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DEFAULT PREVENTION IN COMMUNITY COLLEGES

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Title: DEFAULT PREVENTION IN COMMUNITY COLLEGES Author: Office Last modified by: UIS Created Date: 2/14/2009 2:50:28 PM Document presentation format – PowerPoint PPT presentation

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Title: DEFAULT PREVENTION IN COMMUNITY COLLEGES


1
DEFAULT PREVENTION IN COMMUNITY COLLEGES
  • Presented by
  • Lynn Lee
  • Harford Community College

2
Student loan debt
  • In 2 year colleges, 33.2 of the students borrow
    student loans
  • The average cumulative debt for community college
    students is 9,287
  • According to the National Postsecondary Student
    Aid Study, 2003-04, 54 of the students wish they
    had borrowed less while at a community college
  • DOE recommends that the monthly loan payment be
    between 8-12 of net monthly income

3
Who is less likely to default?From Project on
Academic success
  • Borrowers who earn a degree are less likely to
    default.
  • Borrowers with GPAs over 3.0 have a less than 1
    default rate, while borrowers with GPA of less
    than 2.0 have a default rate of 18.

4
Who is less likely to default?From Project on
Academic success
  • Academic preparationstudents who had higher
    grades in high school, higher SAT scores, and who
    earned better grades in college are less likely
    to default.
  • Additionally, the course completion rate, grades
    earned, enrolling continuously, time to
    degreeall are predictors of default.

5
Who is less likely to default?From Project on
Academic success
  • College-related academic reasons
  • Students who are continuously enrolled are less
    likely to default.
  • Students majoring in scientific, engineering, or
    agricultural degrees are less likely to default,
    while students majoring in General Studies are
    more likely to default.
  • Default rate decreases as length of time at
    college increases. However, extending attendance
    beyond 5 years has a negative impact on default.

6
Who is less likely to default?From Project on
Academic success
  • Borrowers who have used deferments or forbearance
    are less likely to default.
  • As post-graduation income increases, the
    likelihood of default decreases.

7
SO, Who Defaults?
  • Income and debt
  • The borrower who earns less and owes more is more
    likely to default than the borrower with a
    smaller debt-to-income ratio.
  • Age and competing obligations
  • Older students are more likely to default as
    older students are more likely to have
    accumulated more overall debt.
  • Research shows that being single, separated
    divorced or widowed, combined with having
    dependent children, increases the default rate by
    40.

8
Who defaults?
  • The greater the disparity between college major
    and type of employment, the more likely the
    student will default.

9
Who Defaults?From Project on academic success,
Indiana university
  • Borrowers who went into delinquency more than one
    time are more likely to default.
  • Other variables increasing default
  • Underrepresented studentsfrom low-income
    families, first generation students,
    African-American students, and students with
    dependents
  • Coming from families with little formal education
  • Having a GED or no high school diploma

10
Why do your students default
  • Analyze your school data to determine why your
    students are defaulting
  • Were they academically successful?
  • Did they complete?
  • Did they find jobs?
  • Were they in specific programs?
  • Consider surveying your past borrowers for
    suggestions on how your office AND your college
    could have served them better

11
What makes Community colleges different?
  • Nationally, community colleges educate more than
    40 of all undergraduate students.
  • Our colleges are open admission and have a
    greater percentage of students in remediation
    courses.

12
What makes Community colleges different?
  • Community colleges are more accessible.
  • Location
  • Low tuition
  • Many community college students work at least
    part-time or have families to support and have
    other expenses beyond the COA, such as day care.
  • Typically, our students take longer to complete.
  • Typically, community colleges have lower
    retention rates.

13
Institutional concerns--New CDR Calculation
  • Beginning with FY 2009, the new formula will look
    at three fiscal years - the one in which the
    borrower began repayment and the following two
    years.
  • Old Calculation looks at defaulters over a 2
    year time period
  • New Calculation looks at defaulters over a 3 year
    time period

14
Changes in Rewards and Penalties
  • The HEOA increases the minimum CDR threshold
    schools must meet in order to continue
    participation in Title IV programs from 25
    percent to 30 percent for fiscal year 2012.
  • The law also increases the participation rate
    index from .0375 to .0625 for schools to be
    exempt from the minimum CDR threshold
    requirement. The participation rate index
    measures the number of students who obtain loans
    compared to the number of regular students at the
    school. If a low percentage of a school's
    students take out loans, that school is exempt
    from the minimum threshold requirement.

