Ensuring Student Loan Repayment: A National Handbook of Best Practices

 

 Ensuring Student   Loan Repayment  A National Handbook of Bes Bestt Practi Practicces

Based on the Student Loan Repayment Symposium October 2–4, 2000

U.S. Dep Departme artment nt of Edu Educat cation ion Officee of Stude Offic Student nt Financial Financial Assistance Assistance

 

Participants  Mitchell Fuerst

Melanie Amrhein Louisiana Office of Student Financial Assistance Assistance

Richard Armbruster TESST Technology Institute

Tom Babel

David Gillespie New Jersey Higher Education Student Assistance Authority 

**Larry Gladieux

DeVry DeVry Inc.

Education and Public Policy Consultant

Jef Jefff Bake Bakerr

Dan Goldenberg

USED/SFA

USED

Corye Barbour United States Student Association Michelle Barros Wells Fargo Education Financial Services/Consumer Bankers Association

Heidi B. Granger r SantaB.Grange Monica Community College *Gene Greene USED/SFA

Jack L. Guinn

Grace H.Bartini American Student Assistance Corp.

Louisiana Office Student Financial Assistance

*Kristie Hansen

Paul Beck 

National Council of Higher Education LLoan oan Programs

USED/SFA

David Bergman Student Loan Marketing Association

Ruth E. Harris University Univ ersity of Florida

Kim Bertelsen

Tally Hart Har t

GuaranTec, LLP.

E. Thomas B Billard illard USA Group

Ohio State University  University 

Tonyia Hatfield Student Loan Guarantee Foundation Foundation of Arkansas

Verona Blaine Pennsylvania Higher Education Assistance Agency 

Mike Hawkes Educational Credit Managemen Managementt Corp.

Irvin Bodofsky  SUNY Upstate Medical University 

Johan J.Bos-Beijer USED/SFA

Catherine Boscher-Murphy  Bloomfield College

Douglas L. Hendric Hendrickson kson Educational Credit Managemen Managementt Corp.

Gina Hinton Xavier University 

Rutgers,The State University University of New Jersey  Jersey  AFSA Data Corporation

Michael Holtman USED/SFA

Janel Cassara Virginia Commonwealth Commonwealth University  University 

Kay Jacks USED/SFA

Melonie Cassells SUNY Westchester Westchester Community College

Gisele Joachim New Jersey Higher Education Student Assistance

George Chin City University of New YYork ork

*Joe Chromy  Education Credit Services

Becky Collins Student Loan Guarantee Foundation Foundation of Arkansas

Paul C. Combe American Student Assistance Corp.

Nancy Coolidge University Univ ersity ooff California

Gail daMota

Connecticut Student Loan Foundation

Jerry Davis

Richard H. Johnston Johnston Great Lakes Higher Education Guaranty  Corporation

John Kane USED

Colorado School of Mines

Lynda W. W. Downing Louisiana Office of Student Financial Assistance Assistance

Shelia Dunlap Texas Guaranteed Student Loan Corp.

Jean Dutt Aman Collection Collection Service, Service,Inc. Inc.

J. Faye Faye Fields University Univ ersity of California,Berkeley  California, Berkeley 

Norm B. Finlinson Finlinson Brigham Young University 

Brian Fitzgerald Advisory Committee on Student Financial Assistance

Judith Flink  University Univ ersity of Illinois at Chicago Jim Flippin R & B Receivables Management,Inc.

Anthony F. F. Fragomeni American Association of Cosmetology Schools

** Writers

USED

**Jennifer Presley  JBL Associates Susan Pugh Indiana University at Bloomington

Syed Rizvi USA Group

Jack Reynolds USED,SFA

David Rippon USED,SFA

Pamela A. Roda Pennsylvania Higher Education Assistance Agency 

Vince Roig Southwest Student Services Corporation

Maria Rojtman USED

Shelley A. Saunde Saunders rs American Student Assistance Corp.

Connie Schmidt National Student Loan Program

Michael D. D. Sessa American Student Assistance Corp. Colorado Student Loan Program American Association of of State Colleges and Universities

Patti Smith Arizona Institute of Business & TTechnology  echnology 

Ed St.John Indiana Univ University  ersity 

*Jan Stanley  Arizona College of Allied Health

Becky Stilling EDFUND

John Stump P.E.A.C.

**W.. Scott Sw **W Swail ail SRI International

Rick Sykora

*Beth Keifer

Jim Taylor

PostKelly  secondary Education Assistance Corporation Lois

Ray Testa

Dottie Kingsley 

Tim Thein

Electronic Data Systems

Indiana Wesleyan University 

Bill Kohl

Mary Davis

Purdue University 

Daniel Pollard

Teresa Karpinski Kar pinski

USED,SFA

USA Group

USED/SFA

Mollie B. Pennock  Pennock 

Pat Smith

Gary Hopkins Hopkins

USED

Mary K.Munci K. Munciee

Jeanne Holmes USA Group,Student Assistance Corp.

Mike Carpenter

USED/SFA

Marschall Marsch all S. Smith

Educational Credit Managemen Managementt Corp.

Mary F.Bushman

Pam Moran

Wilma Hjellum

Dakota Wesleyan University 

John F. F. Brugel

* Faclilitators

North-West College

National Student Loan Program

**John Lee JBL Associates

Brett Lief  National Council of Higher Education Loan Loan Programs

Drew Mazilio

National Center for Education Statistics

Shirley McAlister

Student Loan Guarantee Foundation Foundation of Arkansas

Debbie McBride United States Students Association

Joe L. McCormick  McCormick  The Apollo Group, Group, Inc.

Vernice McNeill Ohio State University  University 

Tom Melecki

National Student Loan Program

Teddie Milner UCLA School School of Medicine Medicine

Oklahoma State Regents Regents of Higher Education Chase Bank American Association of Cosmetology Schools Noel-Levitz

Catherine Thomas University Univ ersity of Southern California

Paul Tone UNIPAC

Andrew Vignone National Institute of of Technology 

Michael A.Williams New York Higher Education Services Corp.

Lorenz Warden

New York Higher Education Services Corp.

Mark S.Williams

University Univ ersity of North Carolina at Wilmington Wilmington

Etienna R.Winzer

Business Developmen Developmentt

Jennie Woo EDFUND

 

Table of Contents 

Introduction by Greg Greg Woods Woods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..33 Chapter 1 Student Loan Defaults in Perspective Perspective . . . . . . . . . . . . . . . . . . .5 Chapter Chapt er 2 Best Practices: Practices: Pre-colleg Pre-collegee Prepara Preparation tion . . . . . . . . . . . . . . . .11 Chapter Chapt er 3 Best Practices: Practices: The In-School In-School Period Period . . . . . . . . . . . . . . . . . .21 Chapter Chapt er 4 Best Practices: Practices: Grace Period and Repayment Repayment . . . . . . . . . . .33 Chapter Chapt er 5 Changing Studen Studentt Lending Lending in America America . . . . . . . . . . . . . . . .43 Bibliography 

 

This document contains contact addresses and Web sites for information created and maintained by other public and private organizations. organizations. This information is provided for the reader’ read er’ss conv convenienc enience. e. The US Department Department of Educa Education tion does not control control or guarantee the accuracy acc uracy,, re releva levance nce,, timel timelines iness, s, or comp complete letenes nesss of this outsi outside de inform informatio ation. n. Furt Further her,, the inclusion of information or addresses or W Web eb sites for particular items does not reflect their importance, nor is it intended to endorse an anyy views expr expressed, essed, or products products or services offered.

 

Introduction  by Greg Woods  Chief Chi ef Ope Opera ratin tingg Offic Officer er,, SF SFA  A  Loan Repayment: A Natio National  nal  am pleased to present to you  Ensuring Student Loan Handbook of Handbook of Best Practices. Practices. In October 2000, I welcomed welcomed the most most experienced and knowledgeable representatives from the financial aid community to the Department’s first Student Loan Repayment Symposium. I asked these experts to spend three days sharing their ideas for reducing student stude nt loan defaults. defaults. I called on them to become catalysts catalysts for change, change, to put every eve rything thing up for consideration, consideration, and not to restrict their suggestions suggestions to cur curren rentt practice, law, law, or regulations. regulations.

I

The teamwork that resulted at the symposium and in producing this handbook  is a model for Student Financial Assistance partnerships with the community. The assembled experts, includ including ing student represen representativ tatives, es, responded responded with tremendous enthusiasm and commitment. One broad point point of agreement agreement was that we we must begin to focus on the life of  a student student loan, that is, is, until itit is fully repaid. repaid. The 2-year 2-year cohort cohort defa default ult ra rate te is defined in statute as the percentage of borrowers who enter rrepayment epayment in a given give n year and defaul defaultt before before the end of the next year year.. It has has been a common common benchmark of institutional institutional performanc performancee that has helped screen screen out schools with exces excessiv sivee rat rates es of default defaulted ed loans loans.. But But we know know that less less than half the defaults defa ults take place place in the first 2 years. Lifetime defaults defaults show show the total dollars dollars lost and give a more complete picture of the long-lasting impact loans have have on students students’’ lives. lives. This handbook cove covers rs best practices throughout the life of  student loans. During the symposium presentations presentations and the discussion sessions, writers were recording best practices and ideas for future improvements in the student loan programs. We have organized organized the chapters chapters in the same way tha thatt the symposium symposi um discussions discussions occurred. We begin by summarizing summarizing recent recent trends in student loan defaults and the general themes that emerged during the October symposium in chapter 1. Chapters 2 through 4 capture the best practices and creative ideas the symposium experts experts recommended. recommended. Chapter Chapter 2 focuses on the period before before a student student

 

enrollss in college. Chapter enroll Chapter 3 looks at the period between enrollmen enrollmentt and repayment. repa yment. Chapter Chapter 4 addresses addresses loan repayment. repayment. Chapter 5 has a different Chapter different purpose. Rather than focusing focusing on current current best practices, it presents the major symposium themes for substantially improving the student loan programs. We have have tried to make this handbook as user-friendly user-fr iendly as possible. We have have highlightedd innovative highlighte innovative practices, practices, and programs, and results results from across the country, coun try, with names and contact contact information. information. You can follow up on specific ideas ideas by contacting contacting the exper experts ts identified for each item. Some symposium attendees attendees were so excited by what they learned that they have already begun to make changes. My thanks go to the people who participated in our symposium and shared their ideas with us. Many Many participants worked worked long long hours and donate donatedd their time to this project. project. Wi With th our partners and studen students, ts, we have have been aable ble to develop develop a handbook that you you can use to serve stud students ents better better and prevent prevent default defaults. s. I look  forward to working with you.

 

Chapter 1 Student Loan Defaults in Perspective 

en years ago, ago, the student loan cohort default rate for all colleges, universities, universitie s, and car career eer schools had climbed climbed to 22 percen percent. t. In the face face of  this alarming trend, the Secreta Secretary ry of Education, Education, Lauro Lauro Cava Cavazos, zos, announced, announced, “Studen “Stu dentt loan defaults are are a serious, but not unsolvable, unsolvable, problem. problem. By working working together we can reduce defaults while increasing educational success for our students. stude nts. Defaults Defaults are a waste waste of valuable valuable student student aid money and must be stopped.”

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On October 2, 2000, the Presi President dent of  the United United States, States, Bill Clinton, announced the lowest default rate ever in programs! ratethe is student just 6.9 loan perc percent. ent. How How didThat we we cut defaults by almost two–thirds in just 10 years? Simple! We worked hard, we worked work ed smart, and we worked worked together as a stud studen entt aid ccomm ommuni unity ty.. Of course, course, we have been blessed with a strong nation na tional al econom economyy, too. too. The dramatidramatically declining default rates are shown graphically in Chart 1. This chapter chapter provides provides a brief overview overview of the successes successes we we hav havee enjoy enjoyed ed in the past 10 years years.. Yet, we still still have have a lot lot of work work to do. do. We need to to look at stud studen entt loan defaults defa ults from a new new perspective. perspective. The prob problem lem may may no longer be as serious as it was in 1991, but it is still a problem problem that thr threate eatens ns the integrity integrity of the student student loan programs and harms too many students who borrow to finance their education. The Past Decade

Over the last 10 years, years, a number of actions have have been taken that have have contributed contributed to lowering the default default rate. Congress Congress substantially substantially changed changed the law and gave the Department of Education Education the authority authority it needed to restrict or terminat terminatee a

 

low-performing school’s low-performing school’s ability to make student loans. Schools with default default rates of 25 percent or greater for 3 consecutive consecutive years aare re now prohibited prohibited from making furthe furt herr loan loans. s. Ena Enacte ctedd in 199 1992, 2, thi thiss Chart 2. Number of Schools to Sanctions authority has proven to be a powerful Continues to Drop and effective effective tool. Some 850 schools schools have lost their student loan program eligibility eligibili ty since 1993. 1993. This yyear ear,, only  11 schools are faced with initial or extended exten ded loss of loan eligibility eligibility,, and only 3 of of these sch schools ools ma mayy also lose Pell Grant eligibility elig ibility.. Chart 2 shows the decreasin decreasingg num number ber of schools subject to sanctions since 1994. A more recent change to Federal law created exemptions from the default sanctions for for schools with low numbers of borrowers borrowers and low loan volume, volume, resulting res ulting in a lower number number of schools facing sanctions sanctions than in previous years. years. A part of the reduction reduction in the rate from the previous previous year is due to a change in the definition of default—from 180 days days without a payment payment to 270 days. days. But the drop drop in defaults defaults is not just the result result of rigorous rigorous enforc enforcement ement of Federal Federal statute statu te and regula regulations tions or the recent recent change in defa default ult defini definition. tion. Schools, lenders, lender s, loan services, collection agencies agencies,, and guaranty guaranty agencies have have worke workedd hard to reduce reduce defaults. defaults. They have have developed and implement implemented ed innovative innovative strategies strate gies to help student student borrower borrowerss before they enter enter default. Many Many are effectively using new technologies to share loan information and give borrowers instantaneous instan taneous access access to individual individual account information. information. These “best practices practices”” have been replicated by other organizations and have contributed greatly to the reduction in default rates. Program improvements have also played a part in helping to reduce defaults. Student Stude nt loan borrowers borrowers can now choose from a variety of flexible loan repayment repayment plans. They can even choose to make payments based on their income. Addition Ad ditionally ally,, the practice of consolidating consolidating all loans with a single lender lender is continuing to grow. grow. Consolidation simplifies the repayment process and makes it easy for borrowers borrowers to qualify for benefits, such as deferments. deferments. The development development of the National Student Student Loan Data System (NSLDS) makes iitt easier eas ier to track multip multiple le studen studentt loans, even even if they are are sold. Increa Increasin singly gly,, the

 

availability availabili ty of accurate accurate and timely loan information in the NSLDS NSLDS helps to prevent ineligible students from receiving loans and ensures that legal loan limits are not exceeded. A great deal has been accomplished over ov er the past decade. The trementremendous reduction in student loan defaults is especially noteworthy in light of of the huge huge growth growth in loan volume volu me over over th thee past decade. decade. As shown in Chart 3, total borrowing almost doubled from FY 1994 to 1998, while dollars in default default held held roughly steady. steady. We are definitely  doing a better job of preventing preventing defaults!

