Financial Literacy, Debt Management and Default Aversion - Finding Synergy for Success
●●●
Performance Management for Student Loans
2011 WASFAA Conference
Performance Management Program Overview
The program is a holistic portfolio management concept:
 The portfolio is defined as the institution’s entire body of current or former students having Title IV loans
 At any point in time, up to 4 cohorts are actively touched by program activities
 Each cohort moves through the program with strategies targeted to the life cycle of the loans
 Program activity begins at entry into the loan grace period
 Program activity terminates at the end of the 3 year cohort measurement period
45 Month Performance Management Program
Preventive Mode
Remedial/Maintenance Mode
(In School / Grace)
(Repayment / Delinquency)
REPAYMENT
COHORT 1
Message and media are
tailored to loan stage and
action/response activity
Status
Changes
REPAYMENT
COHORT 2
Cohorts are dynamically
defined as loan records
indicate changes in
graduation dates
Status
Changes
REPAYMENT
COHORT 3
Status
Changes
REPAYMENT
COHORT 4
Campaign Dynamics
High Intensity/Broad Scope
Lower Intensity/Targeted Scope
Cohort Treatment Model
Loans in a given cohort are treated based on their stage of life:
• Each cohort receives communication strategies based on borrower status
• Cohort is dynamically defined as drop-outs introduce themselves to a cohort and expected graduation dates change
• Strategies adapt to changes in loan status, previous outreach activity, and cohort membership
Lifecycle Strategies
Preventive Mode
Remedial/Maintenance Mode
Risk based intensity
Remind/Educate/Call to Action
Remediate
Tone varies from complimentary to urgent
Activity begins
90 days before
Grace
Message
Response
Cycle
Message
Response
Cycle
Message
Response
Cycle
Message
Response
Cycle
Message
Response
Cycle
Message
Response
Cycle
Message
Response
Cycle
Message
Response
Cycle
DELINQUENT OR DEFAULT
IN-SCHOOL
GRACE
Loan
Status
Changes
Loan
Status
Changes
Loan
Status
Changes
ESTABLISHED PAYERS
High intensity
Establish relationship
Create awareness
Remind/Inform/ Educate
Informative tone
Status changes drive loans
into campaign strategy
segments
Results are measured from
movement of account
statuses
End of
Measurement
Period
2
Model Communication Strategy
Communication Channel and Intensity:
• Actual strategies will utilize all the available contact information
• Intensity is front-loaded – the emphasis is to pre-emptively avoid delinquency
• Segmentation of intensity and channel will evolve with each portfolio
Model Communication Strategy
Preventive Mode
Remedial/Maintenance Mode
Auto Messaging
Auto Messaging
Auto Messaging
Auto Messaging
Email
Email
Email
Email
SMS
SMS
SMS
SMS
Phone Calls
Phone Calls
DELINQUENT OR DEFAULT
IN-SCHOOL
1 - 3 times/month
GRACE
2 - 6 times/month
ESTABLISHED PAYERS
2 - 4 times/month
1 time/month
1 -2 times/quarter
1 - 2 times/year
3
Communications
Design and Content:
• Communication is done on a first-party basis – in the name of the school
• School provides naming and branding guidelines for customization of communications
• Communications cycle can be coordinated with school-based outreach communications or programs (e.g. exit counseling)
• Based on lifecycle and previous activity, communications contain elements of:
• Consumer credit education (responsible use of credit)
• Specific loan education (options for dealing with their particular loans)
• Guidance (“how to” get a forbearance, request loan forgiveness program, etc.)
• Calls to action (“protect your credit rating”, “update your address”, “call your servicer with your enrollment status”)
• Congratulations (linking the value of academic success to their loan responsibilities)
Feedback and Segmentation Cycle:
• A borrower’s response to a particular communication will drive subsequent iterations of the communication strategy.
