The development of today’s students into tomorrow’s successful alumni ambassadors is an aspiration shared by institutions and students. To realize it, student borrowers must be empowered with the practical skills and knowledge that drive retention, completion and successful loan repayment.
This webcast outlined how an integrated, student-centric approach to default prevention can help you more effectively advance the mutual success of your school and your students.
Vice President, Student Success
As of 2014, the official borrower default rate is 11.5 percent. That represents over a half-million students who are having difficulty paying back their student loans. For public institutions, the rate has stayed the same at about 11.3 percent. For private institutions, it increased from 7 to 7.4 percent. For proprietary institutions the rate went from 15 to 15.5 percent.
Remember that the Department of Education considers the cohort default rate to be an indicator of how well a school’s programs prepare their students for their desired path after graduation. That’s why consumer information websites such as College Navigator are reporting the cohort default rate, and why College Scorecard is reporting the percentage of students who are reducing their student loan debt by at least $1 at the 10-year mark.
If your official CDR is 30 percent or greater for three consecutive years, without a successful appeal, the school loses eligibility to participate in the Direct Loan and Pell Grant programs. The first time you reach those benchmarks, you will have to submit a default prevention plan for review by the DOE. They will provide you with feedback, and that process continues until you reach the point when sanctions kick in. If the official CDR exceeds 40 percent for any single year, without a successful appeal, you automatically lose eligibility to participate in the Direct Loan program, though you do retain eligibility to participate in the Pell Grant program.
There are also some benefits associated with a lower CDR. When the official rates are less than 15 percent for each of the three most recent years for which data is provided, schools can disburse a single-term payment period loan in a single installment, and be exempt from delayed disbursement requirements for first-year students who are first-time borrowers.
Addressing the basic needs of students
No matter where your cohort default rate is, you should have a plan in place to address your students’ basic needs—their needs related to housing and food security. Students who are sleeping in their cars, who do not have a secure place to stay or who are hungry cannot focus on their work and cannot stay focused on getting through their program. Allowing them to get help for this will keep them on track, keep them in school, and they’ll be more likely to repay their student loans.
Also, every school should provide money management education for all students. Finances continue to be a major obstacle to completion, and finances continue to be a major stressor that interferes with the ability to focus on school work. Students need to understand how to budget, the right kind of tools to use, how to manage credit, how to understand a credit score—all of those things can help them manage what money that they have and stay on track.
I also recommend that all institutions, particularly those at 0 to 10 percent CDR, provide students with an annual loan letter, even if your state legislature is not requiring it. This is a great practice and can be a proactive step in helping you achieve your goals related to default prevention. You want to let students know every year the amount they’ve borrowed so far, and if they continue to borrow at that level, the projected total borrowings to complete their program of study, along with their estimated monthly loan repayment on the estimated total loan amount. Also, take the opportunity in this annual letter to provide them with campus resources that will help them manage their borrowing and their finances.
Another thing every school should do is grace period counseling. This is one of the most effective things you can do to help students avoid default. It’s a chance to say, “Hey, shortly you’re going to begin paying back your student loans, and here’s some information that will be useful as you begin.”
Developing an effective plan
If your default rate exceeds 11 percent, I recommend that you develop a default prevention plan. Don’t forget to include your financial literacy and retention efforts, and make sure it has an annual review date. Also, analyze your defaulters to understand their demographics and profiles. Next, develop your communication campaigns for reaching out to your borrowers, for 30 days late, 60 days late, 90 days late, etc. This is also the time, if you haven’t already, to educate the campus community. You want to make sure everybody on campus understands the risks and benefits associated with where your CDR is, and what strategies you’re using.
If you’re above the 16 to 20 percent range, it’s important that you have additional strategies. Review your plan. What’s missing? Where can we add campaigns for delinquency buckets that we’re currently not reaching? What else can we do to help? Where are the other opportunities for reaching out to students? Reach out to alumni and ask them what you could have done to help them be more prepared to repay their loans. You also might want to plan a little more aggressive outreach to students, and to measure the effectiveness of your communication method.
If you’re in the final range—greater than 20 percent—the first thing you want to do is elevate what you do on campus. Make sure that the need to focus on what you do is understood right up to the president’s office. Consider adding communication methods that are not being used; aggressive communication by way of all methods might be appropriate at this point, as may increasing the frequency of communication with delinquent borrowers. In other words, you have to pull out all the stops to make sure you’re not in danger of losing access to federal funding and to help your students.
To watch this web seminar in its entirety, visit www.universitybusiness.com/ws110917