Chart 3. More Dollars Borrowed...   Default Dollars Steady

Chart 4 4. Most Default Dollars at   Low Default Rate School (1998)

Reinventing Default Prevention

While we have come a long way in the past 10 years, years, we can do ev even en better bett er.. One limitati limitation on of the cohort cohort default rate is that it focuses on the number of of borrowers borrowers in default default at a school, rather than the the number number of  dollars in default default at at a school. Only  2.5 percent percent of the 1998 1998 coho cohort rt default dollars are at schools with rates over over 25 percent; by contrast contrast two-thirds two-thir ds of the dollars dollars are are at schools with rates under 10 percent (Chart 4). Also, while 4-year 4-year schools have have low default rates, rates, they  enroll the largest number of  studen stud ents ts nation nationwide wide.. Most Most of the cohort default default dollars, 70 percent, percent, come from borrowers at 4-year institutions (Chart 5).

Chart 5. 5 Most Default Dollars at 4-Year Schools (1998)

 

Calculation of the Cohort Default Rate The new national default rate of 6.9 percent is for FY 1998—the most current data available—and represents borrowers whose first loan payments came due between October 1, 1997, and Sept September ember 330, 0, 1998, and wh whoo defa defaulted ulted befor beforee Sep September tember 30, 1999. The national rate reflects loans made to borrowers who attended some 6,900 postsecondary  schools that participated in the Federal Family Education Loan Program and the Federal Direct Loan Program.

While the cohort default rate is a valuable measure, it may be time to shift our focus to some type ty pe of outcome-ba outcome-based sed system—one system—one that that focuses on helping students stude nts aavoid void defaul defaults, ts, while rewardin rewardingg schools, lenders lenders,, and guaranty agencies for outstanding performance measured against clear goals and standards. standar ds. “Dollar “Dollarss in default” default”is is a clear performance performance measure measure that we can use to determi determine ne how well well we are doing doing.. All schools, schools, lenders lenders,, services, services, collecto collectors, rs, and 0the Department can work work together to red reduce uce the dollar dollarss in default. We must develop a sound incentive structure that says “let no student go into default.” Another way that we can do better is to focus on the “lifetime” “lifetime” default rate. Gregg Woods, the Chief Gre Chief Operating Officer of of Student Student Finan Financial cial Assistance, Assistance, is tracking life-of-the-loan life-of-the-loan default default rates. rates. They are roughly roughly dou double ble the 2-ye 2-year ar cohort rate. rate. That’ That’s a lot of students students having trouble trouble repa repaying ying their school loans. loans. Chart 6 shows that defaults continue to grow on a relatively  6 steepp curve for stee for 5 yyears. ears. Ev Even en afte afterr 10 to 12 years, loans go into defa default, ult, although altho ugh at a m much uch lower lower ra rate. te. And manyy of the initial ddefaul man efaults—25 ts—25 to 30 percent—remain in default. At the October symposium, there was overwhelming support for measuring lifetime default rates. It’s time for this more complete picture pict ure of default defaults. s. Many Many symposium participants agreed that lifetime default rates present a guide to what

 

schools, financial institution institutions, s, and the Department Department really need ttoo do now to keep defaults going going down. We need default prevention prevention strategies that are effectivee for effectiv for the life life of the loan, not just just the first 2 years years of repa repayment. yment. The Promise of Information Technology

Perhaps Pe rhaps the grea greatest test single source source of energy and ideas at the October symposium was was the poten potential tial of cutting-edge cutting-edge technology technology.. In 1990, 1990, the Department Department released a handbook titled, Reducing Student Loan Defaults. The handbook did not even mention mention using technology to reduce defaults. defaults. In 1990, the Internet Internet was in its infancy and electronic banking barely existed. Today, oday, we have have a number of electronic tools to ease the process process for borrowers and to help them repay repay. Loan payments payments can be electronically electronically deducted deducted each monthh from borrowers mont borrowers’’ checking accoun accounts. ts. Many Many borrowers borrowers can use the the Internet to view their loan information and obtain deferment forms 24 hours a day, day, 7 days days per week. There is is no question question that new new technologies technologies can greatly  greatly  simplify the entire process and candeploying provide contact, con tact, from origination origina tion tofor payoff. pathe yoff.borrower By success successfully fully deplo yingcontinuity the electronic electroof  nic tools we currently have available, available, we can help student borrowers make make better decisions decisio ns and take advanta advantage ge of all of the default default preventio prevention n options availabl availablee to them. Where Do We Go From Here?

Together, we must continue to work harder to help students make sound investments inves tments in their education and training, borrow responsibly responsibly,, complete their programs, and repay repay their debts. We must tes testt new strategies and implemen implementt the best practices. We must capitalize capitalize on cutting-edge cutting-edge technologies as they are developed. Above developed. Above all, we m must ust focus focus on the the student student.. Yes, we’ve we’ve made great progress progress in the past few years, but we can do even better. This book shows us how we can improve student lending and better serve America’’s students. America students. This is our formula to build on the achievemen achievements ts of the past decade.

9

 

Chapter 2  Best Practices: Pre-College Preparation 

David is a high school school senior senior.. He does n not ot listen to m music usic on the ra radio; dio; he download downloadss music from the Internet Internet and plays it on his portable CD player. player. He does not read read comic books; he watc watches hes DV DVDs Ds on his home com compute puterr. David certainly does no nott go to the neighborhood library librar y to resear research ch school papers; he uses the Web to access the library W Web eb site (and hundreds of other W Web eb sites). David plans plans to go to ccollege ollege ne next xt year year.. Last we week, ek, he took a virtual tour of State U Unive niversity rsity.. He liked liked what he sa saw w, and so he app applied lied electro electronically nically.. David join joined ed a chat roo room m of  students interested interested in attending State U University niversity.. He ap applied plied for financial aid at Fafsa.gov and used the Internet to search for scholarships. A few weeks later, later, David received an e-mail tell telling ing him he was accepted at State University University.. Congratulations, Congratula tions, David!

oday’s young people are the first generation to grow up during the Internet Int ernet age. The Internet Internet allows allows them to access access a wealth of information information in a matte matterr of second seconds. s. Not Not only only informati information on on N’S N’Sync, ync, but but information informa tion on univer universities, sities, colleges, colleges, and career career schools, as well as sscholarcholarships and and financial planning. planning. The Internet Internet is helping helping millions millions of youn youngg people people make more-informed decisions about their education.

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As we all know, know, one key to reducing loan defaults is helping yyoung oung people make more-informed more-in formed de cisions. Evhave en in thenece In Internet ternet ag e, there are are stillmake thousands thousand s of students stude ntsdecision who do do s. notEven hav e the necessary ssaryage, information informatio n to make an informed decision decision about their futur future. e. Too many young young people still make poor decisions that affect their future because they have not been adequately  prepared or informed about higher education opportunities. In discussions discussions during the October 2000 symposium, participants suggested suggested that lesson number one is to prepare students and families for the college process: proces s: academically academically,, socially socially,, and financially. financially. The res responsi ponsibility bility for this effort lies at every stakeholder’ stakeholder’ss door: elementary elementary and seconda secondary ry schools, postsecondary postsec ondary schools, lenders, lenders, guarantors, guarantors, and other other educa educational tional and social agencies. agencie s. Educational Educational opportunity opportunity is everyone everyone’’s business.

 

12 Trio Programs  www.trioprograms.org  www.triopr ograms.org

Federal TRIO Programs (Talent Search, Up Upward ward Bound, Up Upward ward Bound Math Science, S cience, Veteran’s Upward Bound, Student Support Services,, Educ Services Education ational al Opportunity Centers and the Ronald E. McNair Post-Baccalaureate Achievement Program) help students den ts to overc overcome ome class, class,social, social, acade academic, mic, and cultural barriers to higher educa education. tion. TRIO services incl include: ude: assistance iin n choosing choos ing a colleg college; e; tuto tutoring; ring; perso personal nal and financial couns counseleling; career counseling; assistance in ap applying plying to college; workplacee and college visits; special instruction in rreading, workplac eading, writing, stud studyy skills, and mathe mathematic matics; s; assi assistanc stancee in applying for financial aid; and academic assistance in high school or assistance to reenter high school or college.

Think Colleges Early www.ed.gov/thinkcollege

A U.S. Departmen Departmentt of Educatio Education-spon n-sponsore soredd W Web eb site for students and parents to explore college and to get the information needed to make prudent decisions. Includes three basic areas: areas: Think College Early focuses on studen students ts in middle school, school, their pparen arents, ts, and teac teachers; hers; High Sc School hool and Beyondd is targeted to high school and college student Beyon students; s; and Returning to School emphasizes the educational needs of  adult learners.

A wealth of material material on preparing preparing for, for, financing, and going going to college is available on the Web from the U.S. Departmen Dep artmentt of Educati Education, on, state state higher education educa tion and guaranty agenci agencies, es, and many not-for-profit organizations. These resources can help you develop a plan (or improve the role you are already playing) to help students and families learn about educational opportu op portuniti nities. es. To get you started, started, this chapter chapt er iden identifies tifies some some of the resources and Web Web sites that are currently available. What follo What follows ws is a list ooff nine ke key  y  strategies with specific actions to help you in your role. Build ld on early early 1. Bui intervention models already in existence.

Research and practice clearly shows that programs designed to increase students’’ “college knowledge” students knowledge” and academic acad emic and social skills positively  positively  impact a student's opportunity to go to college. college. Accord According ing to a rrecen ecentt report report from the College College Board, thousands thousands of  such programs programs exist, including including the federal TRIO and GEAR UP programs. You can build on these programs to make changes in your local area.

 

Where should I look to find programs that help students and families learn about or prepare for college?  

Contact with other local colleges and schools to find out what types of pr program ogramss they sponsor sponsor or work with now.



Check www.collegeboard.com and search through their online database to find programs in your area.



Check out the American Youth Youth Policy Forum Web site, www.aypf.org for information on their two two volumes volumes of of the best practices in youth outreach. These help identify what works in early intervention activities.

Going Right On® www.collegeboard.org/plan/index.htm

The College Board offers an exciting multimedia tool for college guidance to  junior high high schools. GrO/Going Right On®, free oon-line n-line from collegeboard.com, is designed to encourage early teens who may be uncertain about their future prospects for college to start thinking about getting getting on the colleg college-bound e-bound track. Wit Withh an entertaining mix of words, words, musi music, c, and animation, animation,GrO GrO insp inspires ires students to dream about going to college and also gives them sound advice on how to make that dream a reality.

GEAR UP 

Speak with your local TRIO program directors (many colleges have a TRIO program) and poll them for directions and strategies.

2. Reinforce the value of postsecondary education.

 www.ed.gov/gearup

Enacted in 1998 by Congress, GEAR UP funds partnerships of highhigh-pov poverty erty middle schools,, college schools collegess and univ universiersities, comm community unity organiz organizaations, and busines businesses ses to work  with entire grade levels of  students. studen ts. The partnerships provide pro vide tutorin tutoring, g, ment mentoring, oring, information informa tion on college prepa preparation ration and financial aid, an emphasis emph asis on core academic pr preparatio eparation, n, and, in some cases, scholarships.

Research clearly shows that the more education people have, the more earning potential they possess (see Figure Figure 1). Postsecondary ostsecondary schools, schools, lenders, lenders, elementary elementary and secondary second ary schools, and community community organizations organizations all can help students students and parents paren ts better understand understand the the value of of education. education. Students Students and and parents parents need to know that education is an investment for a lifetime.

 

Figure 1: Family Income and Education Median Annual Household Income, by Educational Attainment of Householder, 25 Years Old and Over, 1997 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0

9     H     S     9     <   B     B     A     P     t     t     i     o    a    M     D     h    h    o    1      g   h    S     m   e     s   s   o   c    a   c   h    c   h   e   l     a   s   t     o   c   t     o   f      e   s     g     g   r     o   r     r     a   d      t     e   l     o    e   r     c   h    C     i     s   i     a    a    ’     2     s    o   r     r     t     e    t     o   n    t     ’     o   o    o   l     e    e    s    h    l     ’     s    a   l     l     e     g   e    Source: U.S. Source: U.S. Census Burea Bureau. u. March March Curre Current nt Population Population Survey Survey.. Income Income Statistics Branch/HHES Branch/HHES Division. Division. U.S. Departmentt of Commerce: Departmen Commerce: Washington, ashington, D.C. Table F-18 (www.cens (www.census.go us.gov/hhes/inc v/hhes/income/h ome/histinc/f018.h istinc/f018.html). tml).

How can I help help students and parents parents understand the impact of educa education?  tion?  

Provide data and information about the returns to investing in education brochures and leaflets (see Figure 1).



Invite real former students as examples to show students and parents how education has changed their lives.



Work with local PTA groups to find ways to help parents learn more about the impact of postsecondary postsecondary education education and the need to plan and participa participate te in their children’s development.

3. Get involved in a national campaign for educational opportunity and postsecondary study. study.

While we know that sometimes students students get pushed out of the educational pipeline for for a variety of reasons, reasons, it is also true that that many studen students ts pull themselves selv es out of the pipeline because because they do not think they belong or have

 

a chance chance in attainin attainingg a higher ed educa ucation tion.. This notion notion must must be dispelle dispelled. d. All students studen ts have educational educational opportunity; opportunity; the main difference is whether they kknow now how to act upon his or her potential. potential. Symposium participants strongly supported the establishment establishment of a national campaign campaign to help students and families understand that there are numerous paths beyond the high school diploma.You can help raise public awarene awareness ss about the importance of higher education education as an investment—for our society and for the individual. How do I help make this campaign happen?  

You can talk with your leadership, leadership, local and national associations, associations, and other educational entities to bring bring this important issue up for discussion. The partnering of associations, associations, along with business business and industry industry,, educational educational ssectors, ectors, and community and media partners will generate the critical mass required to move a large-scale campaign forward.



Work with local, regional, regional, and national national media outlets to help develop develop a media campaign to acknowledge the postsecondary opportunities available to our youth you th and adults and indicate indicate where they can find more more information. information. Such campaigns need to be targeted toward students who currently do not go on to some some form form of postsecondary postsecondary training.

4. Get college information to students and parents EARLY.

As one symposium symposium participant suggest suggested, ed,“W “Wee should hand out a packet of college information when the baby leaves the hospital.” Why not? Nebraska actually actual ly does provide a college information packet to new parents as they leave the hospital. Several state state prepaid prepaid and college savings savings plans also target young young parents. parents. By starting to save right away away, new parents parents can tap into the power power of compo compounded unded interest. What strategies can I use to get  information out early?  

Work with K-12 schools and community groups to develop and/or disseminate information to students and their parents. Develop special college packets for K-12 school counselors to

How early is early? In N Nebraska, ebraska, the Educational Planning Center (EPC) thought that birth was the perfect starting point. poin t. Connie SSchmidt, chmidt,region regional al outr outreach each man manager ager ffor or the EPC, began disseminatin disseminatingg college-planning informa information tion to select hospitals throughout the state in 1996, hoping that they would help disseminate college planners and savings calculators calculato rs to the pare parents nts of newborn chi children. ldren.Particip Participating ating hospitals have developed their own packets with information from the EPC, which they send home with newborns ttoo start the college savings and planning process. process. For mor moree information, con information, contact tact Connie Schmidt at [email protected], Call (402) 479-6651or send email to www.ne-epc.com.

