Appealing & Challenging Your Cohort Default Rate

Appealing & Challenging Your Cohort Default Rate

Presented by: Tommy Sims, Sr. Debt Mgmt. Program Advisor, ECMC&

Eric Johnson, President, Student Outreach Solutions

Moderator: Tom Le, Manager of Default Prevention, Wyotech Long Beach

The Changing Landscape• Loan default rate increasing for most schools• Educational costs continue to rise• More students borrowing more money • Combination of Stafford and private loans equals greater

debt • Schools require uninterrupted loan capital and high CDRs

may cause access issues • Changes to CDR calculation accompanied by new sanctions

and regulatory oversight• FFELP to FDLP transition and loss of guarantor’s financial

literacy and default aversion efforts

Cohort Default Rate Trends

FY 2009,FY 2010, & FY2011 Cohort Default Rates

# of Schools

Borrower Default

Rate (%)

# of Borrowers Defaulted

# of Borrowers

Entered Repayment

# of Schools

Borrower Default

Rate (%)

# of Borrowers Defaulted

# of Borrowers

Entered Repayment

# of Schools

Borrower Default

Rate (%)

# of Borrowers Defaulted

# of Borrowers

Entered Repayment

Public 1,627 7.2% 128,121 1,778,903 1,621 8.3% 161,815 1,928,054 1,633 9.6% 218,418 2,253,463 Less than 2 yrs 142 9.9% 749 7,548 140 10.0% 831 8,261 146 9.3% 824 8,779 2-3 yrs 855 11.9% 62,234 520,256 845 13.4% 81,120 604,872 843 15.0% 116,966 774,772 4yrs(+) 630 5.2% 65,138 1,251,099 636 6.0% 79,864 1,314,921 644 6.8% 100,628 1,469,912Private 1,706 4.6% 38,718 825,221 1,716 5.2% 46,481 882,005 1,711 5.2% 51,153 967,956 Less than 2 yrs 43 14.5% 605 4,148 41 13.6% 676 4,953 43 14.0% 734 5,219 2-3 yrs 172 10.0% 1,507 15,039 175 8.5% 1,573 18,384 167 8.2% 1,445 17,458 4yrs(+) 1,491 4.5% 36,606 806,034 1,500 5.1% 44,232 858,668 1,501 5.1% 48,974 945,279Proprietary 2,147 15.0% 152,862 1,015,855 2,188 12.9% 166,364 1,281,215 2,272 13.6% 205,681 1,507,562 Less than 2 yrs 1,110 13.7% 18,031 130,936 1,130 11.8% 19,767 166,436 1,181 14.1% 28,018 197,990 2-3 yrs 732 14.8% 42,893 289,546 746 12.0% 41,443 343,586 760 13.9% 53,854 387,278 4 yrs(+) 305 15.4% 91,938 595,373 312 13.6% 105,154 771,193 331 13.4% 123,809 922,294Foreign 425 5.5% 493 8,862 432 2.9% 280 9,503 429 2.7% 286 10,496Unclassified 1 0.0% 0 5 1 0.0% 0 1 2 0.0% 0 4Total 5,906 8.8% 320,194 3,628,846 5,958 9.1% 374,940 4,100,778 6,047 10.0% 475,538 4,739,481

Fiscal Year 2009 Official Fiscal Year 2010 Official Fiscal Year 2011 Official

Cohort Default Rate Trends

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

5

10

15

20

25

17.6%

17.2%

21.4%22.4%

17.8% 15.0%

11.6%

10.7% 10.4%

9.6%

8.8%

6.9%5.6% 5.9%

5.4% 5.2%4.5%

5.1%4.6%

5.2%

6.7% 7.0%

8.8%9.1

10.0%

Cohort Years

Coho

rt D

efau

lt Ra

te

FY 2011 2-Year National Student Loan Default Rates 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2011 2012 2013

Issue Date

FY 2009 Three-Year Official National Cohort Default Rates

FY 2010 Three-Year Official National Cohort Default Rates

Number of Schools

Borrower Default Rate (%)

Number of Borrowers Defaulted

Number of Borrowers Entered Repayment

Public 1,619 13.0% 250,661 1,922,773 Less than 2 yrs 139 16.5% 1,315 7,963 2-3 yrs 840 20.9% 125,764 599,467 4yrs(+) 640 9.3% 123,582 1,315,343Private 1,712 8.2% 72,347 879,269 Less than 2 yrs 41 21.8% 1,097 5,020 2-3 yrs 168 14.2% 2,305 16,217 4yrs(+) 1,503 8.0% 68,945 858,032Proprietary 2,187 21.8% 277,088 1,270,965 Less than 2 yrs 1,117 20.9% 34,811 165,921 2-3 yrs 743 21.4% 71,853 334,459 4 yrs(+) 327 22.1% 170,424 770,585Foreign 432 4.6% 449 9,562Unclassified 1 0.0% 0 1Total 5,951 14.7% 600,545 4,082,570

