Michigan Default Prevention Project A Holistic Approach to Default Aversion

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MichiganDefault Prevention ProjectA Holistic
Approach to Default Aversion

• U.S. Department of Education
• Federal Student Aid
• John Pierson FSA Default Prevention
  

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Session Content

• Some Interesting Data
• The Changing Landscape
• What schools can do
• Understanding the two broad approaches to
  successful default prevention.
• Todays Program

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Official Cohort Default Rates
10.00
8.8
9.00
8.00
6.9
7.00
5.9
5.4
5.6
5.2
6.00
5.1
4.5
5.00
4.00
3.00
2.00
1.00
0.00
1997
1998
1999
2000
2001
2002
2003
2004
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Composition of Cohort Default Rate
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LSDA School Sample A word about the
data you will see on the following slideTo
derive the dollars in default figures you will
see on the following slides, the loans that
entered into repayment during the FY04 period
(between 10/1/03 and 9/30/04) and met the
criteria for being included in the Cohort Default
Rate were identified. The "Outstanding Principal
Balance" was totaled to get the total dollars in
repayment.  And, for those loans with a default
claim, the "Outstanding Principal Balance was
totaled to get the dollars in default. The
dollars-in default included in this presentation
are based on the "Outstanding Principal Balance
at the time the FY04 Cohort Default Rate was
calculated, July 29, 2006.
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Data Michigan vs National

• 
  
• Change
• National CDR FY03 4.5 FY04 5.1
  13.3
• National FY03 647.7m FY04 801m 23.6
• Michigan CDR FY03 3.7 FY04 4.2
  13.7
• Michigan Dollars FY03 18.1m FY04 22.7m
  25.4
• Michigan Defaulters FY03 3,212 FY04 4,056 26.3

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FY 2005 Draft Calculation

• 
  
• 
  
• Some things to
  consider
• Draft Data Embargoed!
• Your Data How did your draft 2005 data look?
  Up? Down?
• Anomalies.

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A Changing Climate Inconvenient Truths

• Educational costs rising (costs to borrowers)
• Dollars entering default rising (cost to FSA et
  al.)
• Borrowers entering default rising (costs to FSA
  et al.)
• Total indebtedness rising (costs to borrowers)
• Stafford and Private loans
• Impact on You Continued Institutional Viability
• Are you ready?

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Defaulter Characteristics

• 89 did not receive the advantage of the full
  6-month grace period as a result of late
  enrollment notification (sample)
• 93 were not successfully contacted by telephone
  during the 360-day collection effort (sample)

January 2007 Analysis of Federal Direct Loan
Portfolio
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Defaulter Characteristics

• The Crucial Link
• Of the borrowers who defaulted, 71 withdrew
• from school and did not complete their academic
• studies. (figure derived from actual population)
• This is more than just a financial aid issue!

January 2007Analysis of Federal Direct Loan
Portfolio
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Two Broad Approaches to Successful Default
Prevention

• Financial Aid Solutions Support
• Borrower Relationship to Loan
• LSDA, Enrollment Update, Financial Literacy
• Campus Wide Solutions Support
• Borrower Relationship to Education
• Analysis, Strategic, Student Success

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Late Stage Delinquency Assistance

• For both DL and FFEL
• My lender was unsuccessful Can I make a
  difference?
• How and why does it work?
• Are there LSDA best practices?
• Contact your GA or the DL Servicer

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Campus Wide Solutions

• Core Functions
• Admission, Recruitment, Education, Student
  Support Services, Retention, Graduation, Career
  Placement
• Reduce loan default by doing these things well.

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A Holistic Approach to
Default Aversion

• Understanding the intersection between student
  (and institutional) success and loan defaultand
  how to do something about it.

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Michigan Part of a National Initiative

• 2005 Nevada and Puerto Rico
• 2006 Ohio, Michigan, Georgia, Florida,
  Arkansas
• 2007 California, New York,
• Career Schools

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Default Prevention and Management

• Operations Team
• Challenges/Adjustments/Appeals Team
• Default Prevention Team
• Phone [phone]
• Email fsa.schools.default.management_at_ed.g
  ov

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DP Team Contact Information

• Mark Walsh [phone] mark.walsh_at_ed.gov
• Eileen Marcy [phone] eileen.marcy_at_ed.gov
  
• John Pierson [phone] john.pierson_at_ed.gov
  
• Craig Rorie [phone]
  craig.rorie_at_ed.gov