Debt Management Conference Feb. 24 28, 2001

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Debt Management ConferenceFeb. 24 - 28, 2001

• Default Aversion Initiatives - Part II
• Feb. 26, 2001 130 - 330 p.m.

Nadia Keyes Citibank Joseph Gorman New York
State Higher Education Services Corporation
Lorenz Worden New York State Higher Education
Services Corporation CariAnne Cutshall Mapping
Your Future
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Default Management
Credit Risk Management
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Default Management What are the Implications of
High Default Rates?

• Defaulted loans result in negative credit
  histories for borrowers.
• Higher cohort default rates for schools.
• Higher collection expenses and losses for lenders
  and guarantors.
• Loss of performing loans which are profitable
  assets for lenders.

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DEFAULT MANAGEMENT FOCUS

• Exceed minimum due diligence standards in cost
  effective ways.

• Improve student borrowers understanding of
  credit and implications of default on their
  financial future.

• Enhance FFELP collection strategies through the
  utilization of private loan techniques and
  technology.

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Cohort Default Rate Number of borrowers who
began repaying during the first fiscal year of a
2-year cohort period and defaulted by the end of
the second fiscal year (borrowers granted
deferment or forbearance status are not
included). divided by Number of borrowers who
began repaying during the first fiscal year of a
2-year cohort period (borrowers granted deferment
or forbearance status are included).
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• Declining Cohort Default Rates
• Default reduction measures introduced in 1989 by
  DOE and liberalized use of deferments and
  forbearances.
• Strong economy and low unemployment rates.
• Increased focus on default prevention by lenders,
  servicers, and guarantors.

• 1998 includes the impact of Reauthorization,
  effectively delaying three months of claims.

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Cohort Default Rates vs Portfolio Performance

• Q. Do Cohort Default Rates accurately depict
  government guaranteed loan performance?
• A) Yes, they are a very accurate indicator of
  portfolio performance.
• B) No, they are overly conservative relative to
  other traditional measurements of portfolio
  performance.
• C) No, but they do provide a benchmark by which
  to measure portfolio trends.
• D) We have no idea, but were hoping you would
  know.

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6.9
7.6
7.3
7.2
7.1
Source Department of Education

• Student Loan Corp. cohort default rates have
  been in line with the national average and some
  other large lenders over the past few years.
• However, the 1998 rates do not reflect the
  benefits of this years default prevention
  initiatives. These program benefits will be
  partially reflected in the 1999 cohort default
  rates and fully reflected in the 2000 rates.

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• Performance varies by school type, with PLUS
  4-year performing the best, while
  Stafford-proprietary performs the worst.
• Roughly 87 of cumulative defaults occur by the
  end of month 36.
• Source Composite of Dept. of Ed. Information
  and Credit Suisse First Boston.

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• Exceeding Due Diligence Requirements
• Student Assistance Unit-Dedicated unit comprised
  of 18 representatives that contact borrowers
  greater then 240 days past due, in a final effort
  to prevent default.
• Calls stress the benefits of good credit and
  consequences of default.
• Payments, deferments and/or forbearances are
  used as needed.
• Extensive use of web site to obtain deferment
  and forbearance forms.
• Dedicated fax machines and toll-free phone
  numbers are utilized.
• Broken promises are promptly followed up.
• Flexible work schedule utilized to maximize
  contact rates.
• Efforts focused on claims prior to submission
  to guarantor.
• Collector recognition based on optimal
  performance.
• Future strategies will focus extra efforts at
  earlier stages of delinquency, addressing
  problems early, before they become unmanageable.

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Student Assistance Unit

• The Student Assistance Unit was implemented with
  three representatives in April 2000 and
  increased to 18 full time staff.
• Roughly 18,600 loans, or 6,200 borrowers, for a
  total of 81MM were cured in 2000. Annually we
  expect to cure 38,300 loans, or roughly 12,800
  borrowers.

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Projected with full year Student Assistance
Unit impact

• Default levels continue to decline, especially
  when measured against the portfolio currently in
  repayment . Reauthorization resulted in a
  significant one time decrease in claims for 1999,
  effectively eliminating 3 months of claims for
  that period.
• Proactive default reduction initiatives have
  reduced claim rates even further, despite only
  starting full time in July 2000.

