Transcript DEFAULT PREVENTION IN COMMUNITY COLLEGES

DEFAULT PREVENTION IN
COMMUNITY COLLEGES
Presented by:
Lynn Lee
Harford Community College
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STUDENT LOAN DEBT
In 2 year colleges, 33.2% of the students borrow
student loans
The average cumulative debt for community college
students is $9,287
According to the National Postsecondary Student Aid
Study, 2003-04, 54% of the students wish they had
borrowed less while at a community college
DOE recommends that the monthly loan payment be
between 8%-12% of net monthly income
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WHO IS LESS LIKELY TO DEFAULT?
FROM PROJECT ON ACADEMIC SUCCESS


Borrowers who earn a degree are less likely to default.
Borrowers with GPAs over 3.0 have a less than 1%
default rate, while borrowers with GPA of less than 2.0
have a default rate of 18%.
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WHO IS LESS LIKELY TO DEFAULT?
FROM PROJECT ON ACADEMIC SUCCESS
Academic preparation—students who had
higher grades in high school, higher SAT scores,
and who earned better grades in college are
less likely to default.
 Additionally, the course completion rate, grades
earned, enrolling continuously, time to degree—
all are predictors of default.

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WHO IS LESS LIKELY TO DEFAULT?
FROM PROJECT ON ACADEMIC SUCCESS

College-related academic reasons
 Students who are continuously enrolled are less
likely to default.
 Students majoring in scientific, engineering, or
agricultural degrees are less likely to default, while
students majoring in General Studies are more
likely to default.
 Default rate decreases as length of time at college
increases. However, extending attendance beyond
5 years has a negative impact on default.
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WHO IS LESS LIKELY TO DEFAULT?
FROM PROJECT ON ACADEMIC SUCCESS


Borrowers who have used deferments or forbearance
are less likely to default.
As post-graduation income increases, the likelihood of
default decreases.
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SO, WHO DEFAULTS?

Income and debt


The borrower who earns less and owes more is more
likely to default than the borrower with a smaller debtto-income ratio.
Age and competing obligations
Older students are more likely to default as older
students are more likely to have accumulated more
overall debt.
 Research shows that being single, separated divorced
or widowed, combined with having dependent children,
increases the default rate by 40%.

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WHO DEFAULTS?

The greater the disparity between college major
and type of employment, the more likely the
student will default.
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WHO DEFAULTS?
FROM PROJECT ON ACADEMIC SUCCESS, INDIANA UNIVERSITY
Borrowers who went into delinquency more
than one time are more likely to default.
 Other variables increasing default:

 Underrepresented
students—from low-income
families, first generation students, African-American
students, and students with dependents
 Coming from families with little formal education
 Having a GED or no high school diploma
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WHY DO YOUR STUDENTS DEFAULT

Analyze your school data to determine why
your students are defaulting
 Were
they academically successful?
 Did they complete?
 Did they find jobs?
 Were they in specific programs?

Consider surveying your past borrowers for
suggestions on how your office AND your
college could have served them better
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WHAT MAKES COMMUNITY COLLEGES
DIFFERENT?


Nationally, community colleges educate more than
40% of all undergraduate students.
Our colleges are open admission and have a greater
percentage of students in remediation courses.
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WHAT MAKES COMMUNITY COLLEGES
DIFFERENT?




Community colleges are more accessible.
 Location
 Low tuition
Many community college students work at least parttime or have families to support and have other
expenses beyond the COA, such as day care.
Typically, our students take longer to complete.
Typically, community colleges have lower retention
rates.
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INSTITUTIONAL CONCERNS--NEW CDR
CALCULATION
 Beginning
with FY 2009, the new formula will
look at three fiscal years - the one in which
the borrower began repayment and the
following two years.
 Old
Calculation looks at defaulters over a 2 year
time period
 New Calculation looks at defaulters over a 3 year
time period
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CHANGES IN REWARDS AND PENALTIES


