the student aid lifecycle
DESCRIPTION
The Student Aid Lifecycle. Student Aid Awareness Application Processing System. Student Eligibility. EFC. Packaging. COA. Verification. Overrides. Repayment of Title IV Loans. Disbursement and Cash Management. Repayment of Title IV Loans. Presented by Kristie Hansen - PowerPoint PPT PresentationTRANSCRIPT
Capstone 2
The Student Aid Lifecycle
Student Aid AwarenessStudent Aid AwarenessApplication Processing SystemApplication Processing System
Student EligibilityStudent Eligibility
Disbursement and CashDisbursement and CashManagementManagement
Repayment of Title IV LoansRepayment of Title IV Loans
Capstone 3
Repayment of Title IV Loans
Presented by
• Kristie HansenGeneral Manager, Financial Partners Channel
• Dan HaywardDirector, Student Credit Management/ Repayment
Capstone 4
Agenda
Repayment Overview Examples – Repaying Examples – Defaulting Summary
Capstone 5
Repayment OverviewOur Current Environment
The U.S.economy is currently in a period of great turmoil with high levels of unemployment.
The costs of education continue to rise.
Student and parent borrowers are experiencing significant debt burden (Title IV loans, private loans, credit cards and other debt).
To address these issues:
– Access to Title IV information/services continuously improved
– Default aversion strategies are being implemented
Capstone 6
Title IV Participants
Student and Parent Borrowers Schools Loan Holders & Servicers
– Lender, Guarantors, Department of Education
Collection Agencies (FSA and Private) Guaranty Agencies (GAs) FSA Ombudsman Department of Education U.S. Taxpayers
Capstone 7
Repayment Cycle
In School, Qtrly Interest Payments
– Unsub only
Leave SchoolBegin Grace
30 day
60 day
90 day
120 day
150 day
330 day
180 day
210 day
240 day
270 day
300 day
360 day
Begin Repay
6 moGrace
Phone attempts
Begin day 31
Credit Bureau Reporting every 30 days
Default Reported to Credit Bureau
Technical Default
Lender Claim Paid by GA ~ 360,DL Transfers to Collections (DCS)
Default Options:Pay, Rehabilitation,
Consolidation, Settlement, Etc.
Repay Options:Pay Plan Flexibility,
Deferments (no interest),Forbearances (interest) Loan,
Forgiveness, Discharge,Consolidation
Default Results: Loss of Title IV Elig., Coll. Agencies, AWG,
IRS Tax OffsetLender transfer to GA at ~ day 300
Default Aversion Efforts Intensify
Delinquency reported to Credit Bureaus
GA Subrogates Loan To ED Collections
(up to 4 years)
Capstone 8
Borrower Delinquency Trend
32
18
118 7 6 5 4 4
0
5
10
15
20
25
30
35
40
31-60 61-90 91-120 121-150 151-180 181-210 211-240 241-270 271 - 300
Days Past Due
Del
inq
uen
cy P
erce
nta
ge
Capstone 9
Cohort Default Rate
National Student Loan Default Rates
http://www.ed.gov/offices/OSFAP/defaultmanagement/defaultrates.html
Capstone 10
Default Statistics (DL)
0%
25%
50%
75%
100%
1997 1998 1999 2000
Cohort Default Contribution by School Type
4 Year Private
4 Year Public
2 Year Private
2 Year Public
Proprietary
Capstone 11
Characteristics of Default Population (DL)
76% have withdrawn from school and did not complete their studies
85% do not get the advantage of “aging through” their full 6 month grace as the result of late enrollment notification
40% have bad telephone numbers
57% have been unable to contact the borrower by telephone during the 12 months of collection effort (call screening, cell phones, etc.)
Capstone 12
Successful Repayment Scenarios
Capstone 13
Possible Repayment Scenarios
Borrower receives $18,000 – disbursed over 4 years – all Unsub Title IV loans
Borrower separates from school
Chooses Standard Repayment option
For illustration purposes, assume interest rate remains constant
Capstone 14
Scenario 1Borrower pays off loan in 10 years
(or less) with no “hiccups”
Capitalize $1,857 interest (3.46%) at Grace End
120 monthly payments of $202 (for illustration, assume 4.06% for life)
Total paid by borrower is $24,240 – $18,000 principal and $6,240 in cap and regular interest– Prepaying could reduce the number of payments and reduce
the total costs – Various incentives could reduce total costs
Capstone 15
Student or Parent
BorrowerSchool
Loan
HolderCollection
AgencyGA’s
Ombuds-man
Dept
ED
US
Taxpayer
Successful
$18,000 principal
and $6,240 interest
Success
A happy alumnus
Success
Performing Loan
Not Involved
Not Involved
Not Involved
ProgramSuccessful
Success
No negative
impact on program
costs
Scenario 1 Impacts
Capstone 16
Capitalize $1,857 interest (3.46%) at Grace End Discretionary/administrative forbearance for 2 months to
clear delinquency - Cap $132 interest (4.06%) Can’t find job. Unemployment Deferment for 24 months.
$1,623 Interest (4.06%) capped deferment end - Gets good job and repays loans
Monthly payment is $220 for 120 months Borrower pays $3,612 over the life of the loan in capitalized
interest Total paid by borrower is $26,400
– $18,000 principal and $8,400 in cap and regular interest– Prepaying could reduce the number of payments and total costs – Various incentives could reduce total costs
Scenario 2Borrower has “hiccups,” uses forbearance or
deferment entitlement, then pays off loan.