 

hand out to students students and parents. Information Information pro provided vided in easy-to-r easy-to-read, ead,  jargon-proof  jargon-p roof material material can be very useful to overburden overburdened ed counseling counseling staff  at schools. schools. Topics should should include include a description description of the college college process, process, information on savings savings and college affordability, affordability, and other pertinent information. 

Collaborate with your local newspapers to provide focus articles and issues on postsecondary education and preparation.



Make your your school’s career day a continuou continuouss even event, t, not just once a year year. Plan on conducting activities throughout the year to inform students and parents about career career and educational educational opportunities. opportunities. Use guest speakers speakers from yo your ur community who have a stake in your community’s youth.

FINAID www.finaid.com

This award-winning site offers comprehensiv comprehensivee information and insights about student financial aid for students, stude nts, paren parents, ts, and financial aid exp experts. erts.

5. Target students and families that need the most assistance.

Students already on the college track  are most likely to gain entrance to college and follow through on their aspirations. aspira tions. Broad information information should be directed directed at everyone, everyone, but special pre-college support should be packaged and directed at highneed groups to get them into the college pipeline.

How should I target special groups and what can we do for them?  

Work with schools in your community to identify students who require special assistance assistance and targeting. targeting. Mos Mostt schools will provide provide lists and hel helpp you contact these students.



Design and disseminate special packages aimed at low-income families. Packages should have information in an easy-to-read format and provide critical information that grabs their attention.



You can work with K-12 schools to prepare packets and conduct special “college knowledge”sessions knowledge” sessions for targeted families.

 

6. Build coalitions and partnerships to get the word out.

There is no one point point of contact contact to get the right information to students students and parents. pare nts. Information Information about about postsecondary postsecondary school attendance comes comes from manyy sources man sources,, and the the more more the better better.. Coalition Coalitionss of schools, schools, college colleges, s, lenders, lenders, and guaran guarantor tors, s, as well well as states states,, and the the U.S. U.S. Departmen Departmentt of Educati Education on will help to further open the doors of higher educa education tion for low-income low-income stude students. nts. What are are some of the strategies I can use to develop develop partnerships and coalitions?  

First, check with the Chamber First, Chamber of Commerce Commerce or other other organizations organizations to see see if there ar aree existing partnerships partnerships that are already already working working in your community.



If you must must start fr from om scra scratch, tch, first think think of people with whom you already  already  work. They may include include individuals individuals inside your your organization, organization, and those from other organizations and businesses with which you do day-to-day business. busines s. This is your easiest easiest path, and can form your core core group for something bigger. bigger. From From the cor core, e, expand your your contact contact list as you learn about about new opportunities and players.

What can we do together?  

For starters, you can see who is doing doing what and decide what overlap overlap there appears appea rs to be from from agency agency to agency agency,, school to sschool. chool. Using the the best practices in this chapter chapter, help improv improvee local efforts.



Decide on specific strategies for information dissemination that work well with the consortium consortium as a whole. whole. Find common common ground ground that builds builds upon upon consortium conso rtium members’ members’ strengths. strengths.

7. Provide information seminars for employees at their workplace.

Lenders, financial planners, Lenders, planners, and educational educational providers providers can work with local businesses to help employees prepare for their children’s postsecondary experience.. Employers experience Employers can pr provide ovide time during during the working working day for their their employees to learn and plan for their children’s future.

 

How can I reach out to businesses?  

First, identify businesses that employ parents in your recruiting area.



Contact the community liaison or human resources (personnel) officer to see if they provide provide any college college information information to their employees employees or see if  they are willing to offer this benefit.



Work with the liaison to develop a targeted packet for their employees and provide a seminar for employees. Offer to conduct the seminar during staff  meetings or suggest professional development time.

Studentt Assistance Corporation calls The American Studen

companies’ human resources (personnel) offices and offers to talk to their staff about how to fund their children children’’s college educations. educations. They talk to paren parents ts with young ch children ildren as well as those who have have children ccloser loser to college age, and even help parents whose children may be having trouble making their studen studentt loan ppaymen ayments. ts. Contact Paul Combe combe@a com be@amsa. msa.com com (617 (617)) 728728-450 4500. 0.

National Association for College  Admission Counseling  www.nacac.com/fairs.html  www.nacac.com/fairs.html  www.onlinecollegefair  www .onlinecollegefair.com .com

The National Association for College Admission Counseling (NACAC) coordinates 36 National College Fairs and 27 Performing and Visual Arts College Fairs each year.At these fairs, studen students ts and paren parents ts meet one-on-o one-on-one, ne, in the same day,, with college re day repre presenta sentatives tives fro from m local, region regional, al, and national levels. New to N NACA ACAC C is the Online National College Fair, which provides a virtual resource for students and parents.

8. Build bridges between K-12 and postsecondary education.

Several conference participants suggested that institutions of  higher education can invest more heavily in K-12 school academic improvement improv ement and pre-college outreach programs for disadvantaged studen stu dents. ts. It is in the school schoolss’ and the other other stakeholders stakeholders’’ self-interest to support support these efforts; reachin reaching, g, motivating, motiv ating, and preparing preparing more young people expand the potential college-bound—and qualified— pool of stud pool studen ents. ts. For For exa examp mple le,, summer or after-school programs that bring young people onto campuses tend to be effective in giving them a sense of what college college is about, and a sense that college college is possibl poss ible. e. Likewise Likewise,, college college stu studen dents ts and graduates can serve as effective mentors in middle and high schools. sch ools. Schoo Schools ls an andd college collegess can expand programs that bring youth together with mentors to help guide them through the college process.

 

How do I develop bridges between secondary and postsecondary  schools?  

You can develop bridges by learning about the various activities that exist in your your community community now. now. Then lend your your support. support.



Initiate a dialogue between K-12 and higher education. Invite key individuals from each local school/ins school/institution titution to the table, as well as other stakeholders as appropriate appropriate (e.g., business, business, The Nation National al Society of Collegiate Scholars is a volunteer local governmen government, t, lenders, lenders, etc.). society of undergrad undergraduate uate stude students nts based on 141 college Once at the the table, discuss how how campuses, campuse s, and growin growingg rapidly rapidly.. College stud students ents w work ork with everyone can work together in a middle and and high school studen students. ts. Contact Steve Loflin better fashion to help students [email protected] loflin@ns cs.org (202) 234-52 234-5295 95 x 112. transition during the matriculation period between high school graduation gradua tion and the fall semest semester er.. This may involv involvee the develop development ment of new pr program ograms, s, informa information tion campaign campaigns, s, or other strategi strategies. es. More More than like likely ly,, it may involv involvee a number of concurrent concurrent strategies. strategies.

9. Support career and college fairs at middle and high schools.

High schools have long hosted college and/or career fairs for their students. These are are wonderful wonderful events events but they could could be far better if many stakehold stakeholders ers weree involv wer involved, ed, including including local colleges, colleges, busine businesses sses and industries, industries, and community agencies as well as parents and students. How can I participate in or help develop college fairs?  



Contact NACAC (National Association for College Admission Counseling) for detailed information about designing effective college Educational Credit Management Management Corp (ECMC) of  fairs. NACA NACAC C also has an Virginia has produced a CD that high school students Online National College Fair receive rec eive fre free. e. It incl includes udes general info information rmation on appl applying ying available to users at for aid and school admission, togethe togetherr with general www.onlinecollegefair.com/ www.onlinecollegefair.com/.. information informa tion pr provided ovided bbyy each participa participating ting school. The CD Try to involve as many stakeleads users to application applicationss and other source sourcess of aid and it is holders as as possible, possible, get their used widely widely aatt colle college ge fair fairs. s. Contact Jeanne Holmes direct input  [email protected]  jholmes @ecmc.org.

 

into the planning planning and orches orchestration tration of of the event. event. This ensures ensures up-to-da up-to-date te information informa tion and guidance, guidance, plus the the benefit of of bringing the educa education tion community together. together. Network with other schools locally and throughout the nation to learn what they have found effective National Association for Student in counseling and supporting Financial Aid Administrators career- and college-planning  www.nasfaa.org/nasfaa/static/general/   www .nasfaa.org/nasfaa/static/general/  efforts. public/FAnight.asp 

The National Association for Student Financial Aid Administrators (NASFAA) has published a handbook and Web resource entitled, "Planning and Conducting a Financial Aid Night (20012002 Edition)," which includes important steps on how to set up a financial aid night, as well as a script (narrativ (narrative) e) for the slide show. show. The slide show presen presentation tation is available in several different formats.

 

Chapter 3  Best Practices: The In-School Period 

David’s first week at State U David’s University niversity is really busy. busy. He moves moves into his dorm. Gets a school school e-mail e-mail address. address. Registers Registers for classes. classes. Buys Buys his textbooks. Applies Ap plies for a credit credit card. card. Completes Completes his studen studentt loan entrance counseling online. onli ne. Me Meets ets with with his academi academicc adviser adviser.. He also also makes makes a n numbe umberr of new friends. After 5 years After years of school, school, David David is graduati graduating. ng. He take takess his final final exam examss and turns in his senior senior thesis. thesis. Attends exit counseling. Pi Picks cks up his cap cap an andd gown. Goes on a job interview interview.. Attends his graduation graduation ceremon ceremonyy. And moves moves out of his dorm. dorm.

he first and last last weeks weeks of college college are rreally eally busy busy for million millionss of real students. stude nts. Do they remember remember what was was said at entrance entrance counseling? counseling? Let’’s see, that Let that was 5 year yearss ago. ago. Probab Probably ly not. not. Do they they rem remembe emberr attending their graduation ceremony? ceremony? Absolutely! Absolutely! Do they remember what was explained explained at at exit counselin counseling? g? Maybe, Maybe, but that that was a pretty pretty busy time. time.An An important question is whether they had any contact with their financial aid offices between between entrance counseling counseling and exit counseling. counseling. We sure hope so!

T

The financial aid office plays a critical role while the borrower is in school. By staying in frequent contact with the student and working with other school offices, such as academic offices, academic services, the financial aid office office can proactively proactively prevent defaults. 1. Make the most of entrance and exit counseling counseling opportunities.

Student borrowers who leave school understanding their repayment obligations and options, options, such as deferment deferment and forbearance, forbearanc e, are less likely likely to default. default.

In a study of of defa defaulters ulters aatt the University of  Illinois, Illinoi s, Chica Chicago, go, the most frequently cited reason reaso n for defaul defaultt was lack of informa information. tion. For more more oon n this analysis, contact Judith Flink   [email protected]  [email protected] (312) 996-2515.

 

How can you make your counseling more effective? 

Make sure your required entrance and exit counseling sessions are interesting and carefully prepared prepared.. Standardized Standardized presen presentation tationss given year after year to comply with Federal counseling requirements can become rote and boring. If students students perceiv perceivee that you are not not taking the ccounselin ounselingg requirerequirement seriously, seriously, they may not listen to you,

The problem: problem: “M “Myy (own) entranc entrancee counsel counsel-ing was ‘a joke joke’’ – the counselor did not want to be there and no one was listening.” — a symposium participant 

and may not fully understand their repayment obligations. 

Include parents in entrance counseling if  your borrowers are dependent students. Parents are in a better position to help their children childr en borrow borrow wisely if they understand understand students stude nts’’ rights and res responsi ponsibilities. bilities. It is sometimes difficult to get parental participation,, but the effort tion effort pa pays ys off off if you you can do iit. t.



Use the Internet. Internet. Many Many organization organizations, s, including inclu ding the Department Department of Education, Education, lenders, lender s, and guaranty guaranty agencies agencies,, have have developed excellent Web Web sites to which wh ich you can direct direct your your stu studen dents. ts. Some Some of of the these se sites provide online entrance and exit counseling that meets mandated counseling requirements. They also contain a lot of  additional information that your students will find useful. useful. Plus, Plus,W Web sites sites are are availabl availablee 24 hours a day, day, 7 days a week.

The Univ niversi ersity ty of Calif California, ornia, Berk Berkeley eley,, includes parents in its new student orientation orien tation pprogram. rogram. Berke Berkeley ley is noticing that parents are “becoming more tuned-in to the consequences and obligations of loans. loans.”” Contact J. Faye Fields jff@uclink4 .berkeley .berke ley.edu .edu (510) 642-2852.

Exit counseling at UCLA School of  Medicine is a collaborative project with the Association of American Medical Colleges (AAMC). It provides students with basic information regarding loan repayment through a video-streamed presentation. Students are are assigned passwor passwords, ds, and their use of of the vi video deoss is tra track cked. ed. Expe Experien rience ce shows that about 40 minutes can be saved in face-to-face counseling time per student as a result of using the W Web eb for the basic information. Stude Students nts co come me to cou counseling nseling se sesssions better prepared with a good understandingg of the bbasics, standin asics, and wi with th mo more re advanced advanc ed questio questions. ns. Conta Contact ct Teddie Milner Tmilner@me [email protected] dnet.ucla.edu a.edu (310) 206-8492 206-8492..

“I love love the e-con e-contact, tact, but I am afraid of  losing the personal contact.” — a symposium participant 

2. Use all types of communication.

People learn learn in many differen differentt way ways. s. For some, some, one-on-one one-o n-one contact contact works best, while others may  prefer the impersonal aspects of Web contact. But most people respond best when they are treated trea ted as individ individuals, uals, and when they know that there is someone on the other end who cares about them.

 

What will improve my communication with students?  

Personalize your communication with studen stu dents. ts. If you you can do this this throu through gh facefaceto-face meetings, especially especially one-on-on one-on-one, e, there are some some advantages. advantages. You get to know the individual individ ual circumstances circumstances of your students, students, and they have a real person to turn to for help in the future.



Direct your borrowers bor rowers to good Web Web sites. It may be one that your school has developed. Or you may guide students to sites developed by the Department and guaranty agencies.



Give students advice about how to make the most effective effective use of Web sites. sites. Even Even th though ough the growing growing sophisticatio sophistication n of electronic electronic media has ha s made the Web Web quite user-friendly, the sheer sheer number of sites sites can be confusing, confusing, and the quality of information information is not always always high.

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Use email to keep in touch with your students throughout their enrollment.



Use written materials that have carry-away  value.. Innovativ value Innovativee suggestions suggestions for using using print media include making bookmarks that

Pennsylvania sylvania Hig Higher her Education The Penn Assistance Assist ance Agency (PHEAA) hired an ad agency to spearhead its default aversion campaign. The ccampaign ampaign in include cludess pos posters, ters, picturee postcar pictur postcards, ds, a W Web eb site, and an 800

number number. . Thesuch messa messages inclu include de technical al information, asges keeping thetechnic account current, curren t, and more gener general al help, such as how to dress for for a job interview interview.. At rregistratio egistration n time on campuses, PHEAA distribu distributes tes posters poste rs of a belly tattooed with the w word ord “defaulter. defaulter.” The poster says “F “Funny unny how it seemed like a good idea until you realize it will be with you for ever. ever.” Contact Pamela Roda proda@ [email protected] pheaa.org rg (717) 720-2485 720-2485..

