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Description: Tags: 05EACIntSessStudentLoanDeliqMgmt
Description: Tags: 05EACIntSessStudentLoanDeliqMgmt
Student Loan
Delinquency Management
Mark Walsh Bill Kohl
U.S. Department National Student
of Education Loan Program
What We’ll Talk About:
• The Big Picture
• Reducing delinquent loans
– Why should I get involved?
– What should I do?
• Manage Delinquency and Mitigate
Default
– Examples of guarantor and school
activity
2
Student Loan Basics
• Approximately $400 billion in
outstanding federal student loans
• Nearly 30 million borrowers
• More than 50% of the outstanding
FFEL and DL balance is in
consolidation
• The average outstanding loan balance
in consolidation is $18,240
3
Source: National Student Loan Data System (NSLDS),
CSB Data Mart (July 31, 2005)
Composition of the Outstanding
Loan Portfolio
Combined Title IV Loans
% to Total Principal & % to
Type of Loans Number of loans Total Interest Total
Stafford Sub. 39,048,155 49.1% $107,325,080,770 26.7%
Stafford Unsub. 22,036,060 27.7% $75,908,037,857 18.9%
Consolidation 10,432,719 13.1% $190,301,070,660 47.4%
PLUS 2,978,623 3.7% $16,245,320,583 4.0%
SLS 803,898 1.0% $3,321,484,742 0.8%
Refinanced 56 0.0% $205,809 0.0%
FISL 324,974 0.4% $274,390,715 0.1%
Perkins 3,867,933 4.9% $8,461,713,993 2.1%
Total 79,492,418 100.0% $401,837,305,129 100.0%
• Borrower – None
• School – None
• Lender/Servicer – None
• Department of ED – None
• Guaranty Agency - None
10
Example: Borrower Has a Few
“Hiccups”
• Borrower is laid off from his/her job and
receives a 24-month deferment
• Borrower receives
discretionary/administrative forbearance for
12 months to prevent default
• Borrower finally pays off loan in 13 years
and pays X $$$, including capitalized
interest, for a total payoff of $23,750
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Negative Impact
• Borrower
– Increased cost due to capitalized interest
on forbearance (ED pays on deferment)
– Longer obligation
• School
– None
• Lender/Servicer
– Additional servicing costs
12
Negative Impact (continued)
• Department of ED
– Additional interest paid during
deferment on FFEL loan
– Periods of non-earning asset if a
Direct Loan
• Guaranty Agency
– None
13
Example: More “Hiccups” Becomes
Delinquent And Eventually Defaults
• Borrower is laid off his/her job, receives a
deferment for 24 months
• Borrower receives
discretionary/administrative forbearance for
12 months to prevent default
• Borrower becomes a “rolling” delinquent
payer
• Borrower eventually defaults 14
Negative Impact
• Borrower
– Increased cost due to capitalized
interest on forbearance (ED pays on
deferment)
– Adversely impacts credit
• School
– None
15
Negative Impact (continued)
• Lender/Servicer
– Additional servicing costs due to extended period of
loan and due diligence activity
– Loss of “risk share” (FFEL)
• Department of ED
– Increased costs: payment of claim (FFEL)
– Loss of interest income (Direct Loan)
– Collections costs
• Guaranty Agency
– Increased costs due to collection activity
– Loss of “risk share”
16
Example: Borrower Never
Makes Payment and Defaults
• Borrower becomes a “rolling”
delinquent payer
• Borrower eventually defaults
17
Negative Impact
• Borrower
– Increased cost due to capitalized
interest
– Adversely impacts credit
• School
– Increases CDR
18
Negative Impact (continued)
• Lender/Servicer
– Due diligence servicing costs
– Loss of “risk share” (FFEL)
• Department of ED
– Increased costs: payment of claim (FFEL)
– Loss of interest income (Direct Loans)
– Collection costs
• Guaranty Agency
– Increased servicing and collection costs
– Loss of “risk share”
19
Comparisons
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Comparisons
Average Defaulted Loan as of 9/30/03:
$3,830
Average Defaulted Loan as of 9/30/04:
$3,940
Average Defaulted Loan as of 9/12/05:
$4,130
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Cohort Default Contribution by School Type
100%
90%
4 Year Private
80%
70% 4 Year Public
60%
50% 2 Year Public
40%
30%
2 Year Private
20%
10%
0% Career
1997 1998 1999 2000 2001 2002 2003
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1st Opportunity:
While Borrower Is Enrolled
• Can you identify your potential
defaulters?
