2006 NCHELP DEBT MANAGEMENT CONFERENCE

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
ED Portfolio Performance Management Update
Federal Student Aid Partnership With Guaranty
Agencies
Sybil Phillips - Director Portfolio
Performance Management Mark Walsh Team
Lead Default Prevention Team
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Portfolio Performance Management Update
Sybil Phillips Director Portfolio Performance
Management Department of Education
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Portfolio Performance Management
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Portfolio performance management mitigates risk
  for performing and non-performing loans.
• Shifts from transaction management to portfolio
  management.
• Changes from monitoring performance to predicting
  portfolio performance.

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Advantages Of Portfolio Performance Management
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Understand the elements of the portfolio
• Manage through the life of the loan
• Identify borrower attributes that impact
  performing and non-performing loans
• Prevent a scatter gun and managing on demand
  approach

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Top Five Title IV Loan Holders9/30/05
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Sallie Mae -102.3 billion
• Direct Loan - 89.5 billion
• Citibank - 24.6 billion
• Nelnet - 15.8 billion
• Wachovia - 10.7 billion

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Combined Title IV Loans
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
FFELP LoansNon-defaulted
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Direct LoansNon-defaulted
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Defaults FFELP
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Defaulter Characteristics
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• 84 did not receive their full 6 month grace
  period due to late enrollment notification
• 76 withdrew without completing studies
• 56 had bad phone numbers
• 83 were not successfully contacted by phone
  during the 360 day collection effort during
  delinquency

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Contributors to Risk
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Higher debt burden
• The increase in alternative loans
• The advent of distant learning
• College drift out rates
• Interest rate increase in July
• Consolidations are rising rapidly

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Consolidation ImpactFFELP
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• 58,750 FFEL to FFEL consolidated loans in 1990 -
  15 loans had an underlying defaulted loan and 2
  re-defaulted (13).
• 5.8 million FFEL to FFEL consolidated loans from
  1995 2004 - 6 with an underlying defaulted
  loan and a 39 re-default rate.
• 2.1 million FFEL to Direct Loan consolidated
  loans from 1995 2004 - 49 with an underlying
  defaulted loan and a 32 re-default rate.

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Emerging Challenges
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Students displaced by hurricanes Katrina and Rita
• Rising gasoline and energy costs
• Mortgage lenders adjusting their lending
  strategies accordingly
• Increasing credit card delinquency a harbinger of
  emerging risks in student lending?

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Impact of the Emerging Challenges
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Katrina and Rita affected approximately 364,000
  of our borrowers with 1.1 million loans and 6.8
  billion in PBO.
• Average gasoline retail price in 2003 was
  1.56/gal in January 2006 it was 2.32/gal a
  49 increase.
• In January 2004 the average 15 year FRM was 4.95
  in January 2006 it was 5.70 - a 15 increase.
• Credit card delinquency hit a record high in the
  2nd Qtr of 2005 4.81 with a very slight
  decline in the 3rd Qtr to 4.74.

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A Focused Vision
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Recommend tools that may reduce delinquency and
  avoid default
• Repayment options tailored to the borrower
• Expand eServices for loan programs which provide
  increased service opportunities to the borrower
• Increased focus on due diligence to include risk
  factors of the borrower, large balances, of
  days delinquent

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Default Aversion Success Direct Loans
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Increased due diligence with borrowers with a
  greater than 80,000 loan balance
• Maintain approximately 63 of borrowers email
  address and utilize email addresses to contact
  at risk borrowers
• EDA participation is greater than 24 for
  borrowers in repayment

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Understanding the Performance of the Portfolio
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Review the use of Entitlements and determine the
  effect on the portfolio
• Review the re-default rate of consolidated loans
• Review the re-default rate of rehabilitated loans
• Review when the re-default occurs

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Percent of Borrowers Entering An Entitlement
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Percent of Borrowers Entering Deferment
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Percent of Borrowers Entering Forbearance
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Consolidation Re-Default
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Rehabilitation Re-Default
2006 NCHELP DEBT MANAGEMENT CONFERENCE
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Summary of Managing Risk
2005 NCHELP DEBT MANAGEMENT CONFERENCE
2006 NCHELP DEBT MANAGEMENT CONFERENCE

• Know the borrower through the life of the loan.
• Identify borrower attributes throughout the life
  cycle of the loan that impact performance of the
  loan.
• Look for patterns, trends or changes in behavior.
• Identify significant patterns and trends of a
  delinquent borrower.
• Develop a targeted approach to understanding the
  borrower.