The Posts Postsecondary econdary Education Assistance Corporation schools produce walletsize cards withhelps helpful loan repayment hints on one one side side,, and the n name ame of the sc school hool (or default prevention service provider) with telephone telep hone num number ber and hours of opera operation tion on the other other sid side. e. Duri During ng coun counseli seling, ng, the students are asked to take out their wallets and insert the card in a safe place. place.“W “Wee encourage students to place this card next to photos phot os of their lo loved ved oones. nes. We re remind mind them that if they hav havee questio questions ns about their studentt loans, we are like family den family,, and are there to help help..” Contact Beth Keifer [email protected] eakeif [email protected] tcom.com om (202) 328-1185.

con contain tainforpertinent information, or cards students’contact students ’ wallets.information, 3. Communicate with borrowers often.

Keeping in touch with students reminds them that they have loans that will need to be repaid repaid when they leave leave school. Regular Regular contact contact has the added benefit of strengthening strengthening students students’’ ties with the school and increasing increasing the likelihood that they will complete their programs.

 

How can I keep in regular contact with borrowers?  

Use em email. ail. It has the advantag advantagee of being low low cost cost and high impact. impact. Keep Keep in mind that you don’t don’t wan wantt to inundate studen students; ts; too much and they wil willl stop reading what you you send. You also need to keep the information information you are sending relevan relevant, t, simple, simple, and interestin interesting. g. 

Susan Pugh of  Indiana University, in her symposium presentation, presentation, explained that that communicators “sh “should ould apply the pri princinciples of faxed ccommu ommunicatio nications ns”” to all communications. munica tions. Fax Faxes es send out out a message message that says • I’m I’m get getting ting rread eadyy to send send a me messag ssage, e, are are you rea ready? dy? If the line is busy busy,, there is no transmission. • OK. He Here re co comes mes part of the mes messag sage. e. • Did yo youu receive receive that part part of the messa message? ge? • OK. He Here re co comes mes ano another ther part of the message. • I am now finished with the message. Please confirm that you received it. Contact Susan Pugh [email protected] (812) 855-7087.

Many lenders and services are now contacting borrowers regularly during the school enrollmen enrollmentt period. Talk with yyour our preferred lenders to see how they maintain contact during the in-school period. 4. Target the message to students’ specific needs — one size does not fit all.

Students are are more likely likely to pay attention attention if you focus your communication on the specific characteristics characteris tics of of your your borr borrowe owers, rs, and where they are in their programs. How do I tailor messages to individual borrowers borro wers’’ needs?  

Ohio State University  sends each borrower an email newsletter that is specific for eachh clas eac classs leve level.l. Contact Contact Tally Hart

Hart.149 Ha rt.149@os @osu.ed u.eduu (614) 688-57 688-5712. 12.

Entrance and exit counseling should reflect the borrow b orrowers ers’’ circumstances circumstances — whether they are dependent or independent students, students, or whether they live on or off  campus, have have family re respons sponsibilitie ibilities, s, etc. Don’t use the same presentation for all your students.



Send messages that are relevant to where students are in their program. Seniors need to be thinking about different loan issues than freshmen.



Vary your methods of communication to reflect reflect the different studen studentt sub-populations — one size does not fit all. You might want to use electronic communicatio communication n for most of your student students, s, but use telepho telephone ne calls or face-to-face face-toface meetings for for those you iden identify tify as at risk of having pr problems oblems repaying their loans later.

 

5. Identify and focus special efforts on high-risk borrowers.

Targeting special counseling to high-risk borrowers can help them successfully  enter repayment and avoid default. At the symposium, symposium, a number number of present presenters ers talked talked about research to help identify students who are most likely likel y to defa default. ult. Mos Most t often, often, this process process was identified by the term “profilin “profiling. g.” Ju Judith dith Flink of the Univers niversity ity ooff Illinois, Illinois, Chicago Chicago,, share sharedd a profile of UIC’s UIC’s student loan defaulters. Another presentation by by Jennie Woo of EdFund showed similar results for California students. Your own institutional research may reveal other characteristics of high-risk borrowe borrowers, rs, but UIC’s UIC’s list gives you a good starting point to begin analyzing your your school’ school’s data. Once you you know what what groups of borrowers borrowers at your your school are at at risk of  becoming defaulters, you can co concentrate ncentrate your your efforts first on those students.

Profile of a Student Loan Defaulter (University of Illinois, Chicago) • The borrow borrower er failed to graduate. • The borrower failed to provide a curren currentt address or phone number. • The borrower owed less than $2,000. • The borrow borrower er faced poor job prospects. • The borrow borrower er had other financial burdens beside education debt. • The borrower did not perform w well ell academically. • The borrower came from a low-income household. • The borrower married another student with loan debt. • The borrower was a single parent. The most frequently cited reason for default was none none ooff thes these, e, how howeve everr. It was la lack ck of  information. informa tion. For mor moree on this analysis, contact Judi Judith th F Flink link  [email protected]  [email protected] du (312) 996-2515.

What sorts of interventions have have been su successful? ccessful? The best approach for you will depend on the individual characteristics of  your studen students. ts. The key is to identify identify at-risk borrow borrowers ers and kee keepp personal and ongoing ongoing contact contact with them. Example Exampless from the sympos symposium ium include: include: 

At Virginia Commonwealth U University niversity,, the financial financia l aid office has h as had success working with high-risk borrowers in small groups.



The Unive University rsity of Illinois, Chicago, Chicago, uses “every opportunity” opportunity” to communi communicate cate with students students about loans. loans. UIC uses a video that that runs continuou continuously sly in the Receivables Recei vables Office and an electronic monthly monthly newsle newsletter tter.. UIC also encourages students to work part-time through the College Work-Study program.



Xavier University provides exit interviews on an individual basis when students stude nts dr drop op out out of school. They know that these these borrowers borrowers hav havee a high risk of defaulting. defaulting. During the the interview interview,, a counselor counselor discusses the sstuden tudent’ t’s future plans, identifies the lender(s), and reviews the student’ student’ss repayment repayment obligations obligati ons and options. options. In contrast, contrast, exit interviews interviews for for graduating graduating senior seniorss are conducted in group sessions.

 

6. Tell borrowers repeatedly that loans are not grants and must be repaid.

“Make sure students know they are borrowing money.” — a symposium participant 

Symposium participants reported that even after borrowers have have been counseled, some still don don’t ’t understand their loan responsibilities and rights.

“Students are stunned when they realize how much interest accumulates over the life of the loan.”

Some students don’t as financial aid, and don’t absorb the see factloans that their financial aid packages include loans that have to be repaid. — a symposium participant  Others don’t pay attention because they figure they will “deal with it”after it” after they graduate. graduate. Symposium Symposium participants participants stated stated that financial aid recipients need to be told very clearly and directly that loans must be repaid, and that there there are life-changing life-changing consequ consequences ences to defa default. ult. As one participant said,“make sure they know they are borrowing money by reinforcing this not only during entrance counseling but throughout students’ students’ enrollment.” How can I ensure students know they are borrowing money?  

Use clear, simple language in yo your ur entrance counseling sessions.



Make sure borrowers are given the time to read all the materials they are signing.



Require borrowers to attend loan counseling sessions each year.



Send annual statements to borrowers showing how much they have borrowed, row ed, what their monthly monthly payments payments will be, and the total principal principal and interest they owe.

Brigham Young University  requires borrowers to complete a seven-step Web-based planning process each time they apply apply fo forr a loan. Res Response ponsess help iidentify dentify who sshould hould be ca called lled in for couns counseling. eling. Also, when the loan has been certified, cert ified, the institution provides borrowers with a disclosure statement that shows shows the anticipated monthly monthly rep repaymen ayment, t, and the total amount they will pay in int intere erest st and principal fo forr all loans. When the practice began 5 years ago, students comp complained lained that the school had bad data, but it turned out that these studen students ts we were re un unawa aware re ooff the cum cumulative ulative impact of their bo borrowin rrowing. g. Cont Contact act Norm Finlinson [email protected] (801) 378-4659.

 

7. Encourage students to consider their ability to repay given their career aspirations.

Research clearly shows that borrowers borrowers who are unemployed, unemployed, or in low-income  jobs, are more more likely likely to default. default. There are no guarantees in life, with or without a degree or certific certificate ate in whatever fieldinformation or discipline,and butthey students can gauge their prospects from the best available can confirm their plans at regular checkpointss along the way. point way. As one symposium symposium participant put it, it,““studen students ts need to kick the tires of their caree careerr choices.” Students Students who borrow especially especially need career guidance. How can I help help students understand the impact impact of their career choices on their ability to repay student loans?  



Counsel students Counsel students not not to over over borrow. borrow. Be prepared to use your professional judgment

The Univ nivers ersity ity of Calif California, ornia, Berk Berkeley eley,, discusses students’ students’ career asp aspirations irations and borrowing choices after students complete

when evaluating students row.. Schools row ha have vethe theamounts authority authority to deny denyboror reduce loans based on individual borrower circumstances.

their first 2 years years of study study.. Contact J. Faye Fields  [email protected]  jff@uclink4. berkeley ley.edu .edu (510) 642-285 642-2852. 2.

Help borrowers evaluate how much they should borrow based on how much they will earn after after school. Find typical starting starting salaries by by contacting contacting busibusinesses in your communi community ty,, checking with the campus career career office, or by  going to the Bureau Bureau of Labor Statistics’ Web site to find the “Occupational Outlook Handbook”([email protected]/emphome.htm. Handbook”([email protected]/emphome.htm.))



Remind borrowers that there are flexible now ands based that on repayment repa yment can be based on their income. income.repayment Give Give students studplans ents eexample xamples on borrowing averages at your school. 8. Minimize borrowing during the first year.

Students who take loans during their first year in school but do not complete their programs are at high risk risk of defau default. lt. What can I do to help reduce first-year borrowing? 

The Univ University ersity of Texas Pan American found that freshmen who borrowed and then dropped out were responsible for a high percentage percentage of the school’s defaults. So the school now offers grants to entering freshman. fres hman. Stude Students nts ar aree encou encouraged raged to us usee loans as a last resourc resourcee of financial ass assisistance tan ce.. Cont Contact act Belen Valdez Abvaldez@pan [email protected] am.edu (956) 381-2504.

 



Be especially vigilant that students are borrowing only what they need for tuition, fees, books, and modest modest living expenses expenses during during their fi first rst year year of  school.



Some schools don’t don’t package package loans for first-year students. students. Make grant funding to first-year first-year students students a priority in your your financial aid packaging. Instead Instead of packaging loans, loans, use ins institution titutional al aid for for high-need sstuden tudents. ts.

9. Carefully monitor the marketing and availability of private loans on campus.

Many students students are accumulating loan debt on top of their Federal and state loans. Private Private loans can aadd dd to their loan repaymen repaymentt difficulties. difficulties. Symposium participants Symposium participants voiced special special concern about the growth growth of borrowing opportunities from sources other than state and Federal governments. However Ho wever,, participants part icipants pointed out that students sometimes need to borrow from private private sources sources because of Federal Federal loan ceilings. What can I do to monito monitorr the use of private loans loans by students?  

Monitor alternative loan providers and limit the availability on campus of  programs with unreasonable terms and conditions.

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Include alternative loan debt when counseling students about their ability to realistically realis tically repay repay all of the loans they hav havee borrowed borrowed..

10. Discourage students from using credit card debt instead of taking out loans.

Some students students accumulate credit card debt debt in lieu of applying for loans because the application and approval process is easier. How can I discourage credit card use?  

Help He lp students students fully understand the costs of credit card card debt.

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Remind students who pay school bills with credit cards that they may be able to get a student loan instead.

 

11. Teach Teach personal financial management skills.

Many of of today’s today’s college students students come to school lacking important financial skills—what skills—wh at some call basic “financial literac literacyy.” For many many students, students, taking out a loan is their first contact con tact with any any bank. They have have no no experience experience with electroni electronicc banking, banking, handling checks, or managing debt. How can I help students learn personal management skills?  

training to students in Provide  financial skills training  such areas as budgeting and financial planning, savings savings,, debt debt manage managemen ment, t, and electronelectronic banking. banking. As one symposium symposium participant participant said,“It’s really important to integrate financial aid counseling counseling into into a larger larger context. context. An aid office that will only talk about your financial aid, and not your overall overall financial picture, picture, isn’t isn’t doing a very good job.” Use instructor instructor-taugh -taughtt courses, institutional institutional Web-based courses, and online Web Web courses developed deve loped by others, such as guaranty agencies.. Cou cies Courses rses can can be taught taught by by faculty faculty or financial aid professionals who have gained the knowledge to provide a broader financial counseling perspective.

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Bring credit and debt counseling agencies to campus to provide student counseling.

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Promote the develop Promote development ment of of banking skills by disbursing student loans electronically electronically.. It familiarizes borrowers with bank accounts, checkbooks, and especially automa automatic tic deposits and payments. payments. One participant participant noted that “I “Itt turns students into into fans of direct deposit,” which helps when loan repayment begins.

When students enroll at the University of  Northern Colorado,Greeley Colorado, Greeley,, they are issued a unique campus ID card that provides a multitude multitude of services on and off  campus. It also do doubles ubles as a free ATM and debit card in partnership with Wells Fargo Bank. This car cardd gives studen students ts acces accesss to their UNC Greeley student aid and payroll information. informatio n. It It’’s a good introdu introduction ction to banking for less-adv less-advantaged antaged sstudents tudents.. It also encourages all students to get into electronic banking through the free on-line banking service serv ice offered by Wells Fargo. UNC Greeley  direct deposits deposits mor moree than 80 percent percent of the loan funds students receive into these studentt bank accoun den accounts. ts. Con Contact tact Cindy Vetter cvetter@unco cvett [email protected] .edu (970) 351-2821.

The Un Univ ivers ersity ity of Illino Illinois, is, Chicag Chicago, o, has developed its own Web-based software called “Financial Coun Counselor selor,™” ,™” which m must ust be used by all loan recipients every year. Topics include opening a bank account, establishingg good credit, establishin credit,keepin keepingg records, reducing redu cing deb debt, t, money man management, agement, studen studentt loan provisions,loan provisions, loan default consequenc consequences, es, loan and budget calculator, calculator, and a budget worksheet. works heet. Questions are cchanged hanged each year to keep keep the tutorial fr fresh. esh. Students who complete Financial Counselor™ with 100 perce percent nt of the questions correctly corr answer answered are entered into a drawing forectly a $100 cashed prize. priz e. The mone moneyy gets studen students ts’’ atte attentio ntion n and the respo response nse ra rate te is great. Contact Judith Flink  jflink@uic.  [email protected] edu (312) 99 9966-

nivers ersity ity of Califo California rnia has promoted The Univ the use of electro electronic nic fund transf transfer er for students’grants students’ grants and loans for many yyears. ears. At UC San Diego, Diego, four ou outt of five aid rrecipiecipients have their grants and loans directly  deposited depos ited to their bank accoun accounts, ts, as do almost all stud students ents at U UCLA. CLA. Contact Ann Klein (858) 534-3898 [email protected] [email protected] Robert J.“Bob” J.“Bob”Caruso Caruso [email protected]. bcaruso@sao net.ucla.edu edu (310) 825-0171.

