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2006 NCHELP DEBT MANAGEMENT CONFERENCE

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Title: 2006 NCHELP DEBT MANAGEMENT CONFERENCE


1
2006 NCHELP DEBT MANAGEMENT CONFERENCE
ED Portfolio Performance Management Update
Federal Student Aid Partnership With Guaranty
Agencies
Sybil Phillips - Director Portfolio
Performance Management Mark Walsh Team
Lead Default Prevention Team
Walk the Line

2
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Portfolio Performance Management Update
Sybil Phillips Director Portfolio Performance
Management Department of Education
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3
Portfolio Performance Management
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE
  • Portfolio performance management mitigates risk
    for performing and non-performing loans.
  • Shifts from transaction management to portfolio
    management.
  • Changes from monitoring performance to predicting
    portfolio performance.

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4
Advantages Of Portfolio Performance Management
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE
  • Understand the elements of the portfolio
  • Manage through the life of the loan
  • Identify borrower attributes that impact
    performing and non-performing loans
  • Prevent a scatter gun and managing on demand
    approach

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5
Top Five Title IV Loan Holders 9/30/05
2006 NCHELP DEBT MANAGEMENT CONFERENCE
  • Sallie Mae -102.3 billion
  • Direct Loan - 89.5 billion
  • Citibank - 24.6 billion
  • Nelnet - 15.8 billion
  • Wachovia - 10.7 billion

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6
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Combined Title IV Loans
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7
2006 NCHELP DEBT MANAGEMENT CONFERENCE
FFELP Loans Non-defaulted
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8
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Direct Loans Non-defaulted
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9
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Defaults FFELP
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10
Defaulter Characteristics
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE
  • 84 did not receive their full 6 month grace
    period due to late enrollment notification
  • 76 withdrew without completing studies
  • 56 had bad phone numbers
  • 83 were not successfully contacted by phone
    during the 360 day collection effort during
    delinquency

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11
Contributors to Risk
2006 NCHELP DEBT MANAGEMENT CONFERENCE
  • Higher debt burden
  • The increase in alternative loans
  • The advent of distant learning
  • College drift out rates
  • Interest rate increase in July
  • Consolidations are rising rapidly

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12
Consolidation Impact FFELP
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE
  • 58,750 FFEL to FFEL consolidated loans in 1990 -
    15 loans had an underlying defaulted loan and 2
    re-defaulted (13).
  • 5.8 million FFEL to FFEL consolidated loans from
    1995 2004 - 6 with an underlying defaulted
    loan and a 39 re-default rate.
  • 2.1 million FFEL to Direct Loan consolidated
    loans from 1995 2004 - 49 with an underlying
    defaulted loan and a 32 re-default rate.

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13
Emerging Challenges
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE
  • Students displaced by hurricanes Katrina and Rita
  • Rising gasoline and energy costs
  • Mortgage lenders adjusting their lending
    strategies accordingly
  • Increasing credit card delinquency a harbinger of
    emerging risks in student lending?

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14
Impact of the Emerging Challenges
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE
  • Katrina and Rita affected approximately 364,000
    of our borrowers with 1.1 million loans and 6.8
    billion in PBO.
  • Average gasoline retail price in 2003 was
    1.56/gal in January 2006 it was 2.32/gal a
    49 increase.
  • In January 2004 the average 15 year FRM was 4.95
    in January 2006 it was 5.70 - a 15 increase.
  • Credit card delinquency hit a record high in the
    2nd Qtr of 2005 4.81 with a very slight
    decline in the 3rd Qtr to 4.74.

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15
A Focused Vision
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE
  • Recommend tools that may reduce delinquency and
    avoid default
  • Repayment options tailored to the borrower
  • Expand eServices for loan programs which provide
    increased service opportunities to the borrower
  • Increased focus on due diligence to include risk
    factors of the borrower, large balances, of
    days delinquent

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16
Default Aversion Success Direct Loans
2006 NCHELP DEBT MANAGEMENT CONFERENCE
  • Increased due diligence with borrowers with a
    greater than 80,000 loan balance
  • Maintain approximately 63 of borrowers email
    address and utilize email addresses to contact
    at risk borrowers
  • EDA participation is greater than 24 for
    borrowers in repayment