The Consequences of Default

Not only does student loan default impact the integrity of the student loan programs, but there are significant consequences for:• Taxpayers• Schools• Borrowers

The Consequences of Default• High CDRs may result in adverse publicity• Negatively reflect on school quality • May result in loss of Title IV eligibility• Threaten continued access to both Stafford and

private loan funds• Result in extra work to reverse high rates

The Recession• CDR data is retrospective, so the impact of the

recession will be seen in FY 09, FY 10 and FY 11 vintages

• More borrowers are having difficulty repaying their loans

• The recession is (unfortunately) occurring concurrently with the change from a 2-year to a 3-year CDR calculation

• Some schools may face compliance difficulties due to CDRs in the coming years

• Contributes to an un/under-employed alumni

3-Year CDR Sanctions

• Beginning with the 2011 CDR (published September 2014)– Schools with CDRs of 30% or higher must take certain

corrective actions:• Create a default prevention team• Submit a default prevention plan to FSA for

review

Note: These are solid default prevention strategies already recommended by FSA

CDR Sanction Threshold Changes

Old Sanction Threshold New Sanction Threshold as of 10/1/110%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Disbursement “Relief” Thresholds

12

Eligible School Benefits

A school whose most recent official cohort default rate is less than 5.0% and is an eligible home institution that is originating loans to cover the cost of attendance in a study abroad program

-May disburse loan proceeds in a single installment to a student studying abroad regardless of the length of the student’s loan period.-May choose not to delay the disbursement of the first installment of loan proceeds for first-year first-time borrowers studying abroad.

A school with a cohort default rate of less than 15.0% for each of the three most recent fiscal years for which data are available, including eligible home institutions and foreign institutions,

-May disburse, in a single installment, loans that are made for one semester, one trimester, one quarter, or a four-month period. -May choose not to delay the first disbursement of a loan for 30 days for first-time, first-year undergraduate borrowers.

Default Prevention Best Practices

• Form a default prevention team (task force)• Develop or adopt a default prevention plan• Utilize traditional financial aid office-based default

prevention strategies• Utilize non-traditional student success-focused default

prevention strategies• Best option: Use a combination of these four (4)

approaches

“Traditional” Approach

• Primarily involves the financial aid office• Focus is on helping student borrowers to develop a

healthy relationship with their loans to include: • Understanding loan repayment • Teaching financial literacy• Updating enrollment status changes• Reaching out when help is needed

NSLDS Reports for Schools

DRC015&16 DER001 SCHDF2 SCHPR2 DELQ01

Report Description

DRC016 This report provides the current repayment status of certain borrowers in the FFEL and Direct Loan programs who attended a school during a specific period

DER001 The Date Entered Repayment Report (DER001) is a list of student borrowers who are scheduled to enter repayment during a specified date range, with their loan histories

SCHDF2 The Borrower Default Summary Report (SCHDF2) provides a list of loans that currently have a defaulted loan status (DB, DL, DO, DT, DU, DW, DF, or DZ) and a loan status date that falls within the requested date range

SCHPR2 The School Portfolio Report (SCHPR2) provides school users with information about all Direct Loan and/or FFEL program loans for a specified school

DELQ01 The Delinquent Borrower Report (DELQ01) provides school users a report of borrowers who have been reported as delinquent in making loan payments to one of the federal loan servicers

NSLDS Report Overview

Understanding Cohort Default Rates (CDRs) – a Quick Review

• Draft and official CDRs• CDR numerator and denominator• Formulas used for CDR calculations• CDRs – a historical perspective

CDRs: the Formula

Numerator

Denominator

Borrowers who entered repayment in one year, and defaulted in that year or the next

Borrowers who entered repayment during the one-year cohort period

3-Year CDR Formula

# of students who entered repayment

# of students who defaulted who entered repayment in Fiscal Year 1

FISCAL YEAR 1 FISCAL YEAR 2 FISCAL YEAR 3

=

Cohort Default Rate (CDR)

CDRs Are Released Twice A Year

February (DRAFT)

Not publicNo sanctionsNo benefits

September (OFFICIAL)

Public Sanctions apply Benefits apply

Draft CDR Data Files

SHDRLROP• Cover• Letter

SHCDRROP• Loan Record

Detail Report

SHCDREOP• Extract Record• Detail Report

* Verify that the overall CDR (Num/Den) on the Letter matches the SHCDRROP (Loan Record Detail Report)

Data collected in the SHCDREOP File

SS# &

DOB

Enrollment Code

Guarantee Date & Guarantor

Academic Level

Claim Reason

Date Entered Repayment

(DER)

