Breaking the Deadlock: Unifying Our
Federal Student Loan Programs
Paul Combe, President &CEO
American Student Assistance
PESC 6th Annual Conference
on Technology & Standards
April 7, 2009
Change is in the Air
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New presidential administration and new Congress
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Drumbeat within Congress and industry for federal aid simplification
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Student debt has become a social issue
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A Growing Social Issue
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Rare opportunity to take advantage of broad consensus for reform
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If we could rebuild the federal college loan program, what would it look like?
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FFELP vs. DL
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Debate has missed the bigger issue – Education Debt is now the problem
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The major focus of the debate has been about delivery systems and which
program costs government less
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Loan processing systems have become a market tool that can be used to
restrict the range of consumer choice
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Competition between FFELP and DL has produced many positives that
should not be lost in the future
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Break the Deadlock
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Time to move past FFELP versus DL
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Combine the best of both programs to create a single unified program that
breaks the gridlock
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Create a single loan program with one delivery system that incorporates
private and federal funding
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Greater focus on education debt management for ALL and a refocused role
for GA’s…guaranteeing the borrowers’ success, not the lenders’
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Rebuilding with a Consumer Focus
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America has chosen debt as the primary method for funding higher
education and therefore has a responsibility to help students manage their
debt
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Federal student loan program should focus on borrower as “consumer”
– Consumer rights including:
• Real Open Choice
• Effective Competition
• Debt Management Services
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Education Debt Management = Entitlement
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Building a Market-Based Future
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Loan programs should use public and private capital
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Federal capital used as benchmark or “ceiling” on loan rate
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Benchmark rate set by an analogous market rate…FHA mortgage rates
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Federal guarantee only / No SAP
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Price / rate competition below benchmark
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Post Graduation Borrower Subsidies
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New GSC Under-treasury?
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Single System
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Borrower should be able to choose any lender, at any school, with any
guarantor, and have it processed just as efficiently
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DL mandatory on all schools’ lender list
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Low cost of entry … more competitors
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Federal System (COD)?
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What is Education Debt Management?
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Effective education debt management is not just due diligence with a
prescribed amount of letters and phone calls
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It’s about using federal college loans as “teachable moments”:
– Use continuum of intervention / education activity (proactive and
reactive) to target, engage, and impact the borrower’s financial wellness
– It is proactive and focused on getting the right information to the right
borrower at the right time
– It is individualized and personalized
– Uses CRM tools
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Education Debt Management Services
Product
Target
Channel
Print
Journeys
Student loan grace period
Transitions
Withdrawn students
Consolidation
Recently consolidated
DAAR Email
Program
Delinquent borrowers
After Cure
Accounts current after
delinquency
Bright Beginnings
Defaulted borrowers
Post Rehab
After complete loan rehab
(BB) loan to ACS
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Email
Phone
Web
ASA Borrower Wellness: Key Success Measures
ASA vs. National Cohort Default Rate
FFY 97-06 Cohorts (Reported 1999-2008)
10%
8%
6%
4%
2%
0%
1997-1999 1998-2000 1999-2001 2000-2002 2001-2003 2002-2004 2003-2005 2004-2006 2005-2007 2006-2008
National
8.8%
6.9%
5.6%
5.9%
5.4%
5.2%
4.5%
5.1%
4.6%
5.2%
ASA
7.7%
5.9%
3.8%
3.9%
3.4%
1.7%
1.3%
1.5%
1.5%
1.4%
ASA’s Cohort Default Rate has consistently been among the lowest in the nation;
we believe our focus on getting borrowers off to a good start through our Journeys
and other communications programs helps drive this success.
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ASA vs. National Default "Trigger" Rate FFY01 thru FFY07
2.5%
2.0%
1.5%
61.33%
60.84%
54.99%
54.42%
1.0%
56.98%
59.72%
49.81%
0.5%
0.0%
FY2001 FY2002 FY2003
FY2004 FY2005 FY2006
FY2007
FY2001
FY2002
FY2003
FY2004
FY2005
FY2006
FY2007
ASA
1.32%
1.24%
0.93%
0.72%
1.00%
0.98%
1.13%
Other Guarantors
2.16%
2.04%
1.71%
1.45%
1.76%
1.64%
2.05%
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To change the Guarantor role, we must change
the financing:
In Good Standing
In Trouble
In Default
Old Model
1
32.6%
5.6%
61.8%
New Model
3
70.36%
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0%
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29.64%
Questions? Suggestions? More Information?
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We want to hear from you!
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Join the discussion on ASA’s Policy Perspectives Blog:
http://www.amsa.com/blogs/policyperspectives
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Please contact me with questions, suggestions and feedback:
combe@amsa.com
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