Helping a Student Out of Default

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Helping a Student Out of Default

• Ann-Marie Julien
• I/Director, Program Delivery, CSLP
• Presentation to CASFAA
• June 13, 2006

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Goals

• To provide an overview of the repayment process.
• To provide an overview of the default management
  tools and approaches used by the NSLSC
• To provide an overview of the management tools
  and approaches used by CRA
• To highlight some of the services offered to
  borrowers

3
Agenda

• Overview
• Context
• Repayment
• In repayment, but not making payments
• Return to Government / Collections
• Cases
• Questions

4
Delivery of Student Loans

• Delivery of CSLP is a joint endeavour by the
  federal and provincial/territorial governments
• except Quebec, Northwest Territories and Nunavut
• Most jurisdictions have multiple loan regimes
• In four jurisdictions -- Ontario, Saskatchewan,
  New Brunswick, and Newfoundland and Labrador
  federal and provincial governments work closely
  together to deliver integrated student loans
• In one jurisdiction -- Saskatchewan -- the
  federal and provincial government have an
  integrated collections activities a similar
  arrangement is being negotiated with NL and NB

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Delivery of Student Loans

• If eligible for student loans, a student will
  have received
• From the federal government, Canada Student
  Loans
• Direct Lend, August 2000 to today -- the federal
  government develops program and policy direction
  actual administration of the student loan program
  is done by Service Providers
• Risk Shared, August 1995 July 2000 Financial
  Institutions
• Guaranteed Loans, pre-August 1995 Through
  banks, government guaranteed loans
• From the provincial government, provincial
  student loans depending on the province, there
  may be several eras of student loan products
  that the borrower would have received

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Student Loan Life Cycle
Repayment Period
Period of Study End Date
Study Start Date
Monthly Payments Due
First Payment Due
PSED 6 months
PSED
6 month Post-Study payment grace
period (interest accrues)
1 month
In study
In study

• Repayment complete
• Borrower congratulated on repayment and
  confirmation that the loan obligation no longer
  exists.

• First time application establishes student
  account with SP with first, last name and SIN as
  identifiers
• With completed Sch 1 and CoE, SP processes
  documents which will result in disbursement to
  student/Educ. Instit.
• SPs provide monthly update to Credit Bureau

• As long as student confirms ongoing study, s/he
  remains in interest free status.
• Confirm ongoing study by
• Applying for another student loan (Schedule 1)
• ? SP notifies FI of new loans/ongoing student
  status
• Completing a Schedule 2 (ongoing studies, but no
  new loan required)
• ? Student responsible for advising SP and FIs

• 3 4 months after PSED, Service Provider
  contacts borrower to pursue active
  consolidation
• Borrower is advised of impending consolidation,
  option to capitalize or pay interest accrued
  during 6 month grace period interest, amount
  owing, repayment schedule, as well as options if
  payments not possible (i.e., Revision of Terms,
  Interest Relief)
• Borrower directed to NSLSC if access to debt
  management options are necessary.
• ? Borrower submits signed consolidation agreement
  to Service Provider

• Student applies for student loan
• Student applies to program of study (public or
  private educ. institution)
• Province confirms provincial and federal student
  loan available
• EI confirms enrolment (CoE)

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Consolidation

• Consolidation occurs at the end of the sixth
  month following the last PSED first payment is
  due at the end of the seventh month.
• Consolidation letters are mailed 4 to 6 weeks
  prior to the first day of the seventh month from
  the end of the students study period.
• Borrowers who actively consolidate are usually
  more knowledgeable of what provisions are
  available to them throughout repayment and have a
  more positive repayment experience.

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Repayment

• High risk borrowers are contacted once their
  consolidation agreements have been sent
• If the borrower indicates that s/he is in school
  full-time, they are advised to send Confirmation
  of Enrollment
• Borrower is walked through package/requirements
• Debt management tools like Revision of Terms and
  Interest Relief are discussed
• Primary goals are to avoid delinquency, prevent
  defaults and protect credit ratings
• High risk includes consideration of such factors
  as size of loan, educational institution, program
  of study and permanent address.

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Repayment Options

• Borrowers can pay by cheque, by
  Pre-authorized Payment, or
  through online banking.
• Payments are due at the end of each month more
  frequent payment schedules can be established.
• Extra payments are welcomed at any time applied
  directly to principal (with no penalty).
  
• Repayment terms are very flexible and borrowers
  who call are advised of all options and debt
  management tools.

