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Default Aversion: Strategies and Outcomes
TACCBO Conference PresentationJune 23, 2016
Dr. Harold WhitisDistrict Director of Student Financial Aid
What is a Default?
Under section 435(l) of the Higher Education Act of 1965, as amended (HEA), a borrower who is 270 or more days past due in repaying a Federal Family Education Loan (FFEL) Program loan or a William D. Ford Federal Direct Loan (Direct Loan) Program loan is considered to be in default.
What is a Cohort Default Rate?
The school’s cohort default rate is the percentage of a school’s borrowers who enter repayment during that fiscal year and default within the cohort default period.
Cohort Default Rate Formula
Cohort Fiscal Year
Year Published
Borrowers in NumeratorBorrowers in Denominator
3-Yr Time Period1-Yr Time Period
2012 2015 Entered repayment in 2012 and defaulted in 12, 13, 2014
Who entered repayment in 2012
10/01/11 to 9/30/1410/01/11 to 9/30/12
2013 2016 Entered repayment in 2013 and defaulted in 13, 14, 2015
Who entered repayment in 2013
10/01/12 to 9/30/1510/01/12 to 9/30/13
Importance of a Low CDRNeed to produce financial responsible
graduates. If your rate goes above 30 % you run the risk
of losing all Title IV financial assistance.Gainful employment programs are
becoming at risk as the Earning/Debt ratios are published.
First Step in Default Aversion
Most important before they borrow:Have a robust Entrance and Exit counseling
strategy. Educate before students borrow and all
through their career Examine your awarding strategies Split disbursements into two per term
First Step in Default AversionAfter they leave school:Have an in house operation to perform due
diligence on students in repayment to help prevent them from going into default.
Hire a third party vendor to perform the due diligence.
Limitations of Both and Recommendation In house: Staff turnover, training, knowledge
of regulations, diversions of efforts. Third party: Cost
To me having a third party vendor handle your due diligence is more than worth the cost.
Tools to Prevent Default
⋅ Flexible payment plans to meet the students needs ⋅ Deferments
– In School– Military Service– Public Service
⋅ Forbearance– Temporary cessation of payments during hardship
⋅ Forgiveness – Total and permanent disability
Standard Repayment Plan
Standard Repayment Plan ⋅ Time borrower has to repay: Up to 10
years. (10- to 30-year repayment period for Direct Consolidation Loans)
⋅ Payments remain constant throughout the repayment period.
Graduated Repayment PlanGraduated Repayment Plan ⋅ Time borrower has to repay: Up to 10
years. (10- to 30-year repayment period for Direct Consolidation Loans)
⋅ Payments start low and gradually increase every two years over life of loan.
Extended Repayment PlanExtended Repayment Plan ⋅ Time borrower has to repay: Up to 25 years. ⋅ Payments will be an amount that ensures
the loan will be paid in full in 25 years. Borrower can choose to make either fixed or graduated payments.
⋅ Borrower must have more than $30,000 in Federal Direct Loans to qualify.
Income Driven Repayment Plans⋅ Income-Driven Repayment Plans (Income-Based
Repayment Plan, Pay as You Earn Repayment Plan, and Income-Contingent Repayment Plan)
⋅ Time borrower has to repay: Up to 20 or 25 years depending on the repayment plan.
⋅ Monthly payment amount tied to borrower’s income and adjusted annually.
⋅ Any outstanding balance remaining at end of loan repayment period will be forgiven.
3 Unexpected Stats (ASA)Stat 1 Students were asked: How much debt should students take
on to pursue higher education? Response: More than one third of students think they should
only borrow what can be paid off in five years at their expected starting salary.
Fact: On average, it takes 19.7 years to pay off undergraduate loans.
(http://www.asa.org/for-partners/schools/content-pages/3-unexpected-stats-)
3 Unexpected Stats (ASA)Stat 2 Administrators were asked: How much debt should students
take on to pursue higher education? Response: Students should only borrow what they can pay off
in 10 years. Fact: Given today’s average starting salary of $48,127, loan
calculators say students should borrow a maximum of $28,256. loans. Today’s average debt at graduation is $35,000.
