Helping a Student Out of Default

Helping a Student Out of Default

Ann-Marie JulienI/Director, Program Delivery, CSLP

Presentation to CASFAAJune 13, 2006

National Student Loan Service Centre - Public Institutions Division

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Goals

• To provide an overview of the repayment process.

• To provide an overview of the default management tools and approaches used by the NSLSC

• To provide an overview of the management tools and approaches used by CRA

• To highlight some of the services offered to borrowers


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Agenda

• Overview

• Context

• Repayment

• In repayment, but not making payments

• Return to Government / Collections

• Cases

• Questions


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Delivery of Student Loans

• Delivery of CSLP is a joint endeavour by the federal and provincial/territorial governments- except Quebec, Northwest Territories and Nunavut

• Most jurisdictions have multiple loan regimes• In four jurisdictions -- Ontario, Saskatchewan, New

Brunswick, and Newfoundland and Labrador – federal and provincial governments work closely together to deliver integrated student loans

• In one jurisdiction -- Saskatchewan -- the federal and provincial government have an integrated collections activities; a similar arrangement is being negotiated with NL and NB


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Delivery of Student Loans

If eligible for student loans, a student will have received …

• From the federal government, Canada Student Loans:– Direct Lend, August 2000 to today -- the federal government

develops program and policy direction; actual administration of the student loan program is done by Service Providers

– Risk Shared, August 1995 – July 2000: Financial Institutions– Guaranteed Loans, pre-August 1995: Through banks,

government guaranteed loans

• From the provincial government, provincial student loans; depending on the province, there may be several “eras” of student loan products that the borrower would have received


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PSED + 6 months

Period of Study End Date

6 month Post-Study payment grace period(interest accrues)

As long as student confirms ongoing study, s/he remains in interest free status. Confirm ongoing study by:Applying for another student loan (Schedule 1) SP notifies FI of new loans/ongoing student statusCompleting a Schedule 2 (ongoing studies, but no new loan required) Student responsible for advising SP and FI’s

3 – 4 months after PSED, Service Provider contacts borrower to pursue “active” consolidation Borrower is advised of impending consolidation, option to capitalize or pay interest accrued during 6 month grace period interest, amount owing, repayment schedule, as well as options if payments not possible (i.e., Revision of Terms, Interest Relief) Borrower directed to NSLSC if access to debt management options are necessary. Borrower submits signed consolidation agreement to Service Provider

StudyStartDate

FirstPaymentDue

Repayment Period

MonthlyPayments Due

Student Loan Life Cycle

In study In study

PSED

Student applies for student loanStudent applies to program of study (public or private educ. institution)Province confirms provincial and federal student loan availableEI confirms enrolment (CoE)

First time application establishes student account with SP with first, last name and SIN as identifiersWith completed Sch 1 and CoE, SP processes documents which will result in disbursement to student/Educ. Instit.SP’s provide monthly update to Credit Bureau

Repayment completeBorrower congratulated on repayment and confirmation that the loan obligation no longer exists.

1month


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Consolidation

• Consolidation occurs at the end of the sixth month following the last PSED; first payment is due at the end of the seventh month.

• Consolidation letters are mailed 4 to 6 weeks prior to the first day of the seventh month from the end of the students’ study period.

• Borrowers who actively consolidate are usually more knowledgeable of what provisions are available to them throughout repayment and have a more positive repayment experience.


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Repayment

• High risk* borrowers are contacted once their consolidation agreements have been sent:– If the borrower indicates that s/he is in school full-

time, they are advised to send Confirmation of Enrollment

– Borrower is walked through package/requirements– Debt management tools like Revision of Terms and

Interest Relief are discussed– Primary goals are to avoid delinquency, prevent

defaults and protect credit ratings*High risk includes consideration of such factors as size of loan,

educational institution, program of study and permanent address.


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Repayment Options

• Borrowers can pay by cheque, by Pre-authorized Payment, or through online banking.

• Payments are due at the end of each month; more frequent payment schedules can be established.

• Extra payments are welcomed at any time; applied directly to principal (with no penalty).

• Repayment terms are very flexible and borrowers who call are advised of all options and debt management tools.