 

Promote te early early payments payments durin during g enrollmen enrollment. t. 12. Promo

Borrowers who make small loan payments while they are enrolled develop good repayment habits and are less likely to default. At the symposium, we hear heardd the story  of a studen studentt who cash cashed ed her $2,200 student loan check, check, lost the cash that that same day and became a vocal advocate to her fellow fellow students students of electro electronic nic disbursements.

Students are not expected to make any payments while they are in school or during the grace period.

This can add to the mistaken perception among some students students that that none of their financial aid ne needs eds to be repai repaid. d. If stu studen dents ts can be pers persuad uaded ed to m make ake even small payments payments while they are in school, they  will begin to develop good good repaymen repaymentt habits. Symposium Symposium participants participants reporte reportedd that lenders are especially enthusiastic about small early payments when they can be handled electronically. How can I encourage students to make early loan payments while they are  still in school? 

A borrower with a $5,000 subsidized Stafford Loan will repay — • $2,34 $2,3400 in in inter terest est uunde nderr the standard  10-year repayment period. • $2,86 $2,8688 un under der the 12-year 12-year extended  repayment plan.  graduated repay• $3, $3,615 615 und under er the the graduated  repayment plan.

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Help He lp students students understand understand the impact of the inte interrest that accumulates on unsubsidized loans during school scho ol years. years. Fir First, st, give give them examp examples les based based on average average borr borrowing owing at at your school. school. Once they ha have ve borrowed, use each student’ student’s own information.

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Give borrowers information that clearly shows the benefits of making early payments, payments, even small payments, paymen ts, on both subsidized subsidized and unsubsidized unsubsidized loans. Estimate Estimate savings that the borrower borrower will receive recei ve over over the life life of the loan.

Have students who are actually making early payments speak with groups of  new students. The experienced students can explain how they are able to make payments while they are in school and why they decided to start repaying early.

13. Help borrowers stay in school and complete their programs.

Students who leave school before completing completing their programs, especially within withi n the first year of enrollment, enrollment, are the most most likely likely to to default default oon n their loans. Program completion com pletion is a critical predictor predictor of loan repayment. repayment.

 

Unive iversity rsity of Calif California, ornia, Los Angele Angeles, s, encourages their As part of its “Bruin B Budget udget Plan©,” Un students to “Pay as You Go®.” Students see how m much uch more quickly they can pay off a loan if  they make small payments of about $20 per month on their loans while they are enrolled enrolled and during the grace period. UCLA also encourages students to accelerate their repayment schedules schedules by making making 13 paymen payments ts a yyear ear in instead stead of 12. Contact Robert J.“Bob J.“Bob”” Caruso caruso@s caru so@saon aonet.u et.ucla. cla.edu edu (310) 825-0171.

How can I help borrowers stay in school?  

Integrate financial and academic counseling. The financial aid office is often the first place students stude nts visit on campus. campus. This contact contact can be used to connect students to the institution’s social and academic systems.

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Appoint a student ombudsman to provide an impartial resource to help students with financial and academic issues.

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Know what all the resources are to help your students pay for school and living expenses. This includes programs such as AFDC.

14. Hire a default management specialist.

Schools with default management specialists have significantly reduced their default rates. Many symposium participants urgedspecialist the appointment of  an institutional default management who could work with high-risk borrowers while they were still enrolled,as well as when they entered the repayment phase. What skills should I look for when hiring a default  manager?  

First and for First foremos emost,t,exc excellen ellentt communicati communication on skills. A default manager will work with a diverse population of individual individuals. s. Listening Listening skills, skills, as well as speaking speaking

The Univ nivers ersity ity of Illinoi Illinois, s, Chicag Chicago, o, sponsors a freshman reten retention tion phonathon. Staff  call freshman and transfer students to ask  about their experiences at at UIC, express good wishes, and answer an anyy questions they may  ha have. ve. Fin Financi ancial al aid staff staff mem member berss partic particiipate in this project and respond to any studentt loan issu den issues. es. Con Contact tact Judi Judith th F Flink  link   [email protected]  [email protected] du (312) 996-25 996-2515. 15.

Eight years ago, Indiana Wesleyan University  developed a retention program that uses a team approach to assessing and counseling couns eling its stude students. nts. Wit Withh suppo support rt from the Lilly Foundation, Foundation, they establish established ed regular financial and academic checkpoints to monitor the progress ooff student borro borrowers wers and to look fo forr wa warning rning ssignals. ignals. The tteam eam adjusts financial aid and course-taking strategies for students to enable them to complete comp lete their programs. Contact Lois Kelly  lkelly@in lkelly@indwe dwes.edu s.edu (765) 677-2116. 677-2116.

The City University University of New York (CUNY) colleges help students stay in school through the COPE program (College Opportunity and Preparation for Employment) which assists students who receive TANF benefits to complete associate degree programs in no more than 3 years. The program provides stipends for child care,exten care, extensive sive car career eer counse counseling, ling, and placement services, and assists studen students ts who are prior loan defaulters in curing the prior default.

and writing,are critical. 

Knowledge Knowled ge of Federal Federal program requiremen requirements ts and student lending practices.

 

With a majority of its 30,000 stude With students nts from firs first-genera t-generation tion college families and on financial aid, Long Beach City College’s financial aid office strongly encourages students to take the “Orientation for College Success Success”” cour course se befor beforee recei receiving ving their second loan disbur disbursement sements. s. This one-half credi creditt transferable course course teache teachess studen students ts how to use the cour course se catalog, get the right classe classes, s, manage their time, and meet their academic academic objective objectives. s. Studen Students ts can take the cours coursee over the In Internet ternet or in a classr classroom, oom, all in 1 week or stretched out out over 3 w weeks eeks or 9 weeks. Students leave the ccourse ourse with an educational plan that is reviewed and approv approved ed by the counselor/teacher counselor/teacher.. Statistics show that Long Beach students students who take the course persist at higher rates and get better grades than students who don’t take it. The college couldn’t couldn’t legally require sstudents tudents receiving aid to take the course. But the financial aid office tells aid recipie recipients nts that if they wan wantt to succ succeed, eed, they need to tak takee this class. And they do—wi do—with th few

Xavier University’s debt management counselor provides a single location where students can go for support and advice with their loans. loans. She kno knows ws tha thatt what helps students studen ts most iiss comm communicatio unication. n. In addition, additio n, she understand understandss the importanc importancee

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What would I ask my default manager to do? 

Develop effective and ongoing communications with borrowers. borrowers. Contact Contact borrowers borrowers in the evening or weekends (not just normal business hours) when needed to resolve delinquencies and avert default.

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Advise borrowers Advise borrowers on all aspects aspects of the loan process,including process, including debt debt management management and budgeting. Assist Assist borrower borrowerss in choosing a repayrepayment plan based on their personal circumstances.

documen documentation she co contacts ntacts aofstudent bytation phone— oreach mail,time the contact is documen docu mented ted.. Con Contact tact Gina Hinton [email protected] ghinto [email protected] (504) 485-521 485-5213. 3.

Westchester County Community College in New York has cut its default rate from 20 percent to 3.8 percent in the past 4 years. That’ Tha t’s a sa savings vings ooff $185 $185,, 000 000.. How di didd the they  y  do it? They hired a default manager manager.. Contact Melonie Cassells [email protected]

(914) 785-6781.

A willingness to tackle complex issues and help solve problems.

Review reports from guarantors or the Department on potential defaults.Actively help borrowers come up with a plan of action for resolving resolving the the delinquency delinquency.. Work as a mediator mediator with the lender and borrower in resolving borrower problems. 

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Establish regular contacts Establish contacts with lenders, lenders, services, and other loan holders holders and maintain main tain a listing listing of those regular regular contacts. contacts.

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Help students Help students complete complete forms and apply apply for defe deferments, rments, forbearances, forbearances, and cancellations.

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Document those kinds of issues Document issues that your borrowers borrowers often experience experience and take steps to prevent similar problems from happening for new students.

 

Chapter 4  Best Practices: Grace Period and Repayment 

After David graduated college, decided to spend stpend a year backpacking Eur Europe. ope. While he w was as gone, gfrom one, he went wenthe int into o re repaymen payment on his studen student t loan. Hisin lender kept sending statements telling him that the grace period had ended and the first first loan payment payment was was due due in December December.. Unfortunately nfortunately,, the billing billing statemen stat ements ts were sent sent to his old address. The new occupan occupants ts simpl simplyy threw them away. When David returned returned,, he did not have have a job. He moved moved in with with friends while while he began job hunting hunting.. One night, night, he receiv received ed a phone phone call from from a co collection llection company com pany.. They told told him that his his loan was seriously seriously de delinque linquent nt and that that his loan would go go into default default unless he began making making payments. payments. He also also learned that his credit record record show showed ed the delinquency delinquency.. The collection company company helpe helpedd David defer defer payments payments until until he could find find a job. Fortunately Fortunately for for David, he was able to find a job quickly and take steps to resolve his loan problems and improve impro ve his credit record. nfortunately,, situations nfortunately situations like David’ David’ss still happen. Too often, borrow borrowers ers become delinquent or default because they do not understand their studentt loan responsibili studen responsibilities. ties. Sometim Sometimes es it happens due due to “little “little”” things, like forget forgetting ting to report report a change change of addr address. ess. Howev However er,, the conseque consequences nces of  of  student loan default are anything anyt hing but “little.”

U

The moment the borrower leaves leaves school is the beginning of the most com complicated plicated part of the defau default lt prev preven ention tion pproc rocess. ess. All of the loan loan partners—sc partners—school hools, s, lenders lenders,, guaranty agencies, and services—bec serv ices—become ome involve involved. d. In addition addition to the comple complexities xities of of loan repayment repayment processes, respon responsibilities, sibilities, and options, the symposium participants emphasized the need to remember remember that each borrower is unique and that approaches approaches to ensuring repayment repayment should be tailored accordingly accordi ngly.. For example, some borrowers are overexte overextended nded on credit and hav h avee too many credit credit cards. Others are employ employed, ed, but do not see repaying repaying student loans as a priority priori ty.. In some cases, cases, borrower borrowerss have have no income after after they leave leave school, school, or are so overburdened ove rburdened that they have have no wages left to garnish. Threats may may work with some, while support and counseling are more effective with others.

 

This chapter chapter offers some of the best and most innovative innovative practices curren currently tly being used to promote student loan repayment. The prob problem: lem: If stud studen ents ts do no nott info inform rm the school they are are leaving, the school has a hard time identifying them as dropouts immedia imme diatel telyy. Fo Forr exa examp mple: le: • Students can leave school during a term and be well through the grace period before the school identifies them as dropouts and informs the lender. • Students Students can leav leavee at the end of the term and not be identified as non-returning students until after registration is complete for the follo following wing tterm. erm. Much ooff the gra grace ce pe peririod has elapsed by this time.

Unive iversi rsity ty of Calif California, ornia, Berk Berkeley eley,, The Un solved problems in their financial aid processing system, which was incorrectly  showing students as withdrawn.Avoiding technical defaults helped to contribute to a drop in their cohort default rate from 9 to 4 percent perc ent oover ver 4 yyears, ears, and a savings of $1.5 million a year in reported default volume. Contact J. Faye Fields  [email protected]  jff@uclink4 .berkeley ley.edu .edu (510) 642-28 642-2852. 52.

Melonie Cassells at Westchester County  Community College follows up on: • Students who do not reenroll. • Students who officially drop below 6 credits. • Students who file for graduation. • Students who are in their last semester. She never never lets go—if a studen studentt leaves with with-out notifying the school, school, and then calls up later asking for a transcript or some other record, recor d, SUNY W Westchester estchester County will not provide the record until the borrower comes to campus IN PERSON and attends a workshop wor kshop on de debt bt manageme management. nt. For mor moree

information, informa tion, con contact tact Melonie Cassells [email protected] (914) 785-6781.

immediately ly when your 1. Know immediate students drop out of school.

Dropouts are more likely to default than students who complete their programs.We know that establishing early contact with dropouts is key to preventing prev enting ddefaul efaults. ts. Keeping Keeping track of dropouts dropouts is doubly important—and problematic—because they are less likely than transfers or graduates to stay in touch with lenders and services. How can I improve my school’s ability to track dropouts?  

Establish record-keeping processes and systems to alert you quickly when a financial aid recipient leaves school.

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Communicate with your enrolled borrowers regularlyy. Reinforce regularl Reinforce the message message that they ha have ve the responsibility to tell you and the lender when they they leave leave school. school. Also Also,, see cha chapte pterr 3 for ideas on communicating with student borrowers.

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Ask instructors to alert the registrar’s office when students in their classes stop showing up. Explain to the instructors that it will help you to help students with their loans.

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Check your course drop procedures to be sure they are designed to identify borrowers who dropp all of dro of their their co course urses. s. Set up up a proc process ess to contact those students immediately. immediately. Tell them that they must come in for academic and financial counseling.

 

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Send letters to borrowers who do not use early registration for the next term. Ask them them whether whether they will be returning. returning. Remind Remind them that that their loans will enter repayment 6 months months after they t hey leave school. Tell them that they must comee in ttoo discuss com discuss their their repa repaymen ymentt option options, s, if they don don’’t return. return. Also, Also, if a student who has dropped dropped out asks for a transcript or some other record, record, do not provide it until the borrower comes in for financial counseling.

2. Get dropouts reinvolved with school.

The best way to help your dropouts become successful loan repayers is to encourage them to return to school to complete their Motion In Institute stitute of Hair The Natural Motion programs. How can I help dropouts return to school?  

Contact all dropouts as soon as you can.

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Find out why they left school and what it would take to get them them to reenroll. reenroll. Involv Involvee teache teachers rs and the business office in this initiative.

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Explain that they can defer their loans as long as they are enrolled.

Design designed its Start Fresh program to target dropouts and help them to return to school to finish their programs. programs. They contact each student and explain that they are able to pick up their programs where they  left off, and can get a loan deferment too too.. About 10 percent percent of the Institute’s enrollment are dropouts who have returned to school. Those who complete their education ar aree at muc muchh low lower er ris riskk of def defaul aulting. ting. This is a win-win program that saves money for the school and the student. student. Contact Ray  Testa [email protected] (201) 659-0303 or (914) 785-6781.

3. Track students who transfer to another institution.

Technical defaults occur when borrowers leave one school and enroll in another without informing anyone at at the first school or their lender. The first school identifies the student as a dropout and tells the lender to put the student into the grace period. Because the studen studentt is actually in school, he or she often ignores ignores the information informa tion sent sent by the lender lender.. If the lender lender does not learn learn that the student student is back  in school, the student could eventually eventually be ttreated reated as a defaulted defaulted borrower. borrower. Tracking transfers transfers can be difficult and costly but it is worth the effort if you can help students avoid falling into technical default. What can I do to track transfer students?  

You can establish internal record-keeping systems to alert the financial aid office of possible transfers transfers—when —when a transcript is reques requested, ted, for example. example.

