Financial Literacy, Debt Management and Default Aversion - Finding Synergy for Success ? ? ? Performance Management for Student Loans - PowerPoint PPT Presentation

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Financial Literacy, Debt Management and Default Aversion - Finding Synergy for Success ? ? ? Performance Management for Student Loans

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Financial Literacy, Debt Management and Default Aversion - Finding Synergy for Success Performance Management for Student Loans 2011 WASFAA Conference – PowerPoint PPT presentation

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Title: Financial Literacy, Debt Management and Default Aversion - Finding Synergy for Success ? ? ? Performance Management for Student Loans


1
Financial Literacy, Debt Management and Default
Aversion - Finding Synergy for Success? ? ?
Performance Management for Student Loans
2
Performance Management Program Overview
  • The program is a holistic portfolio management
    concept
  • The portfolio is defined as the institutions
    entire body of current or former students having
    Title IV loans
  • At any point in time, up to 4 cohorts are
    actively touched by program activities
  • Each cohort moves through the program with
    strategies targeted to the life cycle of the
    loans
  • Program activity begins at entry into the loan
    grace period
  • Program activity terminates at the end of the 3
    year cohort measurement period

45 Month Performance Management Program
Remedial/Maintenance Mode (Repayment /
Delinquency)
Preventive Mode (In School / Grace)
Message and media are tailored to loan stage and
action/response activity
Cohorts are dynamically defined as loan records
indicate changes in graduation dates
Campaign Dynamics
High Intensity/Broad Scope Lower
Intensity/Targeted Scope
3
Cohort Treatment Model
  • Loans in a given cohort are treated based on
    their stage of life
  • Each cohort receives communication strategies
    based on borrower status
  • Cohort is dynamically defined as drop-outs
    introduce themselves to a cohort and expected
    graduation dates change
  • Strategies adapt to changes in loan status,
    previous outreach activity, and cohort membership

Lifecycle Strategies
Remedial/Maintenance Mode
Preventive Mode
Risk based intensity Remind/Educate/Call to
Action Remediate Tone varies from complimentary
to urgent
Activity begins 90 days before Grace
DELINQUENT OR DEFAULT
Loan Status Changes
Loan Status Changes
Loan Status Changes
GRACE
IN-SCHOOL
ESTABLISHED PAYERS
High intensity Establish relationship Create
awareness Remind/Inform/ Educate Informative tone
Results are measured from movement of account
statuses
Status changes drive loans into campaign strategy
segments
End of Measurement Period
4
Model Communication Strategy
  • Communication Channel and Intensity
  • Actual strategies will utilize all the available
    contact information
  • Intensity is front-loaded the emphasis is to
    pre-emptively avoid delinquency
  • Segmentation of intensity and channel will evolve
    with each portfolio

Model Communication Strategy
Remedial/Maintenance Mode
Preventive Mode
Auto Messaging
Auto Messaging
Auto Messaging
Auto Messaging
Email
Email
Email
Email
SMS
SMS
SMS
SMS
Phone Calls
Phone Calls
DELINQUENT OR DEFAULT
GRACE
IN-SCHOOL
2 - 6 times/month
1 - 3 times/month
ESTABLISHED PAYERS
2 - 4 times/month
1 - 2 times/year
1 -2 times/quarter
1 time/month
5
Communications
  • Design and Content
  • Communication is done on a first-party basis in
    the name of the school
  • School provides naming and branding guidelines
    for customization of communications
  • Communications cycle can be coordinated with
    school-based outreach communications or programs
    (e.g. exit counseling)
  • Based on lifecycle and previous activity,
    communications contain elements of
  • Consumer credit education (responsible use of
    credit)
  • Specific loan education (options for dealing with
    their particular loans)
  • Guidance (how to get a forbearance, request
    loan forgiveness program, etc.)
  • Calls to action (protect your credit rating,
    update your address, call your servicer with
    your enrollment status)
  • Congratulations (linking the value of academic
    success to their loan responsibilities)
  • Feedback and Segmentation Cycle
  • A borrowers response to a particular
    communication will drive subsequent iterations of
    the communication strategy.

New Strategy Segment
Acknowledgement
Transfer to Servicer
New Strategy Segment
Borrower Response
Communication Delivery
Special Handling Segment
Opt out / Do not call
Base Strategy Segment
No Response
6
Program Delivery
  • Data and Analytics
  • Program is built upon a robust foundation of
    servicer, NSLDS, and school information systems
    data to provide the most accurate up-to-date data
    available for identifying loan status.
  • Program activity information is fed back into the
    data warehouse and tagged to each loan.
  • Ongoing data analysis refines segmentation and
    messaging.
  • Reporting focuses on changes in loan statuses
    over time to manage effectiveness of the program.
  • Implementation of Loan Sciences Federal Loan
    Data Warehousing solution is a prerequisite to
    the program.
  • Key Considerations
  • Program is primarily preventive, not remedial, so
    allocation of student population in every cohort
    to the program by March 1 each year is essential.
  • Program can be customized to integrate school
    based activities.

7
Case Study Early Intervention Cut Early
Charge-offs by 50
  • Early intervention communication campaigns run
    during the grace period
  • Control group set aside for performance
    measurement
  • Communications emphasized staying in touch and
    value of managing credit responsibly

Borrower Response Demographic Update Activity
  • Notes
  • Response to program action is indicated by loans
    having an address or phone number update event.
  • Recipients of early intervention communications
    were much more likely to keep their contact
    information updated.
  • Positive behavioral difference in action group
    persists up to 24 months after last
    communication.

Loan Performance Status of Loans after 10 Months
in Repayment
Current Delinquent Forbearance Defaulted
Action Group 37.6 26.1 3.0 4.6
Control Group 34.7 29.3 3.1 9.3
Variance 8.3 -10.9 -2.8 -51.0
  • Notes
  • Action group loans have experienced half the
    defaults of the control group.
  • Action group loans are more likely to be current
    and less likely to be delinquent.
  • Action group loans are no more likely to use
    forbearance than control group loans.

of Balances (Active Charged Off). Loan
Status as of March 31, 2009.
8
Case Study Portfolio Performance Comparison
  • Key Portfolio Performance Metrics
  • Compares the net flow rates, delinquency and
    losses of two pools of PSL DTC loans.
  • Portfolio A receives full active portfolio
    management while Portfolio B receives typical
    loan servicer due diligence treatment.

Net Flow Rates measure the effectiveness of
collections over all stages of delinquency. The
result is directly reflected in portfolio
delinquency rates . . .
. . . and dollars of credit losses.
Both pools are direct-to-consumer Private
Student Loans issued during 2005-2008 with
essentially the same terms, pricing and credit
parameters. Cycle 2 to Write-Off Net Flow Rate
is the cumulative percent of 30 day delinquent
accounts (2 cycles past due) that roll to charge
off at 6 cycles past due (150 days past due).
of Balances (Active Charged Off). Loan
Status as of March 31, 2009.
9
Financial Literacy, Debt Management and Default
Aversion - Finding Synergy for Success? ? ?
Performance Management for Student Loans
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