Transcript Risk Management and Student Loan Default
Risk Management and Student Loan Default
Cohort Default Rate
• • 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 two fiscal years (24 months) and the next three fiscal years (36 months).
Cohort Default Rate Date Range
Fiscal Year Borrowers Enter Repayment (Denominator)
2009 10/1/2008 - 9/30/2009 2010 10/1/2009 - 9/30/2010 2011 10/1/2010 - 9/30/2011
Borrowers in Repayment Who Default (Numerator)
2-Year: 10/1/2008 - 9/30/2010 3-Year: 10/1/2008 - 9/30/2011 2-Year: 10/1/2009 - 9/30/2011 3-Year: 10/1/2009 - 9/30/2012 2-Year: 10/1/2010 - 9/30/2012 3-Year: 10/1/2010 - 9/30/2013
Official CDR Published CDR Used for School Sanctions
2-Year: Sept. 2011 3-Year: Sept. 2012 2-Year: Sept. 2012 3-Year: Sept. 2013 2-Year: Sept. 2013 3-Year: Sept. 2014 2-Year rate (25%) 2-Year rate (25%) 2-Year rate (25%) 3-Year rate (30%) 2012 10/1/2011 - 9/30/2012 3-Year: 10/1/2011 - 9/30/2014 3-Year: Sept. 2015 3-Year rate (30%) 2013 10/1/2012 - 9/30/2013 3-Year: 10/1/2012 - 9/30/2015 3-Year: Sept. 2016 3-Year rate (30%) 2014 10/1/2013 - 9/30/2014 3-Year: 10/1/2013 - 9/30/2016 3-Year: Sept. 2017 3-Year rate (30%) Note: Students entering repayment today will be part of the official 2013 CDR which will not be released until September 2016.
2-Year Cohort Default Rate Trends
Source : Jordan Weissmann, The Atlantic, “Student-Loan Defaults are Still Soaring Thanks to Washington’s Neglect
Public Institution Comparison
Comparison of FY 2011 Official National 2-Year Rates to Prior Three Years
16% 14% 12% 10% 8% 6% 4% 2% 0% 2007 2008 Source : U.S. Department of Education 2009 2010 15,0% 10,0% 9,3% 2011
School Classification
Less than 2 years 2 - 3 years All schools national average
FY 2010 3-Year CDR By School Type
Source : Jordan Weissmann, The Atlantic, “Student-Loan Defaults are Still Soaring Thanks to Washington’s Neglect”, 2013.
3-Year Cohort Default Rate History
Source : U.S. Department of Education
3YR CDR Danger Zone
• • Schools with a single-year CDR of 30% or greater • must: Establish a default prevention task force Develop a default prevention/reduction plan with measurable objectives for lowering the CDR Submit the default reduction plan directly to DOE • Schools with two consecutive years of CDRs of 30% or • • greater must: Revise the default reduction plan Implement additional measures to prevent and reduce defaults May be subject to provisional certification
3 YR CDR Danger Zone
Schools with three consecutive years of CDRs of 30% or greater would lose eligibility to participate: • • Pell Grant Federal Direct Loans School with a SINGLE year CDR of 40% or greater would lose eligibility to participate: • Federal Direct Loans
Corrective Action and Sanctions
2009 3-Year CDR >30%, by Sector Private 11% Public 16% For profit 73%
Source : Stephen Burd, Higher Ed Watch, “The Real Story Behind Corinthian Colleges’ Plummeting Default Rates” 2012.
2010 3-Year CDR >30%, by Sector Public 28.0% Private 7.7% For profit 64.3%
Appeal Options Include
• •
Loan Servicing Appeal
Within 15 days of notification of official rate Fees may apply • •
Participation Rate Index
# Borrowers & # Students enrolled at least half-time http://www.ticas.org/pub_view.php?idx=901 • •
Economically Disadvantaged Appeal
Low Income & Placement Rate Low Income & Completion Rate
Student Loan Risk Management
Why now?
