D)
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USING THE AVERAGE RATE FORMULA
Calculation:
For a school with less than 30 borrowers entering repayment in a fiscal year
The sum of the three most recent cohort periods
3 + 1 + 1
20 + 17 + 10100 10.6%x =
(N)
(D)=
5
47
FY06 FY07 FY08
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2 TO 3 YEAR CDR (A SCENARIO)
Numerator = # of borrowers from the denominator who default within a FY
Denominator = # of borrowers who enter repayment within a FY
125 125
Year 1 Year 2
5,000
125 125
Year 1 Year 2
5,000
125
Year 2
3555,000 = .071 7.1%Released Sept 2011
6055,000 = .121 12.1%Released Sept 2011
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THE 3-YEAR CDR CALCULATION
• Expands the default tracking window from 2 years to 3 years
• Creates a transition period (FY09/10/11)
• Raises penalty threshold from 25% - 30%
• New set of requirements for FY09, FY10…• Possible compliance issue beginning in
September 2014 (FY 2011 CDR)• Increases availability of “disbursement relief”
from 10 to 15% (effective 10/1/11)
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CDR DISBURSEMENT WAIVERS FOR LOW DEFAULT RATES
• New threshold: Schools with a default rate less than 15% for the 3 most recent fiscal years
• May disburse a single term loan in a single installment, and
• Need not delay the first disbursement to a first-year undergraduate borrower until the borrower has completed the first 30 days of their program of study
Effective for loans first disbursed on or after October 1, 2011
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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, ACG/SMART, FFEL/DL• School has appeal rights
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INSTITUTIONAL CDR CALCULATIONS BY CDR YEAR
CDR Denominator: Enter Repayment
Numerator: Default
Publish 2-Year Rates
Rate Used for Sanctions
FY 2009 10/1/08 - 9/30/09 10/1/08 - 9/30/11 September 2012 N/A
FY 2010 10/1/09 - 9/30/10 10/1/09 - 9/30/12 September 2013 N/A
FY 2011 10/1/10 - 9/30/11 10/1/10 - 9/30/13 September 2014 3-year rate
FY 2012 10/1/11 - 9/30/12 10/1/11 – 9/30/14 September 2015 3-year rate
FY 2013 10/1/12 – 9/30/13 10/1/11 – 9/30/15 September 2016 3-year rate
FY 2-14 10/1/13 – 9/30/14 10/1/12 – 9/30/16 September 2017 3-year rate
Table 2. Publications of 3-year CDR
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NATIONAL STUDENT LOAN DEFAULT RATES
DOES DEFAULT PREVENTION HELP?
The changes, risks and challenges
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THE CONSEQUENCES OF DEFAULTFOR THE SCHOOL
• The CDR is a measure of a school’s administrative capability
• High CDRs can:• Negatively reflect on school quality• Result in provisional certification• Result in loss of Title IV eligibility
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THE CHANGING LANDSCAPE
• Loan default increasing for most schools
• Educational costs continue to rise
• More students borrowing more money
• The combination of Stafford and private loans equal greater debt
• Changes to CDR calculation accompanied by new sanctions and enhanced benefit
• Transition to all Direct loan Origination and Servicing
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DEFAULT PREVENTION STRATEGIES
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FINANCIAL LITERACY• http://www.financialaid.umd.edu/literacy/
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WHAT WE DO TO KEEP OUR RATES LOW
Be Proactive:
Know Who Could Default
Financial Literacy Classes for New Students
Satisfactory Academic Progress
Cash Course Requirement8% rule – Profile Students
One-on-One Counseling
Encourage Limited Borrowing
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GOOD RESOURCES• Default management sample plan from FSA
http://ifap.ed.gov/dpcletters/GEN0514.html
• Cohort Default Rate: The Cohort Default Rate Guidehttp://ifap.ed.gov/drmaterials/finalcdrg.html
• Default Prevention Resourceshttp://ifap.ed.gov/DefaultPreventionResourceInfo/
• Operations Performance Management Service Group (CDR Calculations and data challenges)
• Main line: 2020-377-4258• Hotline: 202-377-4259• Email: [email protected]• Web:
http://ifap.ed.gov/DefaultManagement/DefaultManagement.html
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CASE STUDY - UMDDefault Rate
Graduated Didn’t Graduate Total
Any Academic Probation 8% 19% 14% (20)
Undergraduate Studies Major 6% 22% 12% (21)
High School GPA > 1.4 < 2.3 9% 19% 12% (15)
Last Cum UG GPA >1.4 < 2.3 7% 13% 10% (178)
Black/Af. American 7% 17% 9% (207)
30+ Years Old 6% 12% 8% (36)
Any Alternative Loan 3% 18% 7% (49)
Unmet Need > $7,000 < $10,500 5% 14% 7% (85)
Average EFC <=$2,500 5% 14% 7% (225)
Independent 5% 12% 7% (129)
Enrolled 13+ Terms 4% 20% 6% (112)
Cumulative Loan Amount > $20,000 4% 20% 6% (81)
Total 3% 10% 4% (404)
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