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270 Days in ArrearsPSED +

6 months

6 month Post-Study payment grace period(interest accrues)

3 – 4 months after PSED, Service Provider (SP) contacts borrower to pursue consolidation Borrower must submit signed consolidation agreement to SP

FirstPaymentDue

Repayment Period

Monthly Payments Due

Any late payment is identified immediately. Attempt to contact borrower immediately.Educate re. obligations, program featuresAttempt to cure current arrearsConsider Revision of TermsConsider Interest Relief

Student can renegotiate terms (which includes recalculation of payments and interest accrued and owing), make missed payments or apply for interest relief and be returned to good standing.

Service Provider returns account to government for collection when account not cured for 270 days or the borrower has no intention to repay.

Account returns to SP only if it was sent to government in error. Also, a loan may be returned if the student returns to school and meets the rehabilitation criteria.

PSED

90 dayPaymentDue

At 90 days in arrears, a restrict code is placed upon the student account.Credit Bureau is advised of restriction. Back in good standing through contact/ discussion with SP

1month


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Repayment Encouragement • Borrowers are contacted by phone and in

writing when a payment has been missed

– If the borrower indicates that s/he is in school full-time, they are advised to send Confirmation of Enrollment and an interest payment

– If the borrower is not longer in school, debt management tools like Revision of Terms and Interest Relief are offered


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Repayment Encouragement

• The 30, 60 and 90 day letters indicate, with increasing urgency, the need to contact the NSLSC to discuss their loan status and debt management options.

• At 90 days in arrears, a restriction is placed on the borrowers account.

• One last letter is sent to the borrower, clearly articulating the implications of not entering into a repayment arrangement (including credit bureau negative reporting, income tax set-off, etc) about 3 months before the loan is returned to government.

• The file is managed for up to 270 days – until this time, the SP has tools with which to assist the borrower get back into good standing (e.g. Revision of Terms, Interest Relief).


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Debt Management Tools

• Revision of Terms– Amortization period can be increased; short term

arrangements for interest only payments

• Interest Relief (30 months) and Extended Interest Relief (24 months)– Available in 6 month increments– Proof of income and expenses required– Backdating applications and capitalizing

outstanding interest is possible– Adjudicated by the Service Providers


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Restriction CodesX restriction Risk-shared loan 90 days or more in arrears C restriction Standard claim

T restriction Temporary claim status, claim received but not paidR restriction Put-back (Risk-shared loan) received and paidZ restriction Borrower is on DRR (Debt Reduction Payment)5 restriction # of weeks > 5207 restriction # of weeks > 3409 restriction # of weeks > 400 (Doctoral Studies)4 warning # of weeks >= 4686 warning # of weeks >= 2888 warning # of weeks >= 341 (Doctoral Studies)

O warning Student has received an overaward I warning Permanent disability

ReasonsB restriction Bankruptcy has been filed

D restriction Death J restriction Judgment registered

P restriction Convicted of an offense related to CSL 1 restriction Borrower has received the first DRR payment /accompanies a ‘Z’

2 restriction Borrower has received the second DRR payment/ accompanies a ‘Z’ 3 restriction Borrower has received the third DRR payment/accompanies a ‘Z’ Q restriction Borrower is 90 days in arrears while on DRR/ accompanies an ‘X’

R The loan is paid in full or forgiven due to permanent disability.


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How a Borrower gets to Collections• Direct Loans that are delinquent for 270 days or more (no payments

made, no contact) or where the borrower refuses to pay are transferred to government for collection. Guaranteed/Risk shared loans can be sent to collections after 90 days in arrears.

• The account is then established in the Departmental Accounts Receivable System for collection activity.

• Service Providers report to the Credit Bureau that the loan is “closed”, returned to government, with an outstanding amount due on file.

• If a borrower believes his/her file has been returned in error, an investigation can be launched by the NSLSC or CSLP. If sufficient grounds exist, the file may be returned to the NSLSC.


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Collections• Non Tax Operations Division of the Canada Revenue Agency

(CRA) follows up with the borrower to establish repayment of the loan.

• Simple interest accrues daily when the loan is in Collections.• Accounts are selected for tax set off – a notice is sent to the

individual to advise them that their tax refunds may be used to pay off outstanding debts. This often prompts borrowers to establish a repayment arrangement.