• Economy • • Split servicing Loans transitioned to different servicers • • Graduate underemployment Transition to 3-Year Cohort Default Rate (CDR) • Predatory practices – soliciting payments from students to counsel on default/delinquency resolution • Reduction in free outreach initiatives
% of Student Loan Balances 90+ Days Delinquent
Source: FRBNY Consumer Credit Panel/Equifax; Data displayed in maps are as of December 31, 2012.
Delinquency Rates for Community Colleges 24% 36% 24% 16%
Timely repayment Deferment/forbearance not delinquent Delinquent but not defaulted Default
*Does not include borrowers with consolidation loans.
Source: Delinquency: The Untold Story of Student Loan Borrowing. March 2011. Report by the Institute for Higher Education Policy
The Biggest Risk Factor
Students who do not graduate
•
62%
of borrowers who default did not complete their program of study!
• Risk factors affecting persistence and attainment: — Delayed enrollment — Part-time enrollment — Working full-time while enrolled — Single parent status
Other Risk Factors
Pell recipients
Students have limited financial resources to use to repay loans if they do not graduate, if unemployed or if wages do not increase following program completion.
Parent educational attainment
Default is less likely if at least one parent has a Bachelor’s degree.
Larger household size
Students from larger households may be at higher risk of default.
Challenges to Keeping CDR Low
• • • Colleges are open access Retention and graduation rates are critical • Default rates may be considered a “Financial Aid” issue by administration • Staffing and technological resource constraints Borrowers who become delinquent are no longer your students
Reducing Risk Option 1
• •
Cease student loan program participation
Negative impact on enrollment and access CDR rates and defaults continue for several years
Reducing Risk Option 2
Develop default management plan and devote resources to manage risk
• Default management task force • • Holistic approach – school wide Create plan/work the plan
Best Practice
• Know your RISK • Make it an institutional priority
Where to Start
Only 10% of schools currently challenge draft CDR data. The DOE estimates that 40% of challenges submitted are accepted.
CDR Challenges / Appeals
Outreach to delinquent borrowers to offer solutions- emphasizing affordable repayment options.
Default Prevention / Repayment Counseling Financial Literacy
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.
Retention
College completion is the best default prevention tool in a school’s tool kit!
Student Success Early Intervention & Grace Counseling
Online entrance and exit programs are not enough – in person counseling, budgeting and borrower education needed
Risk Management & Student Success
• • Increase resources for financial aid counseling – Institutional control of loan process – Staff training and technology – Gather reference data Outsource or Insource outreach initiatives – Post enrollment – Repayment education and assistance – Helps borrowers be successful long term – Re-enrollment counseling/collaboration with Retention Office
California Community Colleges (CCC)
• • • • • 72 Districts, 112 Colleges 2.35 million students (2012-13) 19 colleges no longer in federal loan program 93 colleges still participating in federal loan program 63,000 loan borrowers – 2.68%
California Community Colleges (CCC)
• • • • Three colleges had FY09 rates above 30% 12 colleges had FY10 rates above 30% – Three reached their 2 nd year above 30% – One school is at its 3 rd year above 30% Several other colleges are trending to above 30% in future years All colleges will be eligible for low participation rate appeals if they reach three years above 30%
CCC Default Prevention Initiative
• • • • Have retained consultant to assist Tier 1 = over 30% for two years Tier 2 = over 30% for one year – – Default prevention plans Risk analysis – Third-party service contract negotiation Tier 3 = between 20% and 30% – – Risk analysis Discuss need for third-party services
CCC Default Prevention Initiative
• • The System Office is considering purchasing financial literacy services for all colleges.
The Chancellor’s Office is recommending that all schools be involved in the initiative including those no longer actively participating in the federal loan program.
Future Regulatory Considerations
• • • • Gainful Employment College support loan limit reductions for community colleges DOE may consider program level default rates Legislator rhetoric regarding “risk share”
Contact Information
Judith Witherspoon, Senior Vice President
Edfinancial Services 865.342.5200
Rhonda Mohr, Specialist, Student Financial Aid
California Community Colleges Chancellor’s Office 916.323.6894