• Is the student in the right program?
• Does your program support student
success?
• Where can you provide a helping hand?
• Identify your student success allies
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2nd Opportunity:
Before Borrower Leaves School
• Exit Counseling
• For those who leave early
– Find out why they left and use this
information!
– Collect updated contact numbers and
addresses so you can reach them
later 29
2nd Opportunity: Before
Borrower Leaves School (continued)
• Promptly update the enrollment change
Important Note:
• Most defaulters do not receive their
full grace period
– Why not?
– Why is this important?
– What is the solution?
30
3rd Opportunity:
After The Borrower Is Gone
• Borrowers in Late Stage
Delinquency
– Who are these borrowers?
– My lender was unsuccessful – How
can I make a difference?
– Late Stage Delinquency Assistance
(LSDA) Why and how does it work?
31
Student Perspective:
Repayment/Recovery Cycle
In Grace Repayment Technical Default
School Default
6 months 360
60 120 180 240 300
grace Days
Day Day Day Day Days
Options: Make Payment to Bring the Loan Current, Rehabilitate Loan (12 on-time payments)
Obtain Deferment or Forbearance to Temporarily Suspend Repayment (but Capitalize Interest),
Consolidate Loans to Lower Total Payments Including ICR/Income Sensitive Loans, Default
If We Can Contact the Borrower, We Will Have a Solution for Their Problem.
Solutions: Win a Lottery and Pay Off Loan, Arrange Compromise Payoff, Make Satisfactory Repayment
Arrangementsr, Rehabilitate Loans through 12 On-time Payments, Consolidate Loans
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Source: Borrower Services/Portfolio Risk Management
Borrower Delinquency Pattern
Stafford Borrower Delinquency Pattern 12 Month Average
35%
30%
Percentage of Total Delinquency
25%
20%
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
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• Borrower Education
• Delinquency and Default Tools
• Additional Tools
• How Can Schools Help?
• Guarantor Partner Assistance
35
Borrower Education
• The work begins here…
• Help students manage their money and
control debt with personal finance
• Interactive tools students can use to
manage money
• Guarantor’s resources
36
Borrower Education (continued)
Online student-friendly information…
• Budgeting
– CNN Money, Mapping Your Future
• Career Planning
– Job Gusher, Monster Trak
• Credit Bureau information
– Experian, Trans Union, Equifax
• Money management
– Bankrate, Federal Reserve
• Borrower Education Online Tools (see handout)
37
Interactive Courses
• Credit and Debt
– Provides information on budgeting, credit,
and student loans
• At the Bank
– Helps students understand how banks and
bank accounts work
• Home Finance
– Teaches fundamentals of finding, renting, and
owning a home 38
Delinquency and Default Tools
Online tools help borrowers manage loans and understand options
• Loan summary
• Exit loan counseling
• Grace programs
40
How Can Schools Help?
• Default Aversion Assistance Report
– Identifies delinquent borrowers
– Letter generation
– Updated frequently
– Work borrowers you choose
– Phone calling tips
41
Guarantor Partner Assistance
• Default Aversion Assistance
– Request filed between 60 – 120 days
• Continue to work until resolved or
default claim filed
• Default prevention activities include
– Phone attempts
– Letters
42
NSLP Phone Attempts
• Current phone attempts
– 3 attempts = 2 – week average
– 5 attempts = 3 – week average
– 30 attempts = 25 week average
• Borrower with good phone number
– Averages 1.75 attempts per week
• Spanish-speaking representatives
43
Skip Tracing
• Directory assistance
• Internet services
• School inquiries
• References and contacts
44
Special Phone Campaigns
45
Letters
46
Default Rescue Program
• Focus on borrowers who have a
default claim filed
• “Last chance” to avoid the
consequences of default
• Partner with lenders to help with
last minute processing
47
Successes
• 53% of borrowers contacted are resolved
• School’s cohort default rate positively
affected
• Saves ED and taxpayers $$$
• Borrowers kept out of default
• Lenders, GAs, avoid loss
• Win, Win!
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Summary
• Education
• Retention
• Communication
• Restoration
49
Questions?
50
Thank you!
We appreciate your feedback and comments.
We can be reached at:
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