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Repayment Period
Monthly Payments Due
First Payment Due
90 day Payment Due
270 Days in Arrears
PSED 6 months
PSED
6 month Post-Study payment grace
period (interest accrues)
1 month

• At 90 days in arrears, a restrict code is placed
  upon the student account.
• Credit Bureau is advised of restriction.
• Back in good standing through contact/ discussion
  with SP

• Service Provider returns account to government
  for collection when
• ? account not cured for 270 days or
• the borrower has no intention to repay.
• Account returns to SP only if it was sent to
  government in error. Also, a loan may be
  returned if the student returns to school and
  meets the rehabilitation criteria.

? 3 4 months after PSED, Service Provider (SP)
contacts borrower to pursue consolidation ?
Borrower must submit signed consolidation
agreement to SP

• Any late payment is identified immediately.
  Attempt to contact borrower immediately.
• Educate re. obligations, program features
• Attempt to cure current arrears
• Consider Revision of Terms
• Consider Interest Relief
• Student can renegotiate terms (which includes
  recalculation of payments and interest accrued
  and owing), make missed payments or apply for
  interest relief and be returned to good standing.

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Repayment Encouragement

• Borrowers are contacted by phone and in writing
  when a payment has been missed
• If the borrower indicates that s/he is in school
  full-time, they are advised to send Confirmation
  of Enrollment and an interest payment
• If the borrower is not longer in school, debt
  management tools like Revision of Terms and
  Interest Relief are offered

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Repayment Encouragement

• The 30, 60 and 90 day letters indicate, with
  increasing urgency, the need to contact the NSLSC
  to discuss their loan status and debt management
  options.
• At 90 days in arrears, a restriction is placed on
  the borrowers account.
• One last letter is sent to the borrower, clearly
  articulating the implications of not entering
  into a repayment arrangement (including credit
  bureau negative reporting, income tax set-off,
  etc) about 3 months before the loan is returned
  to government.
• The file is managed for up to 270 days until
  this time, the SP has tools with which to assist
  the borrower get back into good standing (e.g.
  Revision of Terms, Interest Relief).

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Debt Management Tools

• Revision of Terms
• Amortization period can be increased short term
  arrangements for interest only payments
• Interest Relief (30 months) and Extended Interest
  Relief (24 months)
• Available in 6 month increments
• Proof of income and expenses required
• Backdating applications and capitalizing
  outstanding interest is possible
• Adjudicated by the Service Providers

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Restriction Codes

• X restriction Risk-shared loan 90 days or more
  in arrears
• C restriction Standard claim
• T restriction Temporary claim status,
  claim received but not paid
• R restriction Put-back (Risk-shared loan)
  received and paid
• Z restriction Borrower is on DRR (Debt
  Reduction Payment)
• 5 restriction of weeks 520
• 7 restriction of weeks 340
• 9 restriction of weeks 400 (Doctoral
  Studies)
• 4 warning of weeks 468
• 6 warning of weeks 288
• 8 warning of weeks 341 (Doctoral Studies)
• O warning Student has received an
  overaward
• I warning Permanent disability
• Reasons
• B restriction Bankruptcy has been filed
• D restriction Death
• J restriction Judgment registered
• P restriction Convicted of an offense related
  to CSL

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How a Borrower gets to Collections

• Direct Loans that are delinquent for 270 days or
  more (no payments made, no contact) or where the
  borrower refuses to pay are transferred to
  government for collection. Guaranteed/Risk shared
  loans can be sent to collections after 90 days in
  arrears.
• The account is then established in the
  Departmental Accounts Receivable System for
  collection activity.
• Service Providers report to the Credit Bureau
  that the loan is closed, returned to
  government, with an outstanding amount due on
  file.
• If a borrower believes his/her file has been
  returned in error, an investigation can be
  launched by the NSLSC or CSLP. If sufficient
  grounds exist, the file may be returned to the
  NSLSC.

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Collections

• Non Tax Operations Division of the Canada Revenue
  Agency (CRA) follows up with the borrower to
  establish repayment of the loan.
• Simple interest accrues daily when the loan is in
  Collections.
• Accounts are selected for tax set off a notice
  is sent to the individual to advise them that
  their tax refunds may be used to pay off
  outstanding debts. This often prompts borrowers
  to establish a repayment arrangement.
• Prior to 2005 loans were either immediately
  assigned to an in-house agent or to a Private
  Collection Agency, depending on work loads.
• As of 2005 CRA will attempt to establish
  contact and work with the borrower to set up a
  repayment arrangement. If a repayment
  arrangement is established, the account will
  remain in house. If a contact/repayment
  arrangement cannot be established, the account
  will be sent to a PCA.

