Student Default
Impact on Schools
Sailing away the winter
blues with ISFAA …
2015 Winter Conference
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
three fiscal years (36 months)
• Know your rate:
http://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html
• Think student loan “Risk Management”
Cohort Calculation Example
Cohort Default Rate - Facts
Benefits of a Low Rate
• Consumer Perception
– Low default rate school viewed as quality education
• CDR below 15% allows flexibility.
– will allow schools to disburse loan proceeds in a single installment
made for one semester, one trimester, one quarter, or a four-month
period.
Cohort Default Rate - Facts
High CDR Risks
• School with a single-year CDR of 30% or greater must:
– Establish a default prevention task force
– Develop a default prevention/reduction plan with measureable
objectives for lowering CDR
– Submit the default reduction plan directly to DOE
• School with two consecutive years of CDR of 30% or greater
must:
– Revise the default reduction plan
– Implement additional measure to prevent and reduce defaults
– May be subject to provisional certification
Cohort Default Rate – Danger Zone
Sanctions
• Schools with three consecutive years CDR of 30% or greater =
loss of eligibility to participate:
– Pell Grant
– Federal Direct Loan Programs
• Schools with a single year CDR of 40% or greater = loss of
eligibility to participate:
– Federal Direct Loan Programs
Public Institution Comparison
Comparison of FY 2011 Official National 3-Year Rates to Prior Three Years
20%
18%
18.6%
19.4%
16%
14%
14.5%
13.0%
12%
13.0%
12.1%
10%
11.0%
8%
9.3%
12.9%
12.1%
12.5%
9.3%
School Classification
6%
Less than 2 years
4%
2 - 3 years
2%
4 years
All Public Schools - national average
0%
2009
Source : U.S. Department of Education
2010
2011
CDR Comparison
25%
20.0%
20%
15%
21.0%
14.4%
13.7%
14.7%
13.4%
10%
5%
Indiana University East
National
0%
2009
2010
2011
FY 2011 3-Year CDR By School Type
% of Student Loan Balances 90+ Days Delinquent
Source: FRBNY Consumer Credit Panel/Equifax; Data displayed in maps are as of
December 31, 2012.
Risk Factor
Sample Report - Academic Details
•
The single greatest risk factor is noncompletion
-
Factors affecting persistence and
attainment
•
•
•
•
Delayed enrollment
Part-time enrollment
Working full-time while enrolled
Single parent status
Borrower Repayment Schedule
The greatest number of borrowers who default
are in standard repayment – suggesting that
they have not attempted to revise repayment
terms for more affordable month payments.
CDR Risk Management – “Knee Jerk”
Cease Student Loan Program Participation
• Negative impact on enrollment and access (TICAS Report – 2014)
• CDR rates and defaults continue for many years
Institute Educational Program for Borrowers
• CDR is a lagging indicator
• 5 years or more before full impact can be assessed
• Early withdrawals are marginally impacted
Look to the Institution for “The Solution”
• Budget limitations
• Data & Technology
• Depth of Knowledge
CDR Risk Management – Best Practice
Develop Default Management Plan and
Devote Resources to Manage Risk
•
•
•
•
•
•
•
Top Down
Make it an institutional priority
Default management task force
School wide representation
Create plan/work the plan
Devote resources to align with borrowing rate
Maintain participation in federal loan programs
Best
Practice
Risk Management & Student Success
Increase Resources for Financial Aid Counseling
• Institutional control of loan process
• Staff training
• Gather reference data
Outsource or Insource Outreach Initiatives
• Re-enrollment counseling
• Repayment education and assistance
• Triage for delinquent or defaulted borrowers
CDR Challenge and Appeals
Options include:
•
•
•
•
Data Challenges (Incorrect, Uncorrected, etc.)
Loan Servicing Appeal
Participation Rate Index
Economically Disadvantaged Appeal
These challenge/appeal options require evaluation of
student enrollment and/or repayment data
• Financial aid leadership
• Institutional research
• Third party servicers
Where to Start?
Financial
Literacy
Only 10% of schools currently
challenge draft CDR data. The
DOE estimates that 40% of
challenges submitted are
accepted.
CDR
Challenges /
Appeals
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
Outreach to delinquent
borrowers to offer
solutions- emphasizing
affordable repayment
options.
Default
Prevention /
Repayment
Counseling
Early
Intervention
& Grace
Counseling
Online entrance and exit
programs are not enough – in
person counseling, budgeting
and borrower education
needed
Tipping Points
• Where are you starting from?