The HEOA increases the minimum CDR threshold
schools must meet in order to continue participation
in Title IV programs from 25 percent to 30 percent
for fiscal year 2012.
The law also increases the participation rate index
from .0375 to .0625 for schools to be exempt from
the minimum CDR threshold requirement. The
participation rate index measures the number of
students who obtain loans compared to the number
of regular students at the school. If a low
percentage of a school's students take out loans,
that school is exempt from the minimum threshold
requirement.
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PARTICIPATION RATE INDEX APPEALS
Defaulter U has a cohort default rate of 50%.
It’s two most recent cohort default rates were
20% and 31%. Therefore, Defaulter is subject
to sanction because it’s cohort is now above
40%.
Defaulter appeals the sanction based on its
participation rate index. It had a total of 100
students enrolled at least ½ time during the
cohort year and 10 of those students got loans.
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PARTICIPATION RATE INDEX APPEALS
Defaulter’s appeal looks like this:
10/100 X 50% (cohort rate) = 0.05
Because the participation rate index is less than
0.06015, Defaulter U’s participation rate index
appeal would be successful.

The Participation Rate Index Appeals allow colleges
with a relatively low percentage of borrowers to
appeal sanctions.
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PREDICTIONS

“Based on previous studies and reports,
lobbyists and others estimated that adding a
third year to the time period in which defaults
were tracked could increase default rates by an
average of 60 percent, putting more
institutions at risk of penalty by the Education
Department. “
From Inside Higher Ed, January 21, 2008
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3 YR CRD PROJECTIONS BASED ON CDR 2006
College
Numerator
Denominator
Rate
AACC 2006 2 yr CDR
79
620
12.7%
AACC 2006 3 yr CDR
132
620
21.2%
HCC 2006 2 yr CDR
3
44
7.8%
HCC 2006 3 yr CDR
6
44
13.6%
WWCC 2006 2 yr CDR
7
84
8.3%
WWCC 2006 3 yr CDR
15
84
17.8%
Special thanks to Anne Arundel, Harford and WorWic
Community Colleges for sharing their default information.
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WHAT CAN COMMUNITY COLLEGES DO?

Lowering the default rate
is not just the
responsibility of the
Financial Aid Office—it
involves other student
services offices such as
tutoring and advising,
and the individual faculty
who are in the
classroom!
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SOME IDEAS THAT MAY WORK FOR YOU

Entrance Interviews are a requirement. Beef
them up.
 Study
of student’s anticipated occupation/earnings
 Development of “after graduation” budget based
on beginning salary for their career goal and
anticipated borrowing
 Discussion of the budget to see how loan payments
will fit in
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SOME IDEAS THAT MAY WORK FOR YOU

Entrance Interview
 Use
a Stafford Loan test to be sure that they
understand the program and their responsibilities
 Refer student to support services at your college
 Suggest that student meet with academic advisor
to develop a plan for completion—remember,
students who complete their program are less likely
to default!
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GET YOUR INSTITUTION INVOLVED

While they are enrolled
 Use
SAP to identify students in academic difficulty
 Refer them to advising, tutoring or disability
services
 Encourage your institution to develop a retention
model that identifies students in difficulty and
provides resources for them
 Provide money-management and budgeting
workshops for students
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WHEN THEY LEAVE US…

Withdrawals, drops, disappearing students, and
those who don’t return for the next semester
 Reach
out—call them, find out why they did not
return, offer help
 Send Exit Information promptly
 Follow
up with a phone call to see if student has
questions
 If
you are not reporting to the Clearing House on a
monthly basis, then notify the lender manually
 Urge
your school to report monthly
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WHEN THEY LEAVE US

Exit interview

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Make sure they have all
the resources they need
to manage their loan
Referral to college’s job
placement services
Letters during the grace
period
Contact by phone before
they begin repayment
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THE GRACE PERIOD AND BEYOND…

This is the time when you can show them ways
to avoid default
 Re-enroll
in college
 Other deferments?
 Different repayment option
 Forbearance
 Offer college services such as resume writing, job
placement, etc.
 Other community services to help with their
immediate needs, such as food, housing, etc.
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WHOOPS! THEY ARE DELINQUENT!

Use the information provided by servicers and
guarantors to contact students who are
delinquent
 Offer
college job placement
 Provide deferment and forbearance information
again
 Explain different repayment options

Use both letters and phone follow-up
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DELINQUENT STUDENTS…

Your lender or servicer or guarantor will provide
regular reports of the students who are delinquent
and how many days delinquent they are
Develop a series of contacts—both written and phone
 Use references to locate them if they have moved
 Provide them with repayment option information,
deferment and forbearance information
 Make sure they understand the consequences of
default

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COMMENTS AND QUESTIONS?
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