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• This is where the story ends
• Borrower not entitled to additional funding
  (either loans or interest free status) or debt
  management measures
• Unless

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Getting out of Collections

• If a borrower wants to return to school and
  either
• Receive additional loans.
• Receive interest free status on outstanding
  loans.

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Rehabilitation Requirements

• Make six consecutive months of regular payments,
  of an agreed upon payment amount. (Payments must
  be voluntary and do not include set-offs on
  income tax refunds or GST.)
• Pay all the outstanding interest on their loan.
• (Interest continues to accrue until confirmation
  of interest payment.
• Client must also provide schedule
• 2 to lender in order to enter into
• interest free status.)

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• What does this really mean?

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Brenda (Direct Loan Scenario)

• What Happened?
• Went to school from September 2001 April 2004
  3 year program finished her Program with an
  outstanding loan balance of 15,000 (Direct Loans
  only)
• Was to start repaying in November 2004
• She was unemployed, and couldnt make payments
  wouldnt return NSLSC calls or respond to contact
  attempts
• Loan went into arrears then returned to
  government (July 2005)

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Brenda (Direct Loan Scenario)

• Brenda wants to go back to school
• She contacted the Service Canada (CSLP Call
  Centre) for instructions on the rehabilitation
  procedure
• Agreed to a repayment schedule and additional
  payment that would pay out her interest (as of a
  specific date).
• Made six consecutive monthly payments of the
  agreed upon amount of 400 from January 2006
  through to July 2006.
• In July, she will pay the remaining 62 in
  outstanding interest (the payment of outstanding
  interest has been calculated to month end, and
  she will ensure the payment is received and
  processed before that date).
• Once this payment is processed, CSLP will
  initiate the return of her loan to the Service
  Provider.
• Service Provider will notify CSL Program Delivery
  of removal of restriction via the recall process
  which will get the loan back to the SP.
• She can then either apply for additional funding
  or submit a Confirmation of Enrolment to keep her
  loans in interest free status.

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Complicating factors borrowers with multiple
loan products

• Most loan products (Direct Loans, Risk-Shared and
  Guaranteed Loans) are assessed in the same manner
  for rehabilitation (6 monthly consecutive
  payments and in accordance with the agreed upon
  repayment schedule and all interest paid up to
  date).
• Risk shared loans (that are still at the
  financial institution) are not assessed in the
  same way. As long as the borrower brings their
  account into good standing with the FI and a
  letter is provided to the Program, the
  restriction will be removed and the borrower
  would be eligible for further funding. Once
  rehabilitated, the Financial Institution notifies
  CSLP electronically.

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Borrowers with loans from Multiple regimes

• Guaranteed Risk-shared loans
  105,700
• Guaranteed Risk-shared Direct Loans
  14,042
• Guaranteed Loans Direct Loans 9,675
• Risk-shared Direct Loans
  145,176

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Greg (FI Loans (Risk-Shared) and Direct Loans
Scenario)

• What Happened?
• Went to school from September 1998 April 2002
  4 year program finished his Program with an
  outstanding loan balance of 25,000 (Risk Shared
  and Direct Loans)
• Was to start repaying in November 2002
• He was working as a Security Guard until he could
  find a job in his field, earning very low wages,
  and supporting a young family.
• His Risk Shared Loans were sent to an FIs PCA
  his direct loans were returned to government in
  July 2003
• He has managed to get an entry level job in his
  field. However, he believes that he can do much
  better if he takes a one year leave of absence to
  complete his Masters degree (given hes been
  taking courses part time). His partner is now
  back to work and this provides some additional
  financial stability to his family.

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Greg (FI Loans (Risk-Shared) and Direct Loans
Scenario)

• Greg wants to go back to school
• He contacted the Financial Institution and CRA.
• Agreed to a repayment schedule at both
  institutions and additional payments that would
  pay out his interest (as of a specific date).
• He made six consecutive monthly payments of 250
  (Direct Loan) and 100 (FI loan) from March 2005
  through to August 2005
• In August, he paid the remaining 463 (Direct
  Loan) and 100 (FI loan) of outstanding interest
  (the payment of outstanding interest has been
  calculated to month end, and he ensured the
  payment was received at both institutions and
  processed before that date)
• Once this payment was processed, CSLP initiated
  the return of the Direct Loan to the Service
  Provider. The FI provided Greg with a good
  standing letter which Greg then provided to the
  CSL -- the restriction was removed for the FI
  loan. CSLP (Client Relations) then asks the SP to
  recall the loan, which will remove the
  restriction for the borrowers Direct Loan.
• He then applied for additional funding for the
  year of study he was enrolled in.