15
Participation rate index appeals
  • Defaulter U has a cohort default rate of 50.
    Its two most recent cohort default rates were
    20 and 31. Therefore, Defaulter is subject to
    sanction because its cohort is now above 40.
  • Defaulter appeals the sanction based on its
    participation rate index. It had a total of 100
    students enrolled at least ½ time during the
    cohort year and 10 of those students got loans.

16
Participation rate index appeals
  • Defaulters appeal looks like this
  • 10/100 X 50 (cohort rate) 0.05
  • Because the participation rate index is less than
    0.06015, Defaulter Us participation rate index
    appeal would be successful.
  • The Participation Rate Index Appeals allow
    colleges with a relatively low percentage of
    borrowers to appeal sanctions.

17
Predictions
  • Based on previous studies and reports, lobbyists
    and others estimated that adding a third year to
    the time period in which defaults were tracked
    could increase default rates by an average of 60
    percent, putting more institutions at risk of
    penalty by the Education Department.
  • From Inside Higher Ed, January 21, 2008

18
3 yr crd projections based on cdr 2006
College Numerator Denominator Rate
AACC 2006 2 yr CDR 79 620 12.7
AACC 2006 3 yr CDR 132 620 21.2
HCC 2006 2 yr CDR 3 44 7.8
HCC 2006 3 yr CDR 6 44 13.6
WWCC 2006 2 yr CDR 7 84 8.3
WWCC 2006 3 yr CDR 15 84 17.8
19
What can community colleges do?
  • Lowering the default rate is not just the
    responsibility of the Financial Aid Officeit
    involves other student services offices such as
    tutoring and advising, and the individual faculty
    who are in the classroom!

20
Some ideas that may work for you
  • Entrance Interviews are a requirement. Beef them
    up.
  • Study of students anticipated occupation/earnings
  • Development of after graduation budget based on
    beginning salary for their career goal and
    anticipated borrowing
  • Discussion of the budget to see how loan payments
    will fit in

21
Some ideas that may work for you
  • Entrance Interview
  • Use a Stafford Loan test to be sure that they
    understand the program and their responsibilities
  • Refer student to support services at your college
  • Suggest that student meet with academic advisor
    to develop a plan for completionremember,
    students who complete their program are less
    likely to default!

22
Get your institution involved
  • While they are enrolled
  • Use SAP to identify students in academic
    difficulty
  • Refer them to advising, tutoring or disability
    services
  • Encourage your institution to develop a retention
    model that identifies students in difficulty and
    provides resources for them
  • Provide money-management and budgeting workshops
    for students

23
When they leave us
  • Withdrawals, drops, disappearing students, and
    those who dont return for the next semester
  • Reach outcall them, find out why they did not
    return, offer help
  • Send Exit Information promptly
  • Follow up with a phone call to see if student has
    questions
  • If you are not reporting to the Clearing House on
    a monthly basis, then notify the lender manually
  • Urge your school to report monthly

24
When they leave us
  • Exit interview
  • Make sure they have all the resources they need
    to manage their loan
  • Referral to colleges job placement services
  • Letters during the grace period
  • Contact by phone before they begin repayment

25
The grace period and beyond
  • This is the time when you can show them ways to
    avoid default
  • Re-enroll in college
  • Other deferments?
  • Different repayment option
  • Forbearance
  • Offer college services such as resume writing,
    job placement, etc.
  • Other community services to help with their
    immediate needs, such as food, housing, etc.

26
Whoops! They are delinquent!
  • Use the information provided by servicers and
    guarantors to contact students who are delinquent
  • Offer college job placement
  • Provide deferment and forbearance information
    again
  • Explain different repayment options
  • Use both letters and phone follow-up

27
Delinquent students
  • Your lender or servicer or guarantor will provide
    regular reports of the students who are
    delinquent and how many days delinquent they are
  • Develop a series of contactsboth written and
    phone
  • Use references to locate them if they have moved
  • Provide them with repayment option information,
    deferment and forbearance information
  • Make sure they understand the consequences of
    default

28
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