New Strategy Segment
Acknowledgement
Communication
Delivery
Transfer to Servicer
New Strategy Segment
“Opt out” / “Do not call”
Special Handling Segment
Borrower
Response
No Response
Base Strategy Segment
Program Delivery
Data and Analytics :
• Program is built upon a robust foundation of servicer, NSLDS, and school information systems data to provide the most
accurate up-to-date data available for identifying loan status.
• Program activity information is fed back into the data warehouse and tagged to each loan.
• Ongoing data analysis refines segmentation and messaging.
• Reporting focuses on changes in loan statuses over time to manage effectiveness of the program.
• Implementation of Loan Science’s Federal Loan Data Warehousing solution is a prerequisite to the program.
Key Considerations:
• Program is primarily preventive, not remedial, so allocation of student population in every cohort to the program by
March 1 each year is essential.
• Program can be customized to integrate school based activities.
Case Study: Early Intervention Cut Early Charge-offs by 50%
 Early intervention communication campaigns run during the grace period
 Control group set aside for performance measurement
 Communications emphasized staying in touch and value of managing credit responsibly
Borrower Response: Demographic Update Activity
Cumulative % of Total Loans with Updates
90%
Notes
80%
 Response to program action is indicated by
loans having an address or phone number
update event.
70%
60%
 Recipients of early intervention
communications were much more likely to
keep their contact information updated.
50%
40%
30%
20%
Action Group
10%
Control Group
 Positive behavioral difference in action
group persists up to 24 months after last
communication.
0%
0
1
2
3
4
5
6
7
8
9
10
Months Since Program Action
Loan Performance: Status of Loans after 10 Months in Repayment*
Current
Delinquent
Forbearance
Defaulted
Action Group
37.6%
26.1%
3.0%
4.6%
Control Group
34.7%
29.3%
3.1%
9.3%
8.3%
-10.9%
-2.8%
-51.0%
Variance %
December, 2010
Loan Science Proprietary and Confidential
Notes
 Action group loans have experienced half
the defaults of the control group.
 Action group loans are more likely to be
current and less likely to be delinquent.
 Action group loans are no more likely to use
forbearance than control group loans.
6
Case Study: Portfolio Performance Comparison
Key Portfolio Performance Metrics
 Compares the net flow rates, delinquency and losses of two pools* of PSL DTC loans.
 Portfolio A receives full active portfolio management while Portfolio B receives typical loan servicer “due diligence”
treatment.
Cycle 2 to Write-off Net Flow Rates**
60%
Net Flow Rates** measure the effectiveness of
collections over all stages of delinquency. The result is
directly reflected in portfolio delinquency rates . . .
50%
40%
30%
30+ Delinquency Rates
20%
20%
18%
16%
10%
Portfolio A
Portfolio B
14%
0%
12%
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
10%
8%
6%
Millions
Cumulative Gross Credit Losses per $100MM in Repayment
4%
$25
Portfolio A
Portfolio B
2%
0%
$20
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Avg Interest
Rate
Pct
Graduate
Pct 4 yr
Undergrad
. . . and dollars of credit losses.
$15
$10
Pool Com parative Statistics - As of 1/2010
Avg
Avg
Pct
Pct In
FICO
Balance
Cosigned
Repayment
$5
Portfolio A
Portfolio B
$0
Jan-10
December, 2010
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Loan Science Proprietary and Confidential
Portfolio A
722
$
11,732
49.7%
37.2%
6.0%
19.6%
80.4%
Portfolio B
726
$
13,303
59.7%
50.0%
5.7%
18.0%
82.0%
* Both pools are direct-to-consumer Private Student Loans issued during 2005-2008 with essentially
the same terms, pricing and credit parameters.
** Cycle 2 to Write-Off Net Flow Rate is the cumulative percent of 30 day delinquent accounts (2 cycles
past due) that roll to charge off at 6 cycles past due (150+ days past due).
7
Financial Literacy, Debt Management and Default Aversion - Finding Synergy for Success
●●●
Performance Management for Student Loans
2011 WASFAA Conference