 

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You can explore with your state higher education agency the possibility of  receiving recei ving information information on transfers transfers from their enrollment enrollment database. database. Some states collect data regularly on each student who is enrolled in public (and sometimes privat private) e) schools in their sta state. te. States States can use these databases databases to track students who transfer to other schools within the state.

“Knowing where borrowers are after they 

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leave school, or finding th leave them em if you do don n’t know where where th they ey ar are, e, is mor moree than hhalf alf the battle.” — a symposium participant  “If you can rreach each borr borrowe owers, rs, you can ge genernerally help solve thei theirr problems.” — a symposium participant 

You can look up a borrower on the National Student Loan Data Data System System (NSLDS) to see whether he or she has taken out a loan through another school. For further informatio information n about about looking up borrowers call (800)-4FEDAID.

4. Make contact with borrowers early in the grace period.

Pennsylvania sylvania Hig Higher her Education The Penn Assistancee Agency (PHEAA) sends a Assistanc postcard to students who have withdrawn from school showing a half-eaten pizza

Keeping in touch with the borrower during the grace period is a critically important step in preventing defaults. defa ults. Borrowers Borrowers are lik likely ely to relocate relocate when the they  y 

saying “You “You still have to pay for it.” Contact Pamela Roda [email protected] (717) 720-7485.

leave sschool leave chool and and may may be difficul difficultt to trac trace. e. If they do not get reminders about when to start paying their loans, and where to to send their money money, they may  not take the initiative to find out for themselves. All of the loan loan partners—s partners—schoo chools, ls, lend lenders ers,, guaranty  guaranty  agencies, agencie s, and services—are involv involved ed during the grace period.

The problem: problem: Lender Lenderss use pproje rojected cted graduation dates that have been provided by  registrars to anticipate program completion and move borrowers into the grace period. Registrars often provide predicted graduation rates beyond the traditional time taken by full-time students because many students den ts tak takee lon longer ger ttoo fin finish ish.. If the bborr orrow ower er completes his or her program before the predicted date and the lender is not notified, the lender will not move the borro borrower wer into the grace period on time.

What should I be doing during the grace  period?  

Tell the Department or lender as soon as a student graduates gradua tes or or leav leaves. es. Do not wait wait until until the next mandatory manda tory reporting reporting time. Early notification notification helps lenders move dropouts and program graduates gradua tes into into the grace period on time, and track borrowers more easily.

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Contact borrowers immediately after they enter grace and several times during the grace grace period. Do not wait wait until the minimum minimum 30 30 days days before before to the repaymen repaymentt start date. date. By then, then, it may may be too late late to find them.

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Use the grace period to make sure that borrowers know about consolidation and other repayment options. Remind the borrower about the repayment start date at at least 2 months months before before to the end of the grace period.

 

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Let your students retain their email accounts for at least 6 months after they  leave lea ve school. school. This pro provides vides a cons constan tantt point point of contact, contact, ev even en if teleph telephone one numbers and mailing addresses change.

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Use email where possible to communicate with borrowers borrow ers during during the grace period. It is the most efficientt means of continuous efficien continuous communicatio communication n with borrowers borrowers who are online. Priva Privacy cy blocks and caller identification systems increasingly  make it hard to get through to the borrower on the telephone. telephone. Inundating Inundating borrowers borrowers with mailings can be counterproductive too.

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In 2001, 2001, the Direct Lending Program will start a new grace counseling program. Borrowers who have not chosen a repayment plan by by the 60th da dayy of the grace period will be called to discuss repayment optionss and obligation option obligations. s. Borro Borrower werss already  have Web access to data about all of their loans, repayment ooptions ptions and a rrepayment epayment calculat calc ulator or,, and form forms. s. Con Contact tact Dan Hayward [email protected]

Use the grace period to set up an electronic paymentt agreement paymen agreement with the borrower borrower.. It create createss good paymen paymentt habits and increases the likelihood that good contact information will be maintained in this critical transition period. Encourage your students to make payments during the grace period. This helps helps studen students ts to consider loan payments in their budgets as they  leave lea ve school school and find find jobs. jobs. Also, Also, borrow borrowers ers can reduce the total total amount of interest they pay. pay.

Unive iversity rsity of Calif California, ornia, Berk Berkeley eley,, The Un lets students use campus email at no charge for 6 months after they leave school. Contact J. Fa Faye ye Fields Fields  [email protected]  jff@uclink4 .berkeley ley.edu .edu (510) 642-28 642-2852. 52.

5.Tailor default aversion and collection techniques to the individual borrower.

Some borrowers are much much more likely to default than others. Schools, lenders, services, and guaranty agencies agencies are using using the results results of of research research tha thatt helps identify high-risk borrowers to target additional intervention efforts with specific groups gro ups of borrow borrowers ers.. How can I tailor my collection techniques to the individual borrower?  

Use research information to help you distinguish among borrowers who re repr presen esentt high, medium, medium, and low low repaymen repaymentt problem problems. s. Schools Schools,, as wel welll as lenders, lender s, services, and guaranty guaranty agencies agencies,, are collecting and analyzin analyzingg information about borrowers who default and borrowers who successfully  repayy. (See chapter repa chapter 3 for more information information about school efforts efforts to target counseling.) These models are useful at any point in the borrowing cycle.

 

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Use a customer-oriented customer-oriented approach to collections. Treat borrowers individually individ ually and try tr y to understand their specific circumstances. circumstances. Devise default aversion strategies based on individual circumstances.

The New York Higher Education Services Corporation change changedd the name name of its collection collection Payment yment Advisory Services Ser vices and is unit to Pa workingg to change the philosophy workin philosophy of of its collectors. collectors. In Florida, GuaranTec now looks for staff who understand understand how to segment segment the loan portfolio portfolio and use different collect collection ion appr approaches oaches for different different borrowers. They know that a “one-size-fits-all one-size-fits-all”” approach approach is inadvisa inadvisable. ble. Also, services av available ailable 24 hours hours a day,, 7 days a week are becoming more commonly available. day available.

“I send holiday cards to borrowers because everyone will open a card.” — a symposium participan participant t 

The National Council of Higher Education Loan Programs (NCHELP) and Equifax have  joined forc forces es to pr provide ovide thr three ee scori scoring ng tools that he help lp lender lenders, s, servicing agencie agencies, s, and guarantors to identify borrowers who may become delinquent, as well as collect on loans that go into default. Currently Currently,, these models are only available to NCHELP members. • The Re Repayment payment E Evaluator valuator assesses the likelihood of a borrow borrower er becoming delinquent and helps collectors target resources to borrowers who are most likely to respond to additional efforts. • The Delinquency Evaluator rank orders delinquen delinquentt accounts (60 days or more past due) to show those borrowers borrowers most likely to make some repa repayment yment in the near future. Collectors can use this information to concentrate special efforts on high-risk accounts. • The Default Evaluator rank order orderss defaulted accounts to show show those borrowers most likely  to make a payment payment in the near futur future. e. Collector Collectorss can deve develop lop diffe differen rentt collection approaches to rehabilitate loans for different borrowers. Contact NCHELP member memberservices@nc services@nchelp help.org .org (202) 822-2106.

6. Use all available debt management tools.

The loan programs are complex and borrowers frequently need help knowing what to do do when they get behind behind in payments. payments. Determining Determining the best solutio solution n is not always always easy. easy. A critical factor for effectively effectively helping borrowers borrowers is the full unders und erstand tanding ing of the optio options. ns. Schools, Schools, lenders lenders,, services, services, and colle collector ctorss must must be experts. How can I help borrowers manage their debt?  

Make sure sure students know that they can receive receive deferments deferments if they reenroll. Encourage them to report to their lenders and school when they change schools.

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Set the payment due date to fit with the borrower borrower’’s payday payday. Some lenders are more more flexible on this point than others. Put information about yyour our policy on your grace period contact materials.

 

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Inform borrowers about the option to set up repayment electronically. Manyy lenders, Man lenders, services, and collectors collectors offer offer this service no now w. Also, inte interest rest breaks brea ks or other incentives incentives may be offered offered for electronic pa payment. yment. Electronic funds transfer usually reduces reduces servicing servic ing costs, makes it easier for borrowers to pay pay on time, and reduce reducess chances chances of default. default.



Appoint an ombudsman to help borrowers resolve disputes. For example, American Student Assistance (ASA) and EdFund EdFund have ombudsmen, ombudsmen, as does SFA. SF A. Schools also are are beginning to appoint appoint om ombudsm budsmen. en. Pro Provide vide information about your ombudsman service in correspondence with borrowers.



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Use forbearance for borrowers who are not able to take on a full repayment schedule, schedu le, or in some some cases, any payments payments at at all. Sympo Symposium sium participants reported reported that it ASA’s ombudsman helped resolve a boris often better for borrowers to make some rower’s default after the borrower had been trying for many years years to gget et it re resolve solved. d. She monthly payment during forbearance because needed to deal with five different offices in it helps to reduce their debt and maintains a the process, but the results w were ere wo worth rth the habitt of paymen habi payment. t. ef effo fort. rt. Cont Contact act Grace Bartini Use cons consolidatio olidation n if it makes makes sense. It is is not for everyone, everyone, but it can get a loan out out of  default. defau lt. Consolidation Consolidation may offer great benefits, but may may also have have drawbacks, drawbacks, so counseling counse ling is critical. Borrowers Borrowers can manage manage debt more successfully by having one loan, one lender lender,, and one one payment payment.. Studen Students ts who consolidate while in school (Direct Loans only) receive a 6-month grace period on all the loans consolidate consoli dated. d. All borrow borrowers ers now now retain retain the

[email protected] [email protected] om (617) 575-4374. 575-4374.

SFA A hired its first ombudsIn 1999, SF man, Debra Wiley Wiley.. The Ombudsman Ombudsman’’s Office is an independent unit that facilitatess informal resolu itate resolution tion of borro borrowers wers’’ loan disputes, disputes, answ answers ers que questions, stions, and addresses addr esses co concerns. ncerns. The new offic officee has become a valuable resource with about 7,000 requests for assistance received in the first first year ooff opera operation. tion.

subsidy benefit on their subsidized loans. Sometimess though, deferments Sometime deferments or cancellation cancellation options are reduced and any unpaid interest becomes part of the principal. Finally Finally, consol consolidation idation may raise or reduc reducee interes inte restt rates. rates. The key key here here is to to consider consider all factors. factors. Most Most consolidat consolidators ors offer sophisticated Web sites to help navigate this option. 

Rehabilitation Rehabilita tion gets borrowers borrowers out of default default “Borrowers should have second and back into repayment, repayment, and even removes removes chances.” — a symposium participant  the default completely from the borrower’s credit recor record. d. The borrower borrower must make make 12 full monthly monthly payments payments on-time. A borrower is eligible for deferments deferments after rehabilita rehabilitation tion is completed. completed. To learn more about rehabilitation, review Web Web sites like SFA SFA’s Col Collection lection

 

www.ed.gov/offices/OSFAP/DCS/consolidation/rehab.html.This .This Service at www.ed.gov/offices/OSFAP/DCS/consolidation/rehab.html site also provides contacts for more information. 

All schools can use NSLDS to access information about the borrower’s prior loans, such as who owns owns the loan. loan. Schools can then call that agency to to learn moree about the borrower’ mor borrower’s loans. The Privacy Act Act does not prohi prohibit bit a lender or collector from releasin releasingg information information to a school even if the studen studentt did

“Many schools incorrectly think they can only call collectors to help help borro borrowers wers if the borrowerss took out the lloans borrower oans at their school. school.”” — a symposium participant 

not rece receiv ivee the lloan oan at at tha thatt school. school. If yo youu are are having problems getting specific loan information, contact your regional SFA SFA office for help. help.

Help borrowers choose the best repayment plans for them. You can suggest the Income Contingent R Repayment epayment (ICR) plan for overburdened overburdened borrowers with lower incomes. Because students’ students’ salaries tend tend to be lower when they they first leave leave school, repayment repayment based on income may may be the best option initially initially. Note Note that some proprieta proprietary ry schools may shy away from this approach because borrowers might be counted in their default rates. 

7. Use skip tracing to find borrowers.

Many of the experts at Many at the symposium symposium agreed that if you can find the delinquen delinq uentt borrower, borrower, you have have a very good chance of curing the repayment repayment problem and avoiding default. The Louisiana Office of Studen Studentt Financial Assistanc Assistancee centralized its skip tracing for default pr prevention evention and postdefault. defau lt. This re resulte sultedd in an 88 per percent cent found rate for default prevention accounts and 80 percent found rate for post-default accounts. accou nts. Contact Lynda Downing  [email protected] (225) 922-1062.

The Oklahoma Guaranteed Student Loan Program uses employment security data from Oklahoma and Texas to track predefaulters defau lters to their plac placee of emplo employment. yment. Contact Wayne Sparks [email protected] (405 (405)) 858-4 858-4358. 358.

What can I do to locate delinquent borrowers?  



Use skip tracing to find delinquent borrowers. Stay up-to-date in the latest changes to improve this process. Use state tax and employment databases to track borrowers.

 

8. Increase coordination among all partners in the loan process.

Lenders,, servicing Lenders servicing agencie agencies, s, guarant guarantors ors,, schools, schools, and the Department Department of Education Education are are working together to prevent prevent defaults, defaults, and as we learned at the symposium there is more that can be done. What can I do to increase coordination among loan partners?  



Exchange information Exchange information frequently frequently.. Make Make sure you are providing your partners with current data they can use in a timely way. Coordinate student aid with broader social services that affect affect the situatio situation n of many  many  bo borr rroower ers. s. Services The The NewCorporation York State Higher Education has long tried to to make make this link link on behalf behalf of stu studen dentt borrowers. borrow ers. It is easier easier for for state state guaranty  guaranty  agencies to achieve this integration because it usually means working with other state agencies.

The New York State Higher Education Services Corporation’s Cohort Action Report (CAR) to institutions isolates borrowers rowers aatt risk of defaul defaulting ting whom the Departmentt will inclu Departmen include de in the schools’ schools’next next Cohort Defaul Default t Rat Rate. e. The to CA CAR R hel helps ps schools rank their efforts reach out to students stude nts at risk of defaul defaulting ting in a way that is most effective in reducing the cohort defaul def aultt rates rates.. Con Contact tact Lorenz M.Worden (518) 474-2844.

USA Group has formed a council represe rep resenting nting a cross-section of schools to mount a long-term, multi-p multi-pron ronged ged strategy  for reducin reducingg loan defaul defaults. ts. This partner partnership ship approach is aimed at supplementing and strengthening institutional efforts to address addre ss defau defaults. lts. The Defaul Defaultt Prev Prevention ention Council is sponsoring 10 initiatives, everything from focus group research and predictive modeling to a best practices manual, a speake speakers rs bur bureau, eau, a life skills course, cour se, Web enhancemen enhancements, ts, and an educational awar awareness eness campaign. The be best st practices went online on the USAGroup Websit ebsitee in Jan January uary 2001. Contact Tom Billard [email protected] (480) 857-7792.

