What is Risk Management Andy Cho

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What is Risk ManagementAndy Cho
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Agenda
Session 9

• What is Risk Management?
• Reducing Delinquency and Default.
• Delinquency Patterns and Characteristics
• Tools for Schools to Help Students
• Avoid Delinquency and Default

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What is Risk Management?

• Risk Management is the continuous management of
  reducing exposure of loss from
  non-performing loans.
• Includes a balanced review of business results
  and how to maximize opportunities.
• Provides the foundation that supports the
  quality, composition and profitability of loan
  portfolio.

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Why is Risk Management Important?

• Department of Education owns or guarantees
  approximately 290 billion in outstanding student
  loans.
• In 2002 56.5 billion was delivered in total new
  federal aid.
• There are approximately 22 million borrowers with
  student loans.
• As a taxpayer you are a share/stakeholder in the
  federally insured student loan portfolio, each of
  you have a vested interest in insuring that
  your investment is managed well.

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Advantages of Risk Management

• Manages through the life of the loan
• Identifies borrower attributes throughout the
  life cycle of the loan that impact performing and
  non performing loans
• Prevents a scatter gun approach to managing the
  portfolio, which leads to managing on demand
• A focused vision and concentrated effort to
  managing default prevention and reducing the cost
  to the taxpayer

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Sample Report Direct Loans - Defaulted Loans
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Sample Report - Delinquency
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Sample Report - Delinquency
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Sample Report - Delinquency
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Sample Report - Delinquency
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Sample Report - Delinquency
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Sample Report - Delinquency
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Sample Report - Delinquency
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Why is Risk Management Important?
As a taxpayer you are a share/stakeholder in the
federally insured student loan portfolio, each of
you have a vested interest in insuring that
your investment is managed well.
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Risk Management Reducing Delinquency Default

• Tim Fitzgibbon, Iowa College Student Aid
  Commission

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Default Aversion

• Required by Regulation
• Pre-claims Assistance
• Supplemental Pre-claims Assistance
• Default Aversion

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Student Loan Outfitters

• Referral service for high-risk borrowers
• Early awareness and delinquency prevention
• Available to all Iowa colleges and universities
• Interactive web site

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Disaster Relief Grants

• Funds available to students and families affected
  by natural disasters later expanded
• Matching funds from colleges and universities
• Recipients agree to limit borrowing
• 2,100 recipients Grants average 1,400

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Foster Grants

• Funds available to students formerly in foster
  care
• Recipients agree to limit borrowing
• Support from colleges and universities, and Iowa
  Dept. of Human Services
• 60 completion rate
• 3,000 average award

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Default Reduction Grants

• Funds available to promote innovative default
  prevention programs at the campus level
• Competitive application process
• Tiered award levels
• Guest speakers, academic courses,
  community programs

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Student Assistant Grants

• Funds provided to hire peer advisors
• SAs trained in financial aid, student loan, and
  debt management basics
• Increase awareness, communication on campuses
• Refer students to FAOs, ED, lenders,
• or the Commission

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Agency Servicing Center

• Iowa-based default prevention call center
• Based on Commission theme of Iowans-helping-Iowans
  
• Expanding Iowa work force

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Stafford Late Stage Delinquency AssistanceLSDA

• Ben LeBorys

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Official Cohort Default Rates
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Makeup of Cohort Rate
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Borrower Delinquency Pattern
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Defaulter Characteristics

• 84 do not receive the advantage of the full 6
  month grace period as a result of late enrollment
  notification
• 71 have withdrawn from school and did not
  complete studies
• 43 have had bad telephone numbers at the time of
  default
• 58 have not successfully been contacted by
  telephone during the 360 day collection effort
  during delinquency

12 month average of Stafford borrowers - all
cohort years
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Schools Can Help

• Assist the severely delinquent borrowers in
  establishing communications with the Service
  Center
• There is a small subset of borrowers that have
  not responded to our attempts to communicate and
  help them resolve their delinquency
• These borrowers will frequently respond to school
  outreach

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How It Can Work

• Identify the Borrower
• Contact the Student
• Schools have additional tools to locate Borrowers
  (i.e. Alumni Association directories, putting
  holds on records, etc. )
• Use email addresses and references you have
• Schools are not collectors but counselors

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2003 Cohort Year Delinquency Detail
You can work as little or as much as you want
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Why Schools Do It ?

• Reduce the CDR for their school
• Improve the integrity of the program
• Rescue over 30 of potential defaulters
• Minimal effort, maximum results, schools say we
  help the borrowers and the school with a little
  effort
• Web tools identify focus on the most severe
  delinquencies that have a direct impact on a
  schools CDR
• No major investment in time, staff or money
• LSDA really works
• Its the right thing!

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Total Test Results
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Post Default Cures

• 14 months after the default condition was cured,
  82.49 of the borrowers did not re-default.
• 24 months after the default condition was cured,
  76.70 of the borrowers did not re-default.

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Perkins Late Stage Delinquency Assistance(Perkins
LSDA)

• John Pierson

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Perkins LSDA

• Perkins Late Stage Borrowers
• 180-240 days delinquent
• Current default cohort
• Who is servicing the loan?
• Institution
• Outside contractor
• Why is this important?

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Perkins LSDA

• Stafford LSDA principles apply
• Do something different
• Light touch
• Monthly attention works best
• Limit investment cost, time and staff

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Perkins LSDA

• When doing LSDA for both Perkins and Stafford
• QC your data before you start
• Review delinquency lists for overlap.
• Update contact information
• Borrower Contact process How will you do it?
• Separate LSDA process for each program?
• Combined LSDA process?
• Know the rules
• Resolution for Stafford and Perkins may be
  different.

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Default Analysis The Long Term Solution

• John Pierson

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Default Analysis The Long Term Solution

• Our Targets
• Stafford Loan Program
• and
• Perkins Loan Program

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Default Analysis The Long Term Solution

• Working Assumptions
• We cannot effectively change long term patterns
  until we know who is likely to default.
• The core remaining default for most Perkins and
  Stafford portfolios can be impacted through
  administrative and/or academic intervention while
  borrowers are enrolled.

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Default AnalysisThe Long Term Solution

• Resources Data
• Institutional student data (FISAP/Perkins)
• Department of Education data (Stafford)
• Loan Record Detail Report
• NSLDS School Repayment Loan Detail Report
• Servicer and Guaranty Agency Reports

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Default AnalysisThe Long Term Solution

• Resources Process
• Free software to assist in creating defaulter
  profile for both Stafford and Perkins
• FSA Self-Assessment/ Tools/Schools/Default
  Management
• via Schools Portal (fsa4schools.ed.gov)

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Default AnalysisThe Long Term Solution

• Create an intervention
• Collect and analyze data
• Identify co-related factors
• Examples retention, GPA, grad rates, etc.
• Intervention based upon empirical analysis
• Choose the biggest targets
• Implement
• Track outcome, evaluate, recalibrate

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Default AnalysisThe Long Term Solution

• Likely problem areas
• Academic?
• Administrative?
• Other?
• The solution may require the active participation
  of academic and/or administrative (or other)
  departments and staff.

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Creating a long term intervention

• Change in co-related factors may occur in the
  near term reduction in rate of delinquency and
  default will take longer.
• Follow the trail wherever it leads.

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Contact information

• Andy Cho
• Andrew.Cho_at_ed.gov
• Tim Fitzgibbon
• timothy.fitzgibbon_at_csac.state.ia.us
• Ben Leborys
• Ben.Leborys_at_ed.gov
• John Pierson
• John.Pierson_at_ed.gov