Five things every default management plan needs
Submitted by Doug Savage, TG Senior Regional Account Executive
This past March, the higher education industry let out a collective groan as draft 2- and 3-year cohort default rates (CDR) were released. Draft rates aren’t made public, but the last official rates undefined made public in September 2012 undefined were on the rise with the 2-year CDR at 9.1 percent (for fiscal year 2010) and the first official 3-year measurement coming in at 13.4 percent (for fiscal year 2009). By all indications, that rise should continue, given the steep growth in student debt and a sluggish labor market.
If there’s a silver lining to the dark cloud of student loan default, it’s that the increase is forcing many schools to candidly evaluate how well they support their student borrowers. It’s also motivating schools to expand efforts in things like debt management undefined to find more ways to send the message: “We’ve got your back. Here are some things you can do now and later to succeed in repayment.”
A school’s default management plan typically lays the blueprint for campus self-assessment and borrower education. Schools sometimes see the default management plan in a negative light, since the Department requires the plan for schools with high default rates. But a good plan can serve a strategic purpose. It can be the key to unlocking campus collaboration and getting many departments invested and working on default prevention. It can spur research on why students default. And it can lay out a comprehensive vision of how to tame default and promote a campus culture that champions the student borrower. Also, upper management is more likely to see value in the effort and throw weight into the project.
Five elements of a good default management plan
You don’t have to build a plan from scratch. The Department of Education provides a template on which a school can model its own plan. The Department advocates attacking default throughout the life of the loan. This means educating students in their options before they borrow and supporting them as they repay, especially if their loans enter delinquency. Here are some other suggestions to make your school’s plan more robust.
· School self-assessment undefined An institutional self-assessment can go in many directions. Ideally, it should provide a baseline for your school’s default prevention efforts, showing what your school does to tackle default and how well it performs. To find this baseline, you could consider how effectively your school helps students graduate on time and ready to manage loan repayment. You might put together a history of your institutions’ default rates. And you could talk with students, faculty, and staff about what your school can do to better engage students so they feel supported and prepared when repayment time comes. Other areas of self-assessment could include enrollment management practices, financial literacy education, and even campus life and culture.
· Analysis of borrower default undefined An analysis of trends in default could be part of a school’s self-assessment, but it could stand by itself also. Why? An analysis will likely contain the seeds of expanded or new efforts in helping borrowers succeed in repayment, and a separate section could highlight these opportunities. Generally, an effective statistical analysis will look for trends among borrowers whose loans enter default. For example, borrowers who leave school prematurely without a degree may be prone to delinquency and then default. Other factors that schools might consider: grade point average, Pell-eligibility, part-time enrollment status, enrollment in a particular program of study, local labor market conditions, and borrowing levels by socioeconomic background.
· Tactics and strategies undefined The heart of any good plan is the section that lays out what a school will do to better manage default. In the “Tactics and Strategies” area, the school should use its default analysis and self-assessment as a foundation on which to recommend new or expanded initiatives that address weak points in borrower support. For example, if borrowers without a degree tend to default more, schools could consider how to maintain students through degree completion. Or if data shows that borrowers from a given major have high rates of default, a school could consider how to smooth the path to employment for this group.
· Default taskforce undefined It’s a good idea to get multiple departments involved in default prevention, since many departments can affect the issue. Creating a taskforce made up of representatives from such departments as admissions, the registrar, financial aid, faculty, and other areas is key to the success of any school’s default prevention. The school’s default management plan could designate members for the taskforce and define their areas of responsibility with regard to default prevention.
· Success measures undefined Plan developers should consider factors that contribute to default, establish measures that address these factors, and then set goals for these measures. These goals should be evaluated periodically to show progress or the need for improvement. As an example, a school could require students to take a certain number of debt management trainings. Or it could commit to reducing default for a segment of borrowers by a given percentage. The value of putting such goals on paper is that doing so makes clear what success in default prevention looks like for the institution.
Resources to tap now
If you’re looking for an example default management plan, the Department of Education offers a comprehensive one, which can be downloaded through the Information for Financial Aid Professionals (IFAP) website. You could also do an online search to find examples. Or you could turn a third-party servicer that provides default prevention services for fee.
Doug Savage is a senior regional account executive with TG serving schools in TASFAA. You can reach Doug at (800) 252-9743, ext. 6711, or by email at doug.savage@tgslc.org. Additional information about TG can be found online at www.TG.org.
