Managing Your Cohort Default Rate:
Contacting Student Borrowers

By Dave Macoubrie, Vice President of Repayment Solutions

Each February the U.S. Department of Education issues draft cohort default rates. For some this is good news as their hard work has been validated by a lower cohort default rate. However, for others this is the first time they may be concerned about the trajectory of their cohort default rate. 

For those concerned, the following questions may come to mind:

• ·         What am I going to do about it?

• ·         Should I increase and/or enhance entrance and exit counseling? 

• ·         Would it be beneficial to offer financial education to my students, increasing their possibility of successful repayment? 

• ·         For both withdrawn and graduated borrowers, would calling them during their grace period reduce their delinquency and prevent default?

• ·         For those that are already delinquent or at risk of becoming delinquent, what type of default prevention program should I put in place?

Budgets, campus-wide participation, staffing or other concerns may make it easier or more difficult to address some, all or none of these. However, if you’re considering default prevention, what are your options?

1.    Do it yourself;

2.    Hire an expert vendor;

3.    Use a combination of efforts.

If you’ve decided to perform default prevention, it’s important to know what the road ahead looks like. Working with delinquent borrowers has its own unique set of challenges. When they first came to the school they were excited and eager to attend. Now they have left school through withdrawal or graduation. They may have forgotten about their student loans or may not even know they are delinquent; but if they do, they may be apprehensive to communicate out of fear, embarrassment, or other emotions. Each borrower’s response is based on his or her unique individual experiences. 

The first step is to locate the borrower. One of the first things many students do after leaving school is change addresses. Your ability to locate the student and speak with them has a direct impact on your ability to counsel students. As such, skip tracing is an important function of any default prevention effort. This can be done by calling references, online web searches, social media, or hiring a service. Each of these has pros and cons from cost to staff commitment. However, they are all necessary if you want to connect with students. 

Determine your contact strategy and formulate a plan. Will you be mailing letters, sending emails or making phone calls? Once you decide on a contact strategy, make sure your letters, emails and scripts for phone calls are legally sound by consulting your legal counsel.

Before getting started, here are a few questions you might want to consider:

Who will perform this service on you campus? If you are planning on having staff do this, there are secondary questions which should be answered:

• ·         How many staff do I need to execute my strategy? If you have a small portfolio, one person may be enough, but what do you do when that person is sick, on vacation or moves to a different department? 

• ·         The best hours to contact students may not be between 8 a.m. and 5 p.m. on weekdays. What hours will this person or staff work, and will it include weekends?

• ·         How will I train the staff which will be calling? To be effective, each counselor will need to be equipped to answer all repayment plan, deferment, forbearance, discharge, and forgiveness options.

• ·         Does my staff have the proper skills? Your staff must have good phone skills, be organized and be highly structured to ensure all letters, emails and calls are done according to your established contact strategy. Even if they have been working on the telephone regularly, these will be different types of calls. The counselor will have to convince the borrower to talk with them and be able to motivate them to do something, all while abiding by all rules and regulations related to privacy.

Counselors can only provide information, but they can’t solve the issue. As such, many vendors use a “warm transfer” process where you, the borrower and the servicer are on the line at the same time, and the servicer helps with the resolution before anyone hangs up. While this is more expensive and takes more time on the call, this effort creates a significant increase in the number of borrowers who complete the resolution agreement.

Quality control and continuous evaluation will help to prevent future liability. By recording all calls and randomly reviewing a percentage of selected calls, you can evaluate compliance. Many vendors use a form of batch tracking to track when accounts become delinquent and how many were resolved.

In addition, this system also tracks the history of conversations, letters sent and calls made. This can be done using a spreadsheet if you have a low number of borrowers. However, a more sophisticated system is needed if you have many borrowers.

As one might imagine, counseling borrowers who are delinquent on their student loans can be a challenge. There are many things that need to be considered to properly tackle default prevention. These are just a few of the questions that should be considered:

• ·         Are their goals aligned with yours? In other words, are they incented to resolve delinquencies for the long term, and keep them current?

• ·         Do they have experience working with delinquent borrowers?

• ·         Do they have a reporting package that clearly and easily presents results?

• ·         Do they have the ability to record calls and provide those recordings to you?

• ·         What type of data security technology do they use? Are they FISMA compliant?

• ·         Can you see what efforts are being done on a specific borrower?

• ·         Is there a limit to the number of attempts they make to resolve a borrower?

• ·         Do they warm transfer calls to the servicer when they get the borrower on the line?

Performing successful outreach not only requires the right strategies and processes, but it may also require working with a partner to help you achieve your goals and objectives. For a comprehensive checklist to contacting borrowers, click here. More information can be found at Inceptia.org.