• Prior to 2005: loans were either immediately assigned to an in-house agent or to a Private Collection Agency, depending on work loads.

• As of 2005: CRA will attempt to establish contact and work with the borrower to set up a repayment arrangement. If a repayment arrangement is established, the account will remain in house. If a contact/repayment arrangement cannot be established, the account will be sent to a PCA.


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This is where the story ends …Borrower not entitled to additional funding (either loans or interest free status) or debt management measures

Unless …


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Getting out of Collections …

If a borrower wants to return to school and either:– Receive additional loans.

– Receive interest free status on outstanding loans.


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Rehabilitation Requirements

• Make six consecutive months of regular payments, of an agreed upon payment amount. (Payments must be voluntary and do not include set-offs on income tax refunds or GST.)

• Pay all the outstanding interest on their loan.(Interest continues to accrue until confirmation of interest payment. Client must also provide schedule 2 to lender in order to enter into interest free status.)


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What does this really mean?


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Brenda (Direct Loan Scenario)

What Happened?

• Went to school from September 2001 – April 2004; 3 year program; finished her Program with an outstanding loan balance of $15,000 (Direct Loans only)

• Was to start repaying in November 2004• She was unemployed, and couldn’t make

payments; wouldn’t return NSLSC calls or respond to contact attempts

• Loan went into arrears; then returned to government (July 2005)


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Brenda wants to go back to school …• She contacted the Service Canada (CSLP Call Centre) for instructions

on the rehabilitation procedure • Agreed to a repayment schedule and additional payment that would

pay out her interest (as of a specific date).• Made six consecutive monthly payments of the agreed upon amount of

$400 from January 2006 through to July 2006.• In July, she will pay the remaining $62 in outstanding interest (the

payment of outstanding interest has been calculated to month end, and she will ensure the payment is received and processed before that date).

• Once this payment is processed, CSLP will initiate the return of her loan to the Service Provider.

• Service Provider will notify CSL Program Delivery of removal of restriction via the recall process which will get the loan back to the SP.

• She can then either apply for additional funding or submit a Confirmation of Enrolment to keep her loans in interest free status.

Brenda (Direct Loan Scenario)


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Complicating factors … borrowers with multiple loan products• Most loan products (Direct Loans, Risk-Shared and

Guaranteed Loans) are assessed in the same manner for rehabilitation (6 monthly consecutive payments and in accordance with the agreed upon repayment schedule and all interest paid up to date).

• Risk shared loans (that are still at the financial institution) are not assessed in the same way. As long as the borrower brings their account into good standing with the FI and a letter is provided to the Program, the restriction will be removed and the borrower would be eligible for further funding. Once rehabilitated, the Financial Institution notifies CSLP electronically.


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Borrowers with loans from Multiple regimes

Guaranteed + Risk-shared loans 105,700

Guaranteed + Risk-shared + Direct Loans 14,042

Guaranteed Loans + Direct Loans 9,675

Risk-shared + Direct Loans 145,176


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Greg (FI Loans (Risk-Shared) and Direct Loans Scenario)

What Happened?• Went to school from September 1998 – April 2002; 4 year

program; finished his Program with an outstanding loan balance of $25,000 (Risk Shared and Direct Loans)

• Was to start repaying in November 2002• He was working as a Security Guard until he could find a job in

his field, earning very low wages, and supporting a young family.

• His Risk Shared Loans were sent to an FI’s PCA; his direct loans were returned to government in July 2003

• He has managed to get an entry level job in his field. However, he believes that he can do much better if he takes a one year leave of absence to complete his Masters degree (given he’s been taking courses part time). His partner is now back to work and this provides some additional financial stability to his family.


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Greg (FI Loans (Risk-Shared) and Direct Loans Scenario)

Greg wants to go back to school …• He contacted the Financial Institution and CRA.• Agreed to a repayment schedule at both institutions and additional

payments that would pay out his interest (as of a specific date). • He made six consecutive monthly payments of $250 (Direct Loan) and

$100 (FI loan) from March 2005 through to August 2005• In August, he paid the remaining $463 (Direct Loan) and $100 (FI loan)

of outstanding interest (the payment of outstanding interest has been calculated to month end, and he ensured the payment was received at both institutions and processed before that date)

• Once this payment was processed, CSLP initiated the return of the Direct Loan to the Service Provider. The FI provided Greg with a good standing letter which Greg then provided to the CSL -- the restriction was removed for the FI loan. CSLP (Client Relations) then asks the SP to recall the loan, which will remove the restriction for the borrower’s Direct Loan.

