DEFAULT
MANAGEMENT
AND PREVENTION
SARAH BAUDER
ASST. VICE PRESIDENT FOR FINANCIAL AID AND
ENROLLMENT SERVICES
UNIVERSITY OF MARYLAND
11/6/2012
11/6/2012
STUDENT
LOANS IN THE
MEDIA
11/6/2012
AGENDA
• Cohort Default Rate Overview
• Does Default Prevention Help?
• The Consequences
• The Changes, Risks and Challenges
• Default Prevention Strategies
• Financial Literacy
• Case Study
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A COHORT DEFAULT
RATE OVERVIEW
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CDRs ARE RELEASED
TWICE A YEAR
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February
(DRAFT)
September
(Official)
• Not public
• Public
• No sanctions
• Sanctions apply
• No benefits
• Benefits apply
CDRs: THE FORMULA
Numerator:
Denominator:
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Borrowers who entered
repayment in one year,
and defaulted in that year
or the next
Borrowers who entered
repayment during the
one-year cohort period
CDRs: DENOMINATOR
IN FORMULA
• Determine Data Entered Repayment
(DER)
• Date of graduation, withdrawal, or less
than half-time status
• Plus 181 days (6 months + 1 day) = DER
• Using DER, determine the correct cohort
year in which the student will be counted
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CDRs: NUMERATOR IN
FORMULA
• Loan must be included in
denominator
• Determine default date (361 day of
delinquency or Claim Paid Date
[CPD])
• Determine if default date falls within
cohort period
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CDRs: TWO FORMULA’S:
APPLYING THE FORMULA
• Non-Average Rate
• 30 or more borrowers in repayment
• Average Rate
• Less than 30 borrowers in
repayment
• 3 years of data
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USING THE NON-AVERAGE
RATE FORMULA
Calculation:
For a school with 30 or more borrowers
entering repayment in a fiscal year
(N)
5
x
(D)
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225
100
=
2.2%
USING THE AVERAGE RATE
FORMULA
Calculation:
For a school with less than 30 borrowers
entering repayment in a fiscal year
(N)
5
3 + 1+ 1
x
=
(D)
20 + 17 + 10
100
=
10.6%
47
FY06 FY07 FY08
The sum of the three most recent cohort periods
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2 TO 3 YEAR CDR
(A SCENARIO)
Numerator = # of borrowers from the
denominator who default within a FY
Denominator = # of borrowers who enter
repayment within a FY
Year 1 Year 2
125
125
5,000
Year 1 Year 2 Year 2
125
125
125
5,000
355
5,000 = .071  7.1%
Released Sept 2011
605
5,000 = .121  12.1%
Released Sept 2011
11/6/2012
THE 3-YEAR CDR
CALCULATION
• Expands the default tracking window from 2
years to 3 years
• Creates a transition period (FY09/10/11)
• Raises penalty threshold from 25% - 30%
• New set of requirements for FY09, FY10…
• Possible compliance issue beginning in
September 2014 (FY 2011 CDR)
• Increases availability of “disbursement relief”
from 10 to 15% (effective 10/1/11)
11/6/2012
CDR DISBURSEMENT WAIVERS
FOR LOW DEFAULT RATES
• New threshold: Schools with a default rate less
than 15% for the 3 most recent fiscal years
• May disburse a single term loan in a single
installment, and
• Need not delay the first disbursement to a firstyear undergraduate borrower until the borrower
has completed the first 30 days of their program
of study
Effective for loans first disbursed on
or after October 1, 2011
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3-YEAR CDR
CORRECTIVE ACTIONS
• First year at 30% or more
• Default prevention plan and task force
• Submit plan to FSA for review
• Second consecutive year at 30% or more
• Review/revise default prevention plan
• Submit revised plan to FSA
• FSA may require additional steps to promote student loan
repayment
• Third consecutive year at 30% or more
• Loss of eligibility: Pell, ACG/SMART, FFEL/DL
• School has appeal rights
11/6/2012
INSTITUTIONAL CDR
CALCULATIONS BY CDR YEAR
Table 2. Publications of 3-year CDR
CDR
Denominator:
Enter Repayment
Numerator:
Default
Publish 2-Year
Rates
FY 2009
10/1/08 - 9/30/09
10/1/08 - 9/30/11
September 2012 N/A
FY 2010
10/1/09 - 9/30/10
10/1/09 - 9/30/12
September 2013 N/A
FY 2011
10/1/10 - 9/30/11
10/1/10 - 9/30/13
September 2014 3-year rate
FY 2012
10/1/11 - 9/30/12
10/1/11 – 9/30/14
September 2015 3-year rate
FY 2013
10/1/12 – 9/30/13
10/1/11 – 9/30/15
September 2016 3-year rate
FY 2-14
10/1/13 – 9/30/14
10/1/12 – 9/30/16
September 2017 3-year rate
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Rate Used for
Sanctions
NATIONAL STUDENT
LOAN DEFAULT RATES
DOES DEFAULT
PREVENTION HELP?