 

Chapter 5  Changing Student Lending in America 

he previous previous chapters chapters of this handbook have have focused on what has been occurring occur ring in studen studentt lending over over the past decade. We’ve highlighted highlig hted improvemen improv ements, ts, innovation innovations, s, and techniques techniques we can use right now to provide pro vide better services to student student borrowers. borrowers. Chapt Chapter er 5 has a differ different ent focus, the future. future. What What should should our plan plan of action for continuing continuing to reduce reduce loan defaults and improve improve services look like? What changes in laws, regulations, processes, and technology should we strive to implement?

T

Symposium Sets the Stage for Change.

As Greg Woods opened the October 2000 Student Loan Repayment Symposium, Sympo sium, he invited invited every participan par ticipantt to engage in an open and frank discussion discussi on about about student student lending lending in America. What What woul wouldd dramatically  dramatically  improv impr ovee studen studentt lending? lending? What What do do stu studen dents, ts, schools, lender lenders, s, guarantors, guarantors, and services want want changed? changed? “Everything “Everything is up ffor or con considera sideration. tion. Do not restrict restrict your discussi discussions ons to to current current practice, current law, law, or current current rregulation egulations. s. Do not censor or limit the ideas or possibilities.” With this mandate in mind, the symposium participants partic ipants broke broke into fiv fivee working groups and began to analyze each each step of the student student loan process. process. Discussions and debates encompassed factors related to student loan repayment that start prior to the borrower enrolling in college and follow the borrower through the entir rower entiree repayment repayment process. process. Imagine more more than 80 experts from all areas of student lending focusing focusing on how to reduce defaults and improve impro ve the Department of Education loan programs! programs! We gathered gathered many  ideas, sugges suggestions, tions, proposals, proposals, and creative creative possibilities. possibilities. This chapt chapter er reports reports the symposium participants’ major themes and action item itemss for ssubstantially  ubstantially  improving impr oving stud student ent loan programs. programs. The ideas fell into into three broad cat categorie egories: s: 

Focus on outcome and performance.

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Maintain and increase Federal support.

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Simplify and streamline.

 

Focus on outcome and performance.

Provide flexible due diligence requirements. To reduce reduce defaults, defaults, loan services, schools, and guarantors guarantors must must follow follow the Departmentt of Education Departmen Education’’s basic “due “due diligence diligence”” standards. standards. But symposium symposium participants parti cipants focused on new technologies technolog ies such as “targeting” or “pr “profiling” ofiling” student loan borrowers who are most likely to default and focusing collection activities according according to these profiles. profiles. Chapters Chapters 3 and 4 address using using these new targeting approaches within the constraints ooff today’s today’s program requirements, requirements, but participants also supported developing new regulations that would focus on measures and outcomes, rather than dictating the steps that must be performed.. It became performed became clear during during the symposium symposium that that there is no no single answer answ er to red reducing ucing studen studentt loan defaults. defaults. Rather According to the Great Lakes Higher than requiring all partners to follow the same Education Guaranty Corporation, its minimal regulatory regulatory requiremen requirements, ts, participants default aversion pilot program saved the urged the adoption adoption of flexible pr provisio ovisions ns that do Federal government $110 million in reinsurance costs and associated fees in 19971998. Not oonly nly did it sav savee taxpay taxpayer er dollars dollars,, but it reduced costs for lenders and guaranty agencies and everyone else involved in the program. Abo Above ve all, it ssaved aved thousands of borro borrowers wers fr from om the anxiety and repe reperrcussio cus sions ns of goi going ng int intoo defa default. ult. Defa Default ult aversio ave rsion n has become a matter of philos philosooph phyy. Guaran Guaranty ty agencies should be rewar rewarded ded to the degree that they achieve this goal.

not mandate mandate a set pr process. ocess. This would wouldwith mea mean n that resources currently needed to comply the strict regulatory requirements could be redirected or “target “targeted” ed”to to those borrowers who need the mostt suppo mos support. rt. In other other wor words, ds, let’ let’s focus focus our efforts where they will be most effective in preventing preven ting defaults.

The Great Lakes initiative continues under a voluntary flexible agreement (VFA) authorized by the 1998 Higher Education

 Establish incentives incentives that encourage all  partners to maximize repayment and reduce  reduce  defaults.

amendments and negotiated with the Department.. Its goal is de Department default fault pprev revention ention,, and the financial incentives are structured to achieve achieve tha thatt goal. The new incen incentives tives focus on results, results, and the agency is paid based on performance—on cure rates, rather than a retention allowance for loans that sit in default. default. Contact Richard Johnston (608) 246-1401.

The current c urrent incentive structure str ucture is “upside down” down” because it pays guaranty agencies to cure defaults and puts much less emphasis on preventing defaults. defau lts. What What we reall reallyy want to do is preven preventt defaults. defau lts. We must focus on borrowe borrowers rs who fall behind on their repayments and intervene before they default.

We need to look at how different partners are paid (or not paid), and who benefits, to understand why some services serv ices are pr provided ovided and others are not. Default prevention prevention would increase if we developed developed more incentives incentives for this

 

activity. For example activity. example,, under a volun voluntary tary flexible agre agreemen ementt with the Great Great Lakes Higher Higher Education Guaranty Guaranty Corporation, financial incentives are are clearly  tied to default default preven prevention. tion. This experiment experiment focuses on curing defaults defaults and the agency is paid based on its performance.We Studentt According Accor ding to American Studen should encourage encourage all lenders, guaranty agencie agencies, s, Assistancee (ASA), a guaranty agency Assistanc agency,, if  and schools to focus on default default preventio prevention, n, and all students could be spared the problems we should encourage strong partnerships partnerships in the of defaul defaultt through a guaranto guarantor’ r’ss default aversion aversio n assistance efforts, SF SFA A’s cost would loan repaymen repaymentt process. process. The challenge is to drop to one-sixth one-sixth the normal level, but the develop performance measures that reflect guarantor’s gross revenue from all sources actions that are best for the borrower. would drop by almos almostt 50 per percen cent. t. If, howHere are a couple Here couple of incentives incentives that that the symposium participants suggested rethinking:

ever, the guarantor was unsucc ever, unsuccessful essful in preventing preven ting any students from defaulting, its gross revenue would increase by almost threefold while the cost to SFA would increase fourfold. Paul Combe [email protected] (617) 728-4500.

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Lenders are often interested in filing for default aversion assistance as late as possible. This is because those borrowers who only miss one or two payments will likely resume resume their payments before before defaulting. Lenders don’t don’t want to spend money unnecessarily, so they have an incentiv incentivee to wait before requesting requesting help.

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For lenders, delinquent loans often have less value than loans in default. A delinquent borrower may or may not pay a loan in full and a lender may  expend significant significant resou resources rces to to achieve that that uncertain goal. Howev However er,, for a loan in default, default, the lende lenderr is almost certain to to receive receive most of the loan amount immediately when the default claim is filed.

Incentives for Schools and Students Symposium participants discussed providing more incentives to schools. They cautioned that any planned reward system for schools has to be based on empiricall and easy to measure empirica measure performance evaluation evaluations. s. Some exam examples ples of  potential incentives include: 

Regulatory Regula tory relief relief to high-performing high-performing schools. schools.

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Public recognition recognition of successful successful programs. programs.

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Share in savings realized through reduced defaults with partners.

 

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Paying an administrative allowance to schools based on their loan volume, so that they can enhance service during the in-school and repayment periods.

Suggestions for providing additional incentives or rewards for students to promote repayment and reduce defaults were not limited to the repayment period. Participants Participants offered offered some innovative innovative ideas ideas that would help borrowers borrowers before they entered entered the traditional repayment process, process, as well as after they  enter ent er repayment. repayment. Examples Examples of incentive incentivess to consider consider include include the fo following: llowing: 

Give longer grace periods to those who cannot be located or who are unemployed.

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Reward students Reward students who start payment payment early, early, either while they are in school or during the grace period.

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Provide tax incentives for employers so they can offer a pretax loan payment as a fringe benefit.

Maintain and increase federal support.

Symposium participants raised two major questions regarding the funding of  Federal financial aid programs: 



Should borrowing ceilings in Federal loan programs be raised? How Ho w can the proportion proportion of grants in the the financial financial aid packa packages ges of students students

“We are seeing a significant increase in private loans.”— a symposium participant 

in their first year year of undergrad undergraduate uate study study be increased?

“They (the alternative loan provider) cut the loan check anyway anyway, even though the school did not want them to give the student more loans.” — a symposium participant 

 Alternative  Alt ernative Loans and Federal Loan Limits Limits

“Our college has needy studen students, ts, but they  can’t use private loans because they do not meet credit tests.” — a symposium participant 

The last time that borrowing limits were raised was in the Higher Education Amendments of  1992. Symposium Symposium participants noted that th there ere have been substantial increases in the costs of  attending atte nding colleges, colleges, universitie universities, s, and career career schools. They also also reported reported aan n increase increase in the use of private private or ““alterna alternative tive”” loans and suggested

 

that this trend trend was probabl probablyy a result result of the shrinking ability ability of Federal Federal loans to meet the increasing increasing price price of attendance attendance.. Many participants voiced concern that students and parents who relied on alternative loans would not have the same consumer protections or legal rights that exist under under the Federal Federal loan programs. programs. Discussi Discussions ons centere centeredd on two general solutio solutions: ns: monitoring monitoring and controlling controlling the use of alterna alternative tive loans and alternative loan providers, and raising Federal Federal loan limits. Front-load Grant s Student default research consistently shows that the students most likely to default on their student student loans are those who complete 1 year or less of an educational program. Those students with highest financial need are also likely  to be academicall academicallyy at risk. Both factors factors make make their pursuit pursuit of higher education education extremely extreme ly difficult. difficult. Many Many don't make make it and end up with only studen studentt loan debt to show for their efforts. In chapter chapter 3, we encourage encourage schools schools to consider consider the use of institu institutional tional or private funds to help these high-risk students avoid the need to borrow in their first year year.. But this this may be difficult difficult for many many schools schools to accomplish, accomplish, especially  especially  those with with high propo proportions rtions of of at-risk students. students. Symposium Symposium participants asked asked that further attention be given to this funding dilemma and suggested several approaches: 

Redirect the Pell Grant money now awarded to seniors to high-need freshmen.



Redirect the Federal reinsurance payments that are used to purchase defaulted defa ulted loans to those students students in the first year year of stud studyy who are most likely to subsequently default.

Simplify and streamline.

Symposium participants felt that the student loan process is overly complex, and that too many difficulties emerge because there are different loan program rules and multiple partners with varying vary ing roles. Symposium Symposium participant participantss generally supported supported standardizing standardizing loan program regulations, regulations, processes, processes, and forms.

 

Loan Programs Regulations Regulations The three major Department Department of Education Education loan programs have some some dramatically differen differentt rules. For example example,, Perkins Perkins Loans come with with a 9-month 9-month grace period, while Staffor Staffordd Loans have have a 6-mont 6-monthh grace period. These pprogram rogram discrepancies confuse borrowers, make the programs more difficult to administer,, and result ister result in repayment repayment issues. issues. What What is the likelihood that firstfirst-year year students understand (and will remember) that their Perkins Loan grace period is different from their Stafford loan grace perio period? d? While we ha have ve made progress progr ess in recent recent years years in aligning the provisio provisions ns of the P Perkins erkins Loan, FFEL, and Direct Loan programs, we can take further furt her steps to reduce differ differences ences and simplify the program requirements. Forms and Communication We can also improve improve the wa ways ys we communicat communicatee with students. students. First, First, we can standardize standa rdize and simplify simplify our forms and other other documen documents. ts. One source source of  frustration to borrowers is the differences in the forms used in the Direct Loan and FFEL programs. programs. Even Even when the eligibi eligibility lity requir requiremen ements ts and the benefits are the same, borrowers are often told they must use the form form required by an individual individ ual partner. partner. While some actions have have alrea already dy been taken to develop develop common comm on forms, there is still much work work to be done. Second, symposium participants participa nts stressed stressed the need to communicate communicate clearly and in plain language language with students. students. How How many studen students ts actually read all of  the “fine print” print” on their their loan promisso promissory ry notes? And if they do do,, how many many truly  truly  understand what they read? By focusing on simplification simplification and standardiza standardization, tion, where approp appropriate, riate, we can help cut the confusion students and their families now experience; reduce the workloads of our partners; and promote promote consist consistency ency in process and outcom outcome. e.  Make it simple simple and easy to obtain information and assistanc assistance. e. Many borrowers do not know where to go to get the information they need, and it is often difficult for their schools to help them discover the best resource. Also, borrow borrowers ers go into into default default because they do not know the names names of their lenders or whom they should lenders should turn to for help with pr problems. oblems. For borrowers borrowers with loans from more than one lender, lender, or who attended mor moree than one school,

 

the problems problems multiply multiply.. And in some cases, cases, the number number of partners invol involved ved increases when the borrower leaves school. To ensure easy access access to information, symposium participants supported establishing a “singlepoint-of-co point -of-contact ntact service.” Ther Theree was no agreement on who should provide this service. Schools, guarantors, guarantors, and the the Department Department of  Education were all discussed as options for pr provid oviding ing the the single single poin pointt of service. service. The botto bottom m line was to make it simple for borrowers and partners to know whom to contact for help with student loans. Harness new technologies.

The U.S. Department of Education Education’’s Loan Consolidation Center receives 1 million calls a year from borrowers who are shopping around for repayment information and options. option s. Borro Borrower werss need inf information ormation an andd they want it available 24 hours a day, day, 7 days a week. The Cen Center ter initially uunder nderestimat estimated ed the demand for 24/7 service—people actually call at 3 A.M. for help! Contact Terry  Karpinski (502) 326-1902.

“Our focus groups with defaulters that rehabbed showed us that the thing they  don’t know is how to get help when

Discussions on how best to consistently make they have have a prob problem. lem. They ne need ed a sinsininformation and services available focused gle place to help solve problems.” heavilyy on harnessing heavil harnessing the full potential potential of the — a symposium participant  Internet. Int ernet. Even Even though the W Web eb is already being used to provide provide a lot of information information to borrowers borrowers and financial aid professionals, symposium participants urged continued continued progress progre ss in this area. Ide Ideas as ranged from setting up Web sites that that can be easily customized custom ized by schools to building building a “full-service” “full-service” Int Internet ernet portal. The Web is already being used to provide financial information to borrowers and financial aid profession professionals. als. Web sites are in place that can update loan amounts, show payments, amounts, payments, present present repayment repayment options, options, and provide provide entrance and exit counseling that can be customized. Symposium participants Symposium participants proposed proposed a wider vision of a student student portal to serve borrowers. borrow ers. Impro Improveme vements nts might include include a repayment repayment clearinghou clearinghouse se that would provide provide a single point of contact and a single place for borrowers ttoo pay. pay. The clearinghouse would then disperse payments proportionately to the appropria appr opriate te lenders. lenders. Loans might might never never lose th their eir original designation, designation, so that the the borrower borrower would would recognize recognize the the loan even even if it has been sold sold.. Health Health professio prof essions ns and private loans would would be included. The syst system em would pr provide ovide a 24-hour chat chat room for question questionss and answers. answers. Those who need help help would be identified iden tified and contacted. contacted. Perhaps empl employ oyers ers would participate participate by deducting

 

student loan payments monthly from their employees’ employees’ paychecks and transferring the funds to the student lending center. Symposium participants believe that substantial improvements will result from constructive cons tructive use use of emerging technologies. technologies. A caution caution was was raised—to raised—to make make the the dramatic improv improvement ementss envisioned envisioned will require require the cooperation of all part partners ners throughout the nation. We must all come ttoo the table prepared to make changess and invest change invest in the future of student student lending. lending. A Legacy

The three short days days of the October 2000 Student Loan Repayment Symposium Symposium yielded a wealth wealth of of information information in the the form of of best practices practices for prom promoting oting student stude nt loan repa repayment yment and reducing reducing defaults. defaults. This handbook takes those best practices and makes makes them available available to all schools, lenders lenders,, guarantors, guarantors, services, and collectors collectors throughout throughout America. America. We have have an immedia immediate te plan of  action to further reduce defaults. The symposium participants also laid the foundation for building the loan programss of the future. program future. The themes themes in chapter chapter 5 give give us us a str strong ong base. base. Starting from this base, we must now work together to give give concrete substance substance and form to the ideas and creative possibilities we recorded during the symposium.