• He then applied for additional funding for the year of study he was enrolled in.


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Marie (Risk-Shared Loans (Put Back), and Direct Loans Scenario)

What happened?

• Went to school from September 1997 – April 2001; 4 year program; finished her Program with an outstanding loan balance of $22,000 (Risk-Shared and Direct Loans).

• Was to start repaying in November 2001.• She was working as a waitress until she could find a job in her field,

earning very low wages, and supporting a young family as a single parent.

• Her Risk-Shared Loan was handled by the FI and forwarded to their Collection Agency in June 2002; her direct loans were returned to government in July 2002.

• The FI submitted her FI loans to the government in June 2003 (put back) as the loans were uncollectible. (Financial institutions that participated in the risk-shared program between 1995 and 2000 are permitted to send a certain percentage of loans in arrears back to the government. These loans are collected through the CRA).

• Marie received a small inheritance and decides to continue her post secondary education to complete a different program of study.


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Marie (Risk-Shared Loans (Put Back), and Direct Loans Scenario)

Marie wants to go back to school and wants her CSL returned into interest-free status …

• She contacted Service Canada (CSLP Call Centre) and received instructions on rehabilitation

• Agreed to a repayment schedule and additional payment that would pay out her interest (as of a specific date). The calculation takes into consideration both the outstanding balance and outstanding interest of the Risk-Shared Loan and the Direct Loan.

• She made six consecutive monthly payments of $200 (FI Loan) and $100 (Direct Loan) from March 2005 through to August 2005.

• In August, she will pay the remaining $375 (FI Loan) and $75 (Direct Loan) of outstanding interest (the payment of outstanding interest has been calculated to month end, and she ensured the payment was received and processed before that date).

• Once this payment is processed, CRA forwards a request to Client Relations (CSLP) to assess the rehabilitation. Once approved by Client Relations an approval letter is forwarded to Marie and a copy to CRA. The Direct Loan will be returned to the Service Provider. The FI Loan will remain at CRA. She is required to provide confirmation of enrolment to the PCA to maintain interest-free status on her FI loan.

• Marie then submitted her confirmation of enrolment to the SP for the year of study in which she was enrolled.


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Pay attention …Interest• Interest accumulates daily on outstanding loan products. • If CRA/PCA calculates o/s interest as of a certain date, the

borrower must get their payment in to CRA/PCA and processed by that date, or else interest will have continued to accumulate and the payment won’t cover o/s interest.

Mix of loan products• Direct loans can be returned to the NSLSC; Guaranteed and

Risk Shared loans that have been returned to government stay with CRA; Guaranteed and Risk Shared loans that were at the FI, stay at the FI.

• Borrower must remember to keep all loan holders -- NSLSC, CRA and FI -- informed of their in-study status to ensure that their loans do not go into repayment and (in the case of loans at CRA) that set-off lien does not go back on account.

Provincial loans• If a borrower wants to return school with full funding, they also

need to rehabilitate their provincial loan products, if they too are in default.


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Uncollectible Canada Student Loans

Permanent Disability Loan Forgiveness for Direct Loans (only)– May be eligible for the Permanent Disability Benefit.– In the case of borrowers with a permanent disability who are

experiencing exceptional financial hardship due to their disability, their Canada Student Loans will be forgiven regardless of when the borrower’s permanent disability occurred and all other eligibility have been met (i.e. while they are in school, in repayment or in collections). No payments will be expected from the borrower.

Hardship (Loans with Collections)– In working with the in-house collections agent or with the PCA, the client

can be considered for hardship. This can provide either temporary or long term relief from collections activity if the client can demonstrate that they are in a situation of financial hardship.

– The client will receive a form to be completed, requiring a significant amount of documentation to demonstrate the financial hardship situation.

Questions??

Documents

Helping a Student Out of Default