– CDR > 15 – lose benefits
– CDR > 22% – urgent
– CDR > 30% – emergency
• Validity of enrollment reporting data
• Validity of borrower data
• How much and how fast you can impact
repayment behavior?
It takes an Institution…
At Indiana University, it’s a Campus-wide initiative
• Board of Governors
• Presidents Council
• Management Council
• Enrollment Management Committee
- Instruction / Faculty
- Student Services
- Business Office
- Registrar
It takes a Village…
Default Management Plan
• Enrollment Management Committee
- Implementation
- Analysis
- Metrics
Default Management Plan Outcomes
Outcome
Responsibility
Students Contacted vs. Cured
Financial Aid / 3rd Party Servicer
Workshops for HS Counselors
Recruiters & Student Services
Mandatory Financial Aid Orientation
Financial Aid & Instruction
Borrower Education & Strategic Disbursement
Financial Aid
Student Advisory Group
Dean of Student Services
Transitional Courses
Instruction / Faculty
Track Loan Repayment Behavior
Financial Aid
Enhanced Borrower Messaging
Public Information Office
Scholarship Funding & Awarding Strategy
Financial Aid & Advancement
Accurate Enrollment Reporting
Registrar
Metrics tied to Outcomes
Default Management Plan: Sample Outcome
Mandatory Financial Aid Orientation
• Developing interactive financial aid assignment as part of the
revitalized STU103 initiative
• Money Management learning objective will include:
– 9-10 hours of content
– Utilizing “Cash Course”, which will also be featured on MCC’s new
financial literacy webpage
Responsibility:
• Financial Aid & Instruction
Outcomes to Track:
• # Incoming Students required to attend orientation and STU
versus # of students who successfully complete the
courses/sessions
• # of students who successfully complete financial aid orientation
It takes a Village…
Other Resources
•
•
•
•
Loan Servicers
U.S. Department of Education
Default Prevention: free and paid
Financial Literacy: free and paid
- Must be mandatory to be effective
Take Aways
•
•
•
•
•
Do you know your CDR’s for the last 3 years?
Are your CDR’s trending upward?
Who are your defaulters?
What is the current financial position of the college?
Do staffing models / budget reflect necessary default
management efforts?
• Do financial models need to change to prepare for
potential loss of Title IV funds?
• Form relationships with Director of Financial Aid
– Regular CDR and Regulatory Updates
Future Regulatory Considerations
• College support loan limit reductions for
community colleges
• Legislator rhetoric regarding “skin in the
game” (i.e. Risk Sharing)
• College ranking/scorecards
Who We Are
Office of Financial Literacy
IU MoneySmarts
• Administrative body behind some
of the changes to FA business
practices and required component
•
Dynamic tool to make financial
education more accessible for
students
•
Established to assist students in
making informed financial decisions
before, during, and after college
•
Brand established to make program
identifiable and approachable
•
Adopts a holistic approach to
promote overall student wellness
• Provides Financial Education
services for all 7 campuses,
114,000 students at IU
• Collaborates with liaisons/teams
from all IU campuses to
implement effective programming
IU Office of Financial Literacy
2012
2013
2014
• Student Debt Task
Force
• Required Financial
Literacy piece
implemented
• Partnership with
School of Public
Health
• IU MoneySmarts
Team created
• Borrowing
reduction of 12.4%
between 2013 2014
• Establishment of
Office
• Launch of IU
MoneySmarts
Website
• Establishment of
campus teams
• Development of
Podcast
Financial Literacy Deliverables
•
•
•
•
•
•
•
•
Transit
MoneySmarts.iu.edu
“How Not to Move Back in With Your
Parents”
For-Credit Courses
IU MoneySmarts Team
Campus Teams & Program Funding
Staff Professional Development
“Business Practices” Changes
National Summit on Collegiate Financial Wellness
June 28-30, 2015 – Bloomington, IN
• Connect those tackling financial wellness in Higher
Ed and progress the field
• 160 attendees from 33 states in 2014
• Keynote from Tahira Hira, international financial
literacy expert
• Call for proposals goes live January 20, with
registration opened at a later date
Contact Information
Phil Schuman
Director of Financial Literacy
Indiana University
317-274-7430
phaschum@iu.edu
Steve Queisser
Vice President
Edfinancial Services
865-363-5666
squeisser@edfinancial.com