Loan Type

Loan Amount

Default Date

2-Year CDR Evaluation2010 2011

10/1/09 9/30/10 Feb-12

Draft Rate

Sep-12

Official Rate

9/30/11

CY 2010

09/30/139/30/11 Draft Rate Feb. 2013

9/30/1210/1/10

CY 2011

2009Fiscal Year

10/1/08 9/30/09 Feb-11

Draft Rate

Sep-11

Official Rate

9/30/10

CY 2009

2012

Fiscal Year Vintage CDR

Denominator:(# In Repayment)

Numerator(# In Default)

Publish 3-Year Rates

Rate used for Sanctions

FY 2009 10/1/08-9/30/09 10/1/08-9/30/11

September 2012

N/A

FY 2010 10/1/09-9/30/10 10/1/09-9/30/12

September 2013

N/A

FY 2011 10/1/10-9/30/11 10/1/10-9/30/13

September 2014

3-Year CDR

FY 2012 10/1/11-9/30/12 10/1/11-9/30/14

September 2015

3-Year CDR

FY 2013 10/1/12-9/30/13 10/1/12-9/30/15

September 2016

3-Year CDR

FY 2014 10/1/13-9/30/14 10/1/13-9/13/16

September 2017

3-Year CDR

Publications of 3-Year CDR

Institutional CDR Calculations by CDR Year

Challenges• Incorrect Data Challenge

(IDC)• Participation Rate Index

Challenge (PRI)

Adjustments• Uncorrected Data Adjustment

(UDA)• New Data Adjustment (NDA)

Appeals• Loan Servicing Appeal (LS)• Erroneous Data Appeal (ER)• Economically Disadvantaged

Appeal (EDA)• Participation Rate Index

Appeal (PRI)

Challenges, Adjustments, and Appeals

Cohort Default Rate Guide

eCDR System Login Page

• Processes IDC, UDA, and NDA electronically

• First became available in February 2008 (FY 2006 draft CDR)

• Available at the following link:

https://ecdrappeals.ed.gov/ecdra/index.html

eCDR Appeals

Loan Servicing Appeal

• Schools request loan servicing records from the guaranty agency (GA) for FFEL loans held by the GA and the Department of Education (ED) servicers/not-for-profits for FFEL loans held by ED and for Direct Loans

• Schools may appeal their most recent official rate; or any official rate upon which loss of eligibility is based

• A successful appeal will result in adjustments to numerator and denominator

• Should be available via eCDR Appeals beginning in Fall 2013

Loan Servicing AppealWhen is a defaulted Direct Loan or FFEL PUT to the Department considered improperly serviced for Cohort Default Rate purposes?

A defaulted Direct Loan is considered improperly serviced for Cohort Default Rate purposes if one or more of the following occur:

The borrower never made a loan payment, and the school can document that the Federal Servicer was required but failed to send at least one letter (other than the final demand letter) urging the borrower to make payments on the loan.

The borrower never made a loan payment, and the school can document that the Federal Servicer was required but failed to attempt at least one telephone call to the borrower.

The borrower never made a loan payment, and the school can document that the Federal Servicer was required but failed to send a final demand letter to the borrower.

The borrower never made a loan payment, and the school can document that the Federal Servicer was required but failed to document that skip tracing was performed if the Federal Servicer determined it did not have the borrower’s current address.

Loan Servicing Appeal Timeframe

September

• School receives official Cohort Default Rate• School sends request for loan servicing records to Data Manager and ED within 15 days of timeframe

begin date.

Within 20 days

• Data Manager notifies school and ED of any fee for providing records, together with a list of the representative sample and a description of how the sample was chosen within 20 days of receipt of school’s request

• School pays the fee, if charged within 15 days of Data Manager notification

Within 20 days

• Data Manager sends loan servicing records to school, and sends ED a copy of the cover letter within 20 days of receipt of payment (or within 20 days of receipt of school’s request, if no fee is charged)

• School requests clarification, replacement, or ED records within 15 days of receipt of records

Within 30 days

• School sends completed Loan Servicing Appeal to ED

• Starting in 2012 schools may submit challenges/appeals/adjustments for both the 2-year CDR and 3-year CDR

• Use eCDR Appeals (at ecdrappeals.ed.gov) to submit IDC, UDA, and NDA (LS beginning in Fall 2013)

• At this time, all other CDR appeals will continue to be submitted via hard copy

Submitting Appeals/Adjustments

Default Management Resources • IFAP website: http://www.ifap.ed.gov

• Default Prevention and Management website: http://www.ifap.ed.gov/DefaultManagement/DefaultManagement.html

• eCDR Appeals website: https://ecdrappeals.ed.gov/

Thank You!Questions?

Contact Information:

Tommy Sims651-253-4299

[email protected]

Eric Johnson317-348-9119

[email protected]