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• Educating Borrowers and Early Awareness
• Pre-Repayment Calls - Calling campaigns are aimed
  at borrowers entering repayment for the first
  time or coming out of deferment or forbearance.
  These calls stress the importance of building a
  good credit history while identifying and
  resolving problems early.
• Statement Insert - Inserts are included with
  customers first statement upon entering
  repayment. These inserts also stress the
  importance of building a good credit history and
  the implications of loan default.
• Written Correspondence - Letters improved to more
  clearly communicate with our borrowers in plain
  language.
• Behavioral Scoring - Predictive models have been
  developed to identify high risk borrowers before
  entering repayment, enabling more efficient
  early intervention programs.

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Collections Conundrum

• Q. What is the most challenging aspect of early
  intervention programs and late stage collections?
• A) Customer contact.
• B) Finding enough delinquent borrowers to call
  (there are generally so few).
• C) Convincing our borrowers that they actually
  do have to repay those loans.
• D) Again, we have no idea, but if you have any
  ideas, please feel free to give us a call.

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Government Loan Delinquency Performance

• Pre-repayment calls and correspondence will help
  educate borrowers on the importance of good
  credit, reduce peak delinquency rates, and
  ultimately reduce defaults.
• Calls are structured as friendly, customer
  service oriented calls, which identify problems
  before delinquency occurs.

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Do Collection Strategies Make a Difference?

• Comprehensive collection tactics, technology, and
  other tools help explain differences between
  government guaranteed and private alternative
  loan performance.
• Customer overlap between these products should
  help bridge the gap in portfolio performance.

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• Enhancing Collection Strategies Techniques and
  Technology
• Behavioral Scoring - Predictive models have been
  developed to identify high risk borrowers after
  deferment and forbearance. Additional models
  are being developed in order to better target
  early and late stage delinquent borrowers to
  customize collection strategies for maximum
  effectiveness.
• Broken Promises - Follow-up calls are made
  immediately to borrowers that have not sent in
  payments or documentation needed to bring
  accounts current.
• Staffing - Representatives are well trained in
  government guaranteed and alternative student
  loan products and regulations, and have
  significant consumer credit collections
  experience.

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DEFAULT PREVENTION SUMMARY

• WE CAN MAKE A DIFFERENCE.
• Lower default rates benefit everyone involved in
  the student loan industry students, borrowers,
  schools, guarantors and lenders.
• Further improvement in default rates will depend
  on innovation and our continued partnership.
• Success continues to depend on listening and
  adjusting to our partners needs.

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Debt Management ConferenceFeb. 24 - 28, 2001
Joseph Gorman Advocate Unit Manager New York
State Higher Education Services Corporation
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Advocate Unit

• Early intervention with students at risk of
  default
• Withdrawn or dropped to less-than-half- time
• Contact through grace until grace end
• Provide tools to become repayers.

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Features Benefits

• Tracking system
• Innovative letters and products
• Telephone calls
• E-Mail - 24X7
• Products

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Results!

• 99.5 successful

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Results!

• Since 1/1/1999, the Advocate Unit default rate is
  0.5
• The NYS rate for all borrowers--grads and other
  low-risk borrowers--is 6.9

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New Ideas Where Are We Going?

• Automate out-of-school info--NSLDS and HESC
  systems
• Add more high default rate schools
• Build school relationships--on campus support
• Keep eyes and ears open!

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Debt Management ConferenceFeb. 24 - 28, 2001
Lorenz Worden Director-Debt Management
Initiatives New York State Higher Education
Services Corporation
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HESC Update

• Debt Management Initiatives (DMI)
• Subsidized from HESC's 422(h) funds

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Development of the Advocate Unit

• Staffing--volunteerism
• Reporting
• Support

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Overall Goal - Lifetime Fix

• Reduce at-risk factors or their impacts
• Reduce Cohort Default Rates
• Improve retention
• Enhance financial skills
• Reinforce consistent repayment behavior

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Projects

• Advocate Unit (AU)
• Persistent Repayment Initiative (PRI)
• Campus-based projects
• Collaborative publications
• Cohort Action Report (CAR) and Default Activity
  Report (DAR)
• Technical Assistance

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Persistent Repayment Initiative (PRI)

• Target prior DAAR borrowers
• Reinforce consistent repayment behavior
• Customize efforts based on DAAR resolution -
• Forbearance
• Specific deferments
• Payments

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Intended Results

• Reduce DAARs
• Reduce rolling delinquencies
• Reduce defaults
• Lifetime repayment fix

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Campus-based Projects

• Controlling spending
• Effective use of credit
• Debt management strategies

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Intended Results

• Educate students on how to manage their finances
• Successful student loan repayment
• Reduced defaults