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Marie (Risk-Shared Loans (Put Back), and Direct
Loans Scenario)

• What happened?
• Went to school from September 1997 April 2001
  4 year program finished her Program with an
  outstanding loan balance of 22,000 (Risk-Shared
  and Direct Loans).
• Was to start repaying in November 2001.
• She was working as a waitress until she could
  find a job in her field, earning very low wages,
  and supporting a young family as a single parent.
  
• Her Risk-Shared Loan was handled by the FI and
  forwarded to their Collection Agency in June
  2002 her direct loans were returned to
  government in July 2002.
• The FI submitted her FI loans to the government
  in June 2003 (put back) as the loans were
  uncollectible. (Financial institutions that
  participated in the risk-shared program between
  1995 and 2000 are permitted to send a certain
  percentage of loans in arrears back to the
  government. These loans are collected through
  the CRA).
• Marie received a small inheritance and decides to
  continue her post secondary education to complete
  a different program of study.

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Marie (Risk-Shared Loans (Put Back), and Direct
Loans Scenario)

• Marie wants to go back to school and wants her
  CSL returned into interest-free status
• She contacted Service Canada (CSLP Call Centre)
  and received instructions on rehabilitation
• Agreed to a repayment schedule and additional
  payment that would pay out her interest (as of a
  specific date). The calculation takes into
  consideration both the outstanding balance and
  outstanding interest of the Risk-Shared Loan and
  the Direct Loan.
• She made six consecutive monthly payments of 200
  (FI Loan) and 100 (Direct Loan) from March 2005
  through to August 2005.
• In August, she will pay the remaining 375 (FI
  Loan) and 75 (Direct Loan) of outstanding
  interest (the payment of outstanding interest has
  been calculated to month end, and she ensured the
  payment was received and processed before that
  date).
• Once this payment is processed, CRA forwards a
  request to Client Relations (CSLP) to assess the
  rehabilitation. Once approved by Client
  Relations an approval letter is forwarded to
  Marie and a copy to CRA. The Direct Loan will be
  returned to the Service Provider. The FI Loan
  will remain at CRA. She is required to provide
  confirmation of enrolment to the PCA to maintain
  interest-free status on her FI loan.
• Marie then submitted her confirmation of
  enrolment to the SP for the year of study in
  which she was enrolled.

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Pay attention

• Interest
• Interest accumulates daily on outstanding loan
  products.
• If CRA/PCA calculates o/s interest as of a
  certain date, the borrower must get their payment
  in to CRA/PCA and processed by that date, or else
  interest will have continued to accumulate and
  the payment wont cover o/s interest.
• Mix of loan products
• Direct loans can be returned to the NSLSC
  Guaranteed and Risk Shared loans that have been
  returned to government stay with CRA Guaranteed
  and Risk Shared loans that were at the FI, stay
  at the FI.
• Borrower must remember to keep all loan holders
  -- NSLSC, CRA and FI -- informed of their
  in-study status to ensure that their loans do not
  go into repayment and (in the case of loans at
  CRA) that set-off lien does not go back on
  account.
• Provincial loans
• If a borrower wants to return school with full
  funding, they also need to rehabilitate their
  provincial loan products, if they too are in
  default.

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Uncollectible Canada Student Loans

• Permanent Disability Loan Forgiveness for Direct
  Loans (only)
• May be eligible for the Permanent Disability
  Benefit.
• In the case of borrowers with a permanent
  disability who are experiencing exceptional
  financial hardship due to their disability, their
  Canada Student Loans will be forgiven regardless
  of when the borrowers permanent disability
  occurred and all other eligibility have been met
  (i.e. while they are in school, in repayment or
  in collections). No payments will be expected
  from the borrower.
• Hardship (Loans with Collections)
• In working with the in-house collections agent or
  with the PCA, the client can be considered for
  hardship. This can provide either temporary or
  long term relief from collections activity if the
  client can demonstrate that they are in a
  situation of financial hardship.
• The client will receive a form to be completed,
  requiring a significant amount of documentation
  to demonstrate the financial hardship situation.

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Questions??