(http://www.asa.org/for-partners/schools/content-pages/3-unexpected-stats-)
3 Unexpected Stats (ASA)Stat 3 Almost a quarter of students and school administrators are
unsure how much debt students should take on. This strongly suggests that greater financial education is
required. Students need to understand the impact of these long-term obligations before taking them on.
(http://www.asa.org/for-partners/schools/content-pages/3-unexpected-stats-)
NFCC Key FindingsCredit Reports and Credit Scores In 2014, most adults have not reviewed their credit
score (60%) or their credit report (65%) within the past 12 months.
More than half (54%) reviewed neither. Among those who did not order their credit
report(s), more than one in four (27%) say they didn’t know of any reason why they should.
https://www.nfcc.org/NewsRoom/FinancialLiteracy/files2013/NFCC_2014FinancialLiteracySurvey_datasheet_and_key_findings_031314%20FINAL.pdf
National Financial Capability Study
In Texas, 19% of individuals reported that over the past year, their household spent more than their income, while 30% of individuals reported having medical bills that are past due.
Source: FINRA Investor Education Foundation, National Financial Capability Study (2015). Making Ends Meet. http://www.usfinancialcapability.org/results.php?region=TX
Planning for a Rainy Day
In the last five years.
Use Non-Bank Borrowing
Second Step in Default Aversion
Financial Literacy
Where Did Alamo Colleges Start?
In 2011 we contracted with a third party provider for Default Aversion Services
St. Philip’s College had already been receiving assistance from USA Funds.
We created a District Default Aversion Committee
We focused an Associate Director position specifically on Financial Literacy.
We Learned
⋅ The Association of Community Colleges Trustees released a report called “Protecting Colleges and Students: Community College Strategies to Prevent Default (McKibben, et.al., 2014)
⋅ St. Philip’s College and several other national colleges participated in the study.
⋅ A result of the study was the development of a “Default Aversion Plan”.
ACCT Study Strategies Direct Student InterventionClassroom ParticipationOutreach to StudentsStaged Curriculum
Analyze Borrowers and Defaulters Track a cohort through collegePartner with Institutional Research
Stress Benefits of Full-time Enrollment
Alamo Colleges CDRs
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2009 2010 2011 2012
Alamo Colleges Default Rates
SAC SPC NVC PAC National
19%
35%
29%
21%
Decrease from FY 09 - FY 12
PAC
NVC
SPC
SAC
We Continued to Learn In January of 2015, the Vice Chancellor for
Student Success arranged for interested parties to view a webinar presented by Syracuse University entitled “Increasing Student Engagement in Financial Literacy Programming”.
In collaboration between the Student Financial Aid Office, Student Success and the Student Leadership Institute, the Student Driven Financial Literacy Program was launched in the fall of 2015.
Student Driven Financial Literacy Program
Title: Managing My Money (MMM)
Slogan: Managing My Money Makes Sen$e!
Mission: To increase all Alamo College student’s financial awareness and empower our diverse communities for financial success
Managing My Money ProgressWe felt it was important to have the student focusWe hired one Work Study student at each
campus to serve as a resource for students with Financial Literacy Questions.We don’t expect them to be experts but to guide
students to the resources we have identified and to our website.
Identifying a Vehicle
Free, Sponsored by the National Endowment for Financial Education (NEFE).OnlineCommercial FreeBranded to Alamo CollegesMultiple Departments Can Use at Once
How We Want to Use CashCourse
Intrusive Financial Literacy Education through cooperation with the SDEV instructorsCreating a Financial Literacy Certificate for
students who complete a specific curriculum Educate students to guide peers to the
information
Managing My Money ProgressWe have become active in the Texas
Association of College Financial Education ProfessionalsWe have begun holding multiple presentations
on campus by enlisting community professionalsWe received a $1,500 grant from the National
Endowment for Financial Education
Achieving the Dream Grant
In December of 2015, we applied for a Student Empowerment Grant through Achieving the Dream and were one of five colleges awarded a $25,000 grant, funded in part by One-Main Financial.
Our plan is to implement all of the ACCT strategies that were outlined in their report with participation from all the campuses.
There is No Silver Bullet!
Default Aversion is a Collaborative Effort