 

Appendix A Annotated Bibliography 

GAO Reports

GENERAL ACCOUNTING OFFICE. Views on the Default Task Force’s recommendations for Reducing Default Costs in the Guaranteed Student Loan Program. Testimony before the Subcommittee on Postsecondary Education, Committee on Education and Labor, House of Representatives. Representatives. William Gainer, ed.W ed. Washingt ashington, on, DC: General General Accoun Accounting ting Offi Office, ce, 1988. 1988.

This report provides incentives and tools for Federal loan program participants to use to better manage their their programs, to control control defaults, defaults, and to complement  complement  recent rec ent legislative and and regula regulatory tory changes. The following topics topics are are discussed: (1) characteristics char acteristics of of defaulters, defaulters, (2) lender risk sharing, and (3) origination origination fees fees ffor  or  other loan programs. GENERAL ACCOUNTING OFFICE. Student Loans: Selected Characteristics of  Schools in Two Major Federal Loan Programs. Report to the Chairman, Committee Commit tee on the Budget, Budget, House House of Represen Representativ tatives. es. Washington, ashington, DC: General Accoun Ac counting ting Office, 1997.

 Most Feder Federal al support for student financial aid is distributed through through student  loans via vi a the William William D. Ford Federal Direct Loan Program (FDLP) and the Federal Feder al Family Family Education Loan Program (FFELP). This report provides information on the the number number of schools in each program program and the the distribution of student  loans between the two programs; the loan default rate rate for schools associated associated with each program, program, and the number number of schools in each program program on a sta state-by-stat te-by-statee basis and among the 100 largest postseco postsecondary ndary schools participating in these  federal  feder al loan programs. GENERAL ACCOUNTING OFFICE. Proprietary Schools. Poorer Student Outcomes at Schools That Rely More on Federal Student Aid. Report to the Chairman, Subcommittee on Human Resources, Committee on Government Reform Ref orm and O Over versight, sight, House House of Represen Representativ tatives. es. Washington, ashington, DC: General Accounting Accoun ting Office, 1997.

 

The General Accounting Office examined the relationship between proprietary schools' performance and their reliance reliance on funds provided provided under Tit Title le IV of the Higher Education Education Act. Act. Data were collected collected through a confidential mail survey of  schools from the five proprietary school accrediting agencies. GENERAL ACCOUNTING OFFICE. Student Loans: Default D efault Rates Need To Be gressional onal Reques Requesters. ters. Richard Richard Computed Appropriately. Report to Con Hembra. He mbra.W WMore ashington, ashingt on, DC: General Accoun Accounting tinggressi Office, 1999.

This report examines examines how the Department of Education Education calculates calculates the default  rate for two Federal student loan programs--the Federal Family Education Loan  program  progra m (FFELP) and the William D. Ford Ford Feder Federal al Direct Loan Program Program (FDLP). The report focuses on three questions regardi regarding ng these programs: (1) whether there has been an increase in the number of borrowers who ent entered ered rrepayment epayment but subsequently subsequen tly received received deferments or forbearances, forbearances, (2) what the effect on default  ra rates tes would have have been if borrowers in deferment or forbearanc forbearancee were exclude excluded  d   from the default rate rate calcula calculation, tion, and (3) if the latter method of calculati calculation on had  been used, would any additional additional schools have exceeded the 25 percent defaul defaultt rate threshold. GENERAL ACCOUNTING OFFICE. Student Loans: Characteristics of Students and Default Rates at Historically Black Colleges and Universities. Report to gressional onal Request Requesters. ers. Washington, ashington, DC: General Accounting ccounting Office, Office, 1998. Congressi

This report to Congress analyzes student loan default rates at historically black collegess and universities college universities (HBCUs), (HBCUs), focusing on student student charact characteristics eristics that may  predict  pred ict the likelihood of defa default. ult. The study examined examined availa available ble student databases  for characteristics characteristics identified by previous studies as relat related ed to level of student loan defaults. Direct Student Student Loans. Analyses Analyses of Borrowers' Use Use of the Incom Incomee Contingent Repayment Option. Report to the Chairman, Committee on Education and the Workforce, orkforce, House House of Represen Representativ tatives. es. Washington, ashington, DC: General A Accoun ccounting ting Office, Offic e, 1997. 1997.

This report analyzes repayment patterns for federally-supported student financial  aid distributed through the William D. Ford Ford Federal Direct Loan Program (FDLP), which includes antsincome-contingent repayment plan borrowers’  monthl mon thly y payments paymen to income, income, family family size, siz e, and loan loa(ICR) n amount. amou nt. that Thisties report report also analyzes analyz es 3-year usage of ICR in relation to three three other repa repayment yment plans generally

 

available ttoo FDLP borrowers: standard available standard repayment, repayment, extended repa repayment, yment, and   graduated  gradua ted repayment. repayment. Local Government Reports

gram. m. New Yor York: k: Borrower Behavior in the Federal Family Education Loan Pro gra New York State Higher Education Services, Serv ices, 1998.

This study of Federal Federal Fa Family mily Education Education Loan payers and defaulters defaulters in 1998 identifies the need need for for lenders, loan services, schools, and guar guaranty anty agencies agencies to (1) create more effective programs to influence academic achievement, (2) encourage  persistence in school, (3) inform and educat educatee borrowers, and (4) respond to the labor market. Toward oward the Reduction of Student Loan Defaul Defaults. ts. New Jersey Jersey Department of  Higher Education, Education, 1998. This report on student loan defaults in New Jersey analyzes (1) the nature of  the loan default default problem problem in New New Jersey, Jersey, (2) the reductio reductionn of defaults defaults in the New  New   Jersey Guarante Guaranteed ed Student Loan Loan Program, (3) default prevention prevention initiatives, initiatives, and  (4) the recommendations recommendations of the Default Task Task Force. Force. Other Reports and Studies

Dorian, James and Diane Ward. Student Loan P Programs: rograms: Management and Collection. Washington, ashington, DC: National National Associa Association tion of College and Univ niversity  ersity  Business Busin ess Officers, Officers, 1991.

This guide to undergraduate and graduate student loan programs focuses  primarily on program administration administration and management management in the context of student  loan repayment repayment and collection. By inco incorporatin rporatingg regulatory regulatory requir requirements ements with  practical  practic al suggestions on managing student loan programs, the book provides a  framework  framewo rk and a guide g uide for those who are responsible responsible for administering studen student t  loan portfolios at colleges and universities. Cross, Dolores and Arlene Oblinsky.“Studen Oblinsky. “Studentt Loan Payers Payers and Defaulters.” Paper presented presented at the Annual Meeting of the Association for the SStudy tudy of  Higher Education, Education, February February 20–23, 20–23, 1984. This study examines examines the characteristics of student loan borrow borrowers ers and differences differences

between those who who repa repayy their loans and those those who default. default. Data ar aree based on the New York State Higher Education Services Corporation Guaranteed Student 

 

Loan database database and responses responses to a questionnaire questionnaire mailed mailed in the spring of 1984 to a sample of New York York State student loan borrowers. Dynarski, Dynar ski, Mark. Mark. Analysi Analysiss of Factor Factorss Related Related to Defaul Default. t. New New Jersey Jersey,, 199 1991. 1.

This paper analyzes the factors associated with student loan default in the Guarante Guar anteed ed overview Student Studen t Loan progra m for higher Student educatio education. paper  pro  provides vides an overv iew of the(GSL) National Natioprogram nal Postsecondary Postse condary Aid An.idThe Study (NPSAS) Student Loan Recipient Recipient Survey, Survey, and, using data data from the survey survey,, presents presents a descriptive analysis of student loan recipient recipientss and of default rates, rates, broken broken down by various demographic, demographic, socioec socioeconomic, onomic, and educationa educational-level l-level groupings. Flint, Thomas Thomas.. “The Federal Federal Student Student Loan Default Default Cohort: A Case Study Study.” Journal of Student Student Financial Financial Aid. Spring 1994, 13-30.

This study of 180 defaulters and 907 nondefaulters nondefaulters on Feder Federal al loans at a pr priva ivate te  2-year college college found that withdrawal withdrawal from college, gender, gender, rac race, e, age, high school  rank, and college grads were significantly correlate correlatedd with defaul defaultt status. Flint, Thomas. “The Influen Influence ce of of Job Prospects Prospects on Studen Students ts’’ Debt Leve Levels ls of  of  Traditional and Adult Adult Undergraduates. Undergraduates.” Journal of Student Financial Aid. Spring 1998, 7-28.

This study study investigat investigates es academic, academic, social, attitudinal, attitudinal, and beha behavioral vioral influences influences on student borrowing, borrowing, using a sample from from a national lon longitudinal gitudinal stud studyy, with attention atten tion to labor labor market data, in predicting predicting student student borrowing borrowing behavior behavior.. Results Results show substantial differences between dependent and independent students in attitudes toward loans and debt levels. Flint, Thomas. “Predicting Flint, “Predicting Stude Student nt Loan Defaul Defaults. ts.” Jou Journal rnal of Higher Education. Educa tion. May-J May-June une 1997, 322-354. 322-354.

This study of 1,117 borrowers from 510 institutions institutions indicat indicates es that beside certa certain in  precollege  pre college traits traits and high grade point average, average, postc postcollege ollege employment congruent  with the undergraduate major reduced defaults. Fossey Foss ey,, Richard and Mark Mark Bateman Bateman,, eds. Condemnin Condemning Students to Debt: College Loans and Public Policy. Policy. New York: Columbia Teachers Teachers College Press, Press, 1998.

 

This book focuses on five major issues issues relating to the effe effects cts of the Federal Federal student loan program: program: (1) That expanding access to postsecondary postsecondary educ education ation is in the national intere interest, st, (2) the inconsistency inconsistency in student loan policy, policy, (3) increasing increasi ng federal federal regulation regulation of higher education, education, (4 ) rising costs that  are making higher education education inaccessible inaccessible to more families, and (5) that some student borrowers do not benefit from student loans. Fredricks, J. and Bruce Fredricks, Bruce Szelest. Szelest. “Individual “Individual and Campus Campus Characteristics Characteristics Associated with Student Student Loan Default.” Research in Higher Education. February Feb ruary 1995, 1995, 41-72.

This study analyzes data from three national databases to investigate the relationship between college student characteristics and college characteristics and patterns in loan repayment repayment and defa default. ult. The analysis suggests that repayment/defa repa yment/default ult behavior can be predicted predicted by precolleg precollege, e, college, and  postcollege  postco llege characteristics characteristics of individual individual borrowers but not by college type. Ginsberg, Edward Edward and Susan Susan Ginsberg. Ginsberg. “Studen “Studentt Loan Default. Default.” Phi Delta Delta Kapp Ka ppan an.. Marc March19 h1989, 89, 55 557-5 7-558 58..

This analysis reports that most college students who default on Federal loans come from from low-income low-income families families and and drop drop out of school within within a year year. Borrowers  from more affluent affluent families take out out bigger loans, but stay in school longer and  are likely to secure steady employment and repay their loans. Greene, Laura. “An Economic Greene, Economic Analysis Analysis of of Student Student Loan De Default fault..” Educational Educational Evalu Ev aluati ation on and Policy Policy Analys Analysis. is. Spring Spring 1989 1989,, 61-68. 61-68.

This analysis of data on National National Direct Student Student Loan Program borrowers borrowers at the Universi University ty of North North Carolina Carolina illustrates illustrates the use of a discrimination discrimination function analysis model model and an alternative alternative model identifying characteristics characteristics of borrowers who repay repay and borrowers who default. default. The alternative model—the model—the T Tobit obit technique—incl tech nique—includes udes data on the magnitude of the default. default. Lee, John. Study Study of Guaranteed Guaranteed Studen Studentt Loan Default Default Rates. Rates. Washington, ashington, DC, 1982.

This study presents data on Guaranteed Student Loan (GSL) program defaults  from 1965 to early 1981, as well as characteristics characteristics of GSL lenders. Default ra rate te dataa are pr dat provide ovidedd by state agency agency,, year year of birth of loan reci recipien pient, t, last aca academi demic  c 

 

 year, year of last loan, elapsed time between last loan and current status,  year, institutional institutio nal type and control, control, and institutiona institutionall size. Information Information is presen presented ted on the percen percentag tagee of loans loans in defa default, ult, the aver average age si size ze of loa loans ns in default, default, and the the  percentage  percen tage of dollars in default. default. Thobe, Tina and Barbara DeLuca.” A Model for Predicting Predicting Perkins Loan Defaulters. Defaul ters.” Journal of Stude Student nt Fina Financial ncial Aid. Aid. Wi Winte nterr 1997, 31-43.

This study study analyzed analyzed characteristics characteristics of of 392 University University of Dayton (Oh (Ohio) io) students students borrowing through the Perkins Loan Program to discover their relative impact on loan default behavior, and developed a model to help predict individual potential  defaulters. Ward, Diane. “California “California State Univers University ity Loan Defa Defaulter ulters’ s’ Characteristi Characteristics. cs.” Journal of Student Student Financial Financial Aid Aid Fall 1993, 1993, 29-41.

Based on a survey of former California Sta State te University University studen students ts who repaid  (224) or defaulte defaultedd on (128) loans, loans, an analysis analysis found high levels ooff significance in postsecondary postsecondary outcome outcome variables (graduation, (graduation, employment, and inco income me  patterns), institutional institutional practices practices and characteristics, characteristics, student background background characteristics, char acteristics, and understanding understanding of of rights and and rresponsibili esponsibilities. ties. Webster, Jeff. “Student Loan Defaults in Texas: Yesterday, Today, Tomorrow.’ Austin, Texas: Texas Guaranteed Guaranteed Student Student Loan Corporation, 1998.

This report updates recommendations made in a similar 1988 report and clarifies the latest resear research ch on defaults defaults in Texas. Texas. The report revisits the initial initial initiative and makes several new recommendations, initiative recommendations, addressing addressing issues such as (1) administrative administr ative practices, practices, (2) preloan preloan counseling and early early financial planning, planning, (3) state and and national legislative legislative initiatives, initiatives, (4) debt management, management, and (5) loan servicing.

 

Department nt of Educ Education ation US Departme Officee of Stude Offic Student nt Financial Financial Assistanc Assistancee