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17
Understanding the Performance of the Portfolio
2006 NCHELP DEBT MANAGEMENT CONFERENCE
  • Review the use of Entitlements and determine the
    effect on the portfolio
  • Review the re-default rate of consolidated loans
  • Review the re-default rate of rehabilitated loans
  • Review when the re-default occurs

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18
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Percent of Borrowers Entering An Entitlement
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Percent of Borrowers Entering Deferment
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Percent of Borrowers Entering Forbearance
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21
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Consolidation Re-Default
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Rehabilitation Re-Default
2006 NCHELP DEBT MANAGEMENT CONFERENCE
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23
Summary of Managing Risk
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE
  • Know the borrower through the life of the loan.
  • Identify borrower attributes throughout the life
    cycle of the loan that impact performance of the
    loan.
  • Look for patterns, trends or changes in behavior.
  • Identify significant patterns and trends of a
    delinquent borrower.
  • Develop a targeted approach to understanding the
    borrower.

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24
2006 NCHELP DEBT MANAGEMENT CONFERENCE
A Default Prevention Partnership
Federal Student Aid Guaranty Agencies and
NCHELP in 2006
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Mark C. Walsh Default Prevention Team
25
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Start Here Go Further
  • Lenders/guarantors move the vast majority of
    borrowers successfully into repayment
  • Are we nearing the limit of what you can do?
    Maybe….
  • The solution is active involvement by all schools

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26
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Default Prevention Team Message 2006
  • Get more schools engaged in default prevention
    activities
  • Encourage schools to fully utilize the resources
    and services of guaranty agencies and the Direct
    Loan Servicer

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27
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Default Prevention Team Message 2006
  • in default engaging the large schools is
    the key!
  • LSDA
  • Defaulter characteristics
  • Unique School Reports (USR)

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28
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Default Prevention Team Message 2006
  • Financial literacy
  • Student success retention
  • Promote the Secretarys new sample default
    prevention plan
  • Enrollment reporting

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29
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Beyond the CDR Dollars in Default
  • It demands our attention
  • As important as the CDR
  • Dollars in default continue to grow

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30
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Late Stage Delinquency Assistance For Schools
  • Supplements guaranty agency default prevention
    activities
  • Results in rescues of delinquent borrowers
    guaranty agencies might not otherwise convert

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31
2006 NCHELP DEBT MANAGEMENT CONFERENCE
LSDA process for schools
  • Identify severely delinquent borrowers (240 days
    )
  • Use a soft touch to reach them (this is not
    collections!)
  • Establish critical link between servicer/GA and
    borrower

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32
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Borrower Delinquency Pattern
12 Month Average
35
30
25
20
Percentage of Total Delinquency
15
10
5
0
31-60
61-90
91-120
121-150
151-180
181-210
211-240
241-270
271-300
301-330
331-360
Days Past Due
Represents Direct Loan Portfolio Only
33
2006 NCHELP DEBT MANAGEMENT CONFERENCE
LSDA Is it a successful strategy?
  • QA school pilot results
  • Rescue range 30-60
  • Guaranty agencies
  • Incorporated into their work with school
    customers
  • Individual school reports

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34
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Defaulter Characteristics
  • 84 did not receive the full 6 month grace
    period due to late enrollment notification
  • 76 withdrew without completing
  • 56 had bad telephone numbers
  • 83 not successfully contacted by phone
    during the 360 day collection effort

Walk the Line

Represents Direct Loan Portfolio Only
35
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Financial literacy
  • Encourage all schools to support financial
    literacy for their students

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36
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Student success and retention
  • Its cheaper to keep them
  • Direct correlation exists between student success
    and repayment
  • An early warning system for borrowers who bail
    out without notifying the financial aid office

Walk the Line

37
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Default Prevention Plan
  • Plan includes activities that
  • Promote student, school, and
  • loan program success
  • Are easy to implement and
  • require minimal resources
  • DCL GEN 05-04

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38
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Enrollment reporting
  • Timely and accurate reporting to NSLDS is
    critical as it
  • Ensures borrowers receive their full
    six-month grace period
  • Provides lenders and servicers with the
    maximum opportunity to prepare borrowers for
    repayment

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39
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Unique School Reports
  • Snapshot of a schools official CDR for 3 years
  • Comparisons with schools of similar size and type
    in state, region, and nation
  • Provides targets to assist in setting default
    reduction goals