Capstone 17
Scenario 2 Impacts
Student or Parent
BorrowerSchool
Loan
HolderCollection
AgencyGA’s
Ombuds-man
Dept
ED
US
Taxpayer
Successful
Higher loan costs (cap and accrued interest)
Longer repayment
term
Success
No Negative Impact
Success
Longer servicing
time
Slightly higher costs
Not Involved
No Negative Impact
Not Involved
Program Successful
but at a slightly
higher cost
Longer repayment
term
Successful
Minimal negative
impact on program
costs
Capstone 18
Defaulted Loans Scenarios
Capstone 19
Capitalize $1,857 interest (3.46%) at Grace End 10 month discretionary/administrative forbearance
prevents default - $662 cap interest (forbearance) Becomes a “rolling” delinquent payer Borrower reaches technical default (270 days)
– In FFEL Reported to Credit Bureaus as “defaulted”• Lender files claim with and transfers to GA• GA continues to attempt collections • GA pays claim • $$$ interest capped and collection fees added
– Borrower owes $26,225 ($18,000 principal, $4,125 cap interest, $4,100 collection fees)
Scenario 3Borrower has “hiccups”, becomes delinquent, defaults
and proactively rehabs or consolidates loans
Capstone 20
– In DL, borrower reaches technical default (270 days)• Reported to Credit Bureaus as “defaulted”• Performs additional Default Aversion activities to day 360• Transfers to ED’s Collections on day 361• $$$$ capped at default
– Borrower owes $22,125 ($18,000 principal, $4,125 cap interest)
Impacts to borrower:– Loss of Title IV eligibility, collection fees (18.5%), bad credit, collection calls– Wage garnishment (AWG), treasury offset (TOP), National Directory of
New Hires (NDNH), etc. Borrower rehabilitates or consolidates the loan Enters and completes repay Regain Title IV eligibility
Scenario 3Borrower has “hiccups”, becomes delinquent, defaults
and proactively rehabs or consolidates loans
Capstone 21
Scenario 3 Impacts
Student or Parent
BorrowerSchool
Loan
HolderCollection
AgencyGA’s
Ombuds-man
Dept
ED
US
Taxpayer
High costs (cap/
accrued interest,
collection fees)
Negative credit data (ability to buy car,
home, etc.)
Possible Higher CDR
Higher costs
More collection
costs prior to default
If FFEL, reduced guaranty insurance
when default (98%)
May be active in
collection of
defaulted loan
Pays lender
Increased collection
activity and costs
ED reimburses
GA for funds to
lender at ~ 95%
Possible requests
for assistance
Successful but much
higher collection
activity and costs
Cost of Student
Aid Program increases
Capstone 22
Capitalize $1,857 interest (3.46%) at Grace End Borrower makes no payment - becomes delinquent Borrower technically defaults at 270 Borrower transferred from Lender to a GA (FFEL) – Cap interest $806 At 360 days, DL sends ED’s Collections Borrower never repays the loan At up to 4 years, GA subrogates to ED’s Collections if no Pay Impact to borrower:
– Additional interest accruals– Wage garnishment (AWG), treasury offset (TOP), National Directory of New Hires
(NDNH)– Impact on professional licenses, no federal jobs, etc.
We WILL get the money!
Scenario 4Borrower never intended to repay and defaults
Capstone 23
Scenario 4 Impacts
Student or Parent
BorrowerSchool
Loan
HolderCollection
AgencyGA’s
Ombuds-man
Dept
ED
US
Taxpayer
High costs (cap/
accrued interest,
collection fees)
Negative credit data
(ability to buy car, home, etc.)
Higher CDR
Higher costs
More pre-default
collection costs If FFEL,
reduced guaranty insurance
when default (98%)
Active in collection
of defaulted
loan
Pays lender
Increased collection
activity and costs
ED reimburse
GA for funds to
lender at ~ 95%
Possible appeals
and requests
for assistance
Eventually successful through use
of AWG, TOPS, NDNH,
but much higher cost
for collection activity
Cost of Student Aid
Program increases
Capstone 24
Electronic Servicing From Start to Finish
Web-based functionality provides “anytime, anywhere” access to Title IV information to enhance repayment.
Online Counseling– Credit and debt counseling– Entrance and exit counseling– Budget calculators
Online Account Management for Borrower (receive bills/correspondence, payments and prepayments, track loans, manage pay plans and dates, etc.)
Online Management for Schools (delinquency reporting, credit checks, etc.)
Capstone 25
Tools for Borrowers
Repayment Plan Options
Payment Due Date Flexibility
Entitlements
– Deferments
– Forbearances
– Forgiveness
Loan Consolidation
Electronic Payments (EDA, ACH, Bill Pay Services)
Capstone 26
Tools for Loan Holders
Skip Tracing
Entrance/Exit Counseling materials
Borrower Contacts (collection calls)
Electronic Servicing (ease of use, access)
School Delinquency Support
Credit Bureau Reporting
NSLDS
Capstone 27
In Summary…
Need the right payment options to match debt level and ability to pay
Need to consider all debt (including credit card, alternative loans and Title IV loans)
The borrower needs to understand their OPTIONS
We’re all in this together and working hard for our borrowers to achieve successful repayment of their student loan debt!
28Capstone
Contact informationKristie Hansen, General ManagerFinancial Partner [email protected](202) 377-3301
Dan Hayward, DirectorStudent Credit Management/[email protected](202) 377-3207
Gary Hopkins, DirectorStudent Credit Management/[email protected](202) 377-3208
Capstone 29
Capstone 30
Questions and AnswersQuestions and Answers