The changes, risks and challenges
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THE CONSEQUENCES OF DEFAULT
FOR THE SCHOOL
• The CDR is a measure of a
school’s administrative capability
• High CDRs can:
• Negatively reflect on school quality
• Result in provisional certification
• Result in loss of Title IV eligibility
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THE CHANGING
LANDSCAPE
• Loan default increasing for most schools
• Educational costs continue to rise
• More students borrowing more money
• The combination of Stafford and private loans
equal greater debt
• Changes to CDR calculation accompanied by
new sanctions and enhanced benefit
• Transition to all Direct loan Origination and
Servicing
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DEFAULT
PREVENTION
STRATEGIES
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FINANCIAL LITERACY
• http://www.financialaid.umd.edu/literacy/
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WHAT WE DO TO KEEP
OUR RATES LOW
Be Proactive:
 Know Who Could Default
 Financial Literacy Classes for New Students
 Satisfactory Academic Progress
 Cash Course Requirement
 8% rule – Profile Students
 One-on-One Counseling
 Encourage Limited Borrowing
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GOOD RESOURCES
•
Default management sample plan from FSA
http://ifap.ed.gov/dpcletters/GEN0514.html
•
Cohort Default Rate: The Cohort Default Rate Guide
http://ifap.ed.gov/drmaterials/finalcdrg.html
•
Default Prevention Resources
http://ifap.ed.gov/DefaultPreventionResourceInfo/
•
Operations Performance Management Service Group (CDR
Calculations and data challenges)
•
•
•
•
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Main line: 2020-377-4258
Hotline: 202-377-4259
Email: fsa.schools.default.management@ed.gov
Web:
http://ifap.ed.gov/DefaultManagement/DefaultManagement.ht
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CASE STUDY - UMD
Default Rate
Graduated
Didn’t Graduate
Total
Any Academic Probation
8%
19%
14% (20)
Undergraduate Studies Major
6%
22%
12% (21)
High School GPA > 1.4 < 2.3
9%
19%
12% (15)
Last Cum UG GPA >1.4 < 2.3
7%
13%
10% (178)
Black/Af. American
7%
17%
9% (207)
30+ Years Old
6%
12%
8% (36)
Any Alternative Loan
3%
18%
7% (49)
Unmet Need > $7,000 < $10,500
5%
14%
7% (85)
Average EFC <=$2,500
5%
14%
7% (225)
Independent
5%
12%
7% (129)
Enrolled 13+ Terms
4%
20%
6% (112)
Cumulative Loan Amount > $20,000
4%
20%
6% (81)
Total
3%
10%
4% (404)
11/6/2012
QUESTIONS?
Contact:
Sarah Bauder
sbauder@umd.edu
301-314-8279
11/6/2012