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Methodology

• Financial management seminars for students
• Develop acceptable budget or spending plan
• Proprietary college
• New York State licensed, not-for-profit credit
  and debt counseling agency

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Results

• College, agency, and students all reported
  favorable results
• HESC is expanding this initiative - RFP

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Collaborative Publications

• "Your Money - Managing College on a Tight Budget
  - high school seniors, college freshman
• "MoneyTalk - high school juniors
• Advocate Unit promotional literature brochures,
  letters, postcards, bookmarks, and posters

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Cohort Action Report (CAR) and Default Action
Report (DAR)

• Identify borrowers in Default Aversion Assistance
  Request status - DAAR and claim status
• CAR identifies borrowers in next Cohort Default
  Rate
• CAR and DAR both allow for early intervention

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Intended Results

• Tools for school intervention prior to default
• Help individuals avoid default
• Reduce Cohort Default Rates

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Technical Assistance Training

• Help schools lower Cohort Default Rates
• On site or at HESC
• Early intervention strategies
• How to work the CAR and DAR
• Proven results

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Mapping Your FuturesDefault Prevention
InitiativesDont Reinvent the Wheel

• CariAnne Cutshall
• Student Assistance Associate
• MOSTARS/MO Dept. of Higher Education
• Volunteer for Mapping Your Future

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Mapping Your Future

• www.mapping-your-future.org
• Sponsored by guaranty agencies
• Mission Counsel students families about
  college, career, financial aid
• Establish a national reputation of reliable
  information quality service for web site
  sponsoring agencies
• State-of-the-art public service through
  collaboration

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Features

• Financial Aid Calendar
• Guided Tours
• Middle high school students
• College students (separate information for
  non-traditional students)
• Student loan borrowers
• Parents

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Online Student Loan Counseling

• FFEL Program loan types
• Annual loan amount chart
• Borrow conservatively
• Student loan calculator (entrance counseling)
• Budget calculator (exit counseling)
• Tips regarding proper management of student loans

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Online Student Loan Counseling

• Postsecondary institution downloads exams
• Pathfinder project
• Exit data to guarantors electronically
• Currently testing four guarantors in production

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Default Prevention Team

• Approximately 32 volunteers
• Five teams working on new initiatives
• Separate content team includes sub-committee for
  entrance and exit counseling

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Initiatives

• Locating Your Loans page
• Deferment Navigator
• Default prevention presentations

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Features

• Educate students about personal finance
• Help in determining financial fitness
• Give advice on using credit wisely
• Tips on avoiding loan defaults

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The Ten

• Understand roles of student loan players
• Avoid consequences of default
• Be in control of your finances
• Balance your checkbook
• Establish a budget
• Pay yourself and invest
• Use credit wisely
• Know your credit report
• Cleaning up credit
• Surf the web for more info

Demo
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Locating Your Loans Page

• Student loan players definitions of each
• Need to provide loan holder and guarantor with
  address and phone number changes (including
  references information)

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Locating Your Loans Page

• Links to two sites (locate loan holder
  guarantor)
• National Student Loan Data System (NSLDS)
• Requires a PIN (links to PIN registration cite of
  PIN lost or never received)
• Student loans and Federal Pell Grant
• National Student Clearinghouse LoanLocator
• No PIN required
• Student loans only

Demo
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Deferment Navigator

• Basic information regarding purpose of deferments
  and how to apply
• Allows borrowers to review deferment eligibility
  charts based on when their oldest outstanding
  loan was disbursed
• Prior to July 1, 1987
• Between July 1, 1987 and June 30, 1993
• On or after July 1, 1993

Demo
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Deferment Navigator

• Deferment Type field on chart links to
  easy-to-understand definition of the deferment
• Form field links to the deferment application in
  Portable Document File (PDF) format

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Presentations

• Download, then customize, default prevention
  presentation
• Variety of topics for different audiences
• Demonstrate features of site to postsecondary
  institutions, lending partners, and third-party
  agencies
• Paying for school and borrowing information for
  students, parents, and borrowers
• Customization instructions included
• Saves time and effort

hyperlink
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Topics

• Paying for School
• Online Student Loan Counseling
• Ten Steps to Financial Fitness
• Loan Locator
• Deferment Navigator
• Additional Resources

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Coming Soon

• Promotion items
• Career income-student loan debt comparison
  calculator

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Debt Management ConferenceFeb. 24 - 28, 2001

• Default Aversion Initiatives - Part II
• Feb. 26, 2001 130 - 330 p.m.

Any Questions?