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40
2006 NCHELP DEBT MANAGEMENT CONFERENCE
41
2006 NCHELP DEBT MANAGEMENT CONFERENCE
State Level Projects in 2006
  • CDRs in each state
  • Volume of dollars in default
  • The available opportunities to partner and
    deliver our message

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42
2006 NCHELP DEBT MANAGEMENT CONFERENCE
State Level Projects in 2006
  • Nevada
  • Ohio
  • Arkansas
  • Puerto Rico
  • Georgia
  • Florida
  • Michigan

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43
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Nevada in 2006
  • Sponsor NAFAA
  • Partners
  • USAFunds
  • NSLP
  • EDFUND
  • GLHEGC

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44
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Nevada in 2006
  • NAFAA Annual Conference November 9-11, 2005 in
    Lake Tahoe, NV
  • Year 1 Report Successful
  • NAFAA Annual Conference November 8-9, 2006 in Las
    Vegas, NV

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45
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Ohio in 2006
  • Sponsor OASFAA
  • Partners
  • GLHEGC
  • USAFunds
  • Direct Loan Servicer
  • OASFAA

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46
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Ohio in 2006
  • OASFAA Winter Conference December 5-7, 2005 in
    Columbus, OH
  • OASFAA Spring Conference May 31- June 2, 2006 in
    Huron, OH

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47
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Arkansas in 2006
Our sponsor AASFAA Our partner SLGFA
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48
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Arkansas in 2006
  • AASFAA Spring Conference May 3-5, 2006 in Little
    Rock, AR
  • AASFAA Fall Conference October 11-13, 2006 in
    Rogers, AR

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49
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Puerto Rico in 2006
  • Federal Student Aid Workshop May 2-3, 2006 in the
    ED Caribbean Training Facility
  • Focus will be on the largest schools that
    contribute the most to default

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50
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Puerto Rico in 2006
  • Our sponsor PRASFAA
  • Our partners
  • GLHEGC
  • NSLP
  • USAFunds
  • HESC

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51
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Georgia in 2006
  • Sponsor GASFAA
  • Partners
  • GSFC
  • TG
  • NSLP
  • USAFunds
  • GLHEGC

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52
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Georgia in 2006
  • GASFAA Spring Conference May 17-18, 2006
    in Savannah, GA

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53
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Florida in 2006
  • Our sponsor FASFAA
  • Our partners
  • USAFunds
  • OSFA
  • Direct Loan Servicer

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54
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Florida in 2006
  • FASFAA Annual Conference June 7-9,
    2006 in Ft. Myers, FL

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Michigan in 2006
  • Our sponsor MSFAA
  • Our partners
  • MSFAA
  • MHEAA
  • ?

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56
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Michigan in 2006
  • MSFAA Annual Conference June 25-28, 2006

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57
2006 NCHELP DEBT MANAGEMENT CONFERENCE
USAF in Nevada
  • Hosted a pre-conference meeting for their
    customers
  • Outlined their products and services
  • LSDA
  • Helped schools produce action plans
  • Heightened awareness for the pending state
    kick-off

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58
2006 NCHELP DEBT MANAGEMENT CONFERENCE
GLHEGC in Ohio
  • Conducted 4 workshops which drew 114 attendees
    representing 60 schools
  • Outlined products and services
  • Developed reporting format for schools to track
    activities, results, and report back to FSA

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59
2006 NCHELP DEBT MANAGEMENT CONFERENCE
TG on the road
  • Will conduct a series of 10 workshops in 7 states
  • Will include the Default Prevention Teams
    message
  • Will acquaint customers with their products and
    services

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60
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Default Prevention Team in 2007
  • New York
  • California
  • Illinois
  • ?
  • ?

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Measuring our success
  • Reduction in the CDR in states we focused on
  • Or smaller increase relevant to other states
  • Increase in activity
  • Partnerships
  • Evidence in Nevada

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Federal Student Aids Default Prevention Team
Mark Walsh Eileen Marcy 816-268-0412 215-656-324
9 mark.walsh_at_ed.gov eileen.marcy_at_ed.gov Craig
Rorie John Pierson 215-656-5916
404-562-6269 craig.rorie_at_ed.gov
john.pierson_at_ed.gov
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63
2006 NCHELP DEBT MANAGEMENT CONFERENCE
Thank You
Please complete your conference evaluation
form. Your feedback is important to us!
Sybil Phillips - Director Portfolio
Performance Management Mark Walsh Team
Lead Default Prevention Team
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