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
A Default Prevention Partnership
Federal Student Aid Guaranty Agencies and
NCHELP in 2006
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Mark C. Walsh Default Prevention Team
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Start Here Go Further

• Lenders/guarantors move the vast majority of
  borrowers successfully into repayment
• Are we nearing the limit of what you can do?
  Maybe.
• The solution is active involvement by all schools

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Default Prevention Team Message 2006

• Get more schools engaged in default prevention
  activities
• Encourage schools to fully utilize the resources
  and services of guaranty agencies and the Direct
  Loan Servicer

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Default Prevention Team Message 2006

• in default engaging the large schools is
  the key!
• LSDA
• Defaulter characteristics
• Unique School Reports (USR)

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Default Prevention Team Message 2006

• Financial literacy
• Student success retention
• Promote the Secretarys new sample default
  prevention plan
• Enrollment reporting

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Beyond the CDR Dollars in Default

• It demands our attention
• As important as the CDR
• Dollars in default continue to grow

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Late Stage Delinquency Assistance For Schools

• Supplements guaranty agency default prevention
  activities
• Results in rescues of delinquent borrowers
  guaranty agencies might not otherwise convert

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
LSDA process for schools

• Identify severely delinquent borrowers (240 days
  )
• Use a soft touch to reach them (this is not
  collections!)
• Establish critical link between servicer/GA and
  borrower

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Borrower Delinquency Pattern
12 Month Average
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30
25
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Percentage of Total Delinquency
15
10
5
0
31-60
61-90
91-120
121-150
151-180
181-210
211-240
241-270
271-300
301-330
331-360
Days Past Due
Represents Direct Loan Portfolio Only
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
LSDA Is it a successful strategy?

• QA school pilot results
• Rescue range 30-60
• Guaranty agencies
• Incorporated into their work with school
  customers
• Individual school reports

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Defaulter Characteristics

• 84 did not receive the full 6 month grace
  period due to late enrollment notification
• 76 withdrew without completing
• 56 had bad telephone numbers
• 83 not successfully contacted by phone
  during the 360 day collection effort

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Represents Direct Loan Portfolio Only
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Financial literacy

• Encourage all schools to support financial
  literacy for their students

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Student success and retention

• Its cheaper to keep them
• Direct correlation exists between student success
  and repayment
• An early warning system for borrowers who bail
  out without notifying the financial aid office

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Default Prevention Plan

• Plan includes activities that
• Promote student, school, and
• loan program success
• Are easy to implement and
• require minimal resources
• DCL GEN 05-04

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Enrollment reporting

• Timely and accurate reporting to NSLDS is
  critical as it
• Ensures borrowers receive their full
  six-month grace period
• Provides lenders and servicers with the
  maximum opportunity to prepare borrowers for
  repayment

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Unique School Reports

• Snapshot of a schools official CDR for 3 years
• Comparisons with schools of similar size and type
  in state, region, and nation
• Provides targets to assist in setting default
  reduction goals

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
State Level Projects in 2006

• CDRs in each state
• Volume of dollars in default
• The available opportunities to partner and
  deliver our message

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
State Level Projects in 2006

• Nevada
• Ohio
• Arkansas

• Puerto Rico
• Georgia
• Florida
• Michigan

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Nevada in 2006

• Sponsor NAFAA
• Partners
• USAFunds
• NSLP
• EDFUND
• GLHEGC

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Nevada in 2006

• NAFAA Annual Conference November 9-11, 2005 in
  Lake Tahoe, NV
• Year 1 Report Successful
• NAFAA Annual Conference November 8-9, 2006 in Las
  Vegas, NV

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Ohio in 2006

• Sponsor OASFAA
• Partners
• GLHEGC
• USAFunds
• Direct Loan Servicer
• OASFAA

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Ohio in 2006

• OASFAA Winter Conference December 5-7, 2005 in
  Columbus, OH
• OASFAA Spring Conference May 31- June 2, 2006 in
  Huron, OH

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Arkansas in 2006
Our sponsor AASFAA Our partner SLGFA
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Arkansas in 2006

• AASFAA Spring Conference May 3-5, 2006 in Little
  Rock, AR
• AASFAA Fall Conference October 11-13, 2006 in
  Rogers, AR

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Puerto Rico in 2006

• Federal Student Aid Workshop May 2-3, 2006 in the
  ED Caribbean Training Facility
• Focus will be on the largest schools that
  contribute the most to default

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Puerto Rico in 2006

• Our sponsor PRASFAA
• Our partners
• GLHEGC
• NSLP
• USAFunds
• HESC

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Georgia in 2006

• Sponsor GASFAA
• Partners
• GSFC
• TG
• NSLP
• USAFunds
• GLHEGC

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Georgia in 2006

• GASFAA Spring Conference May 17-18, 2006
  in Savannah, GA

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Florida in 2006

• Our sponsor FASFAA
• Our partners
• USAFunds
• OSFA
• Direct Loan Servicer

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Florida in 2006

• FASFAA Annual Conference June 7-9,
  2006 in Ft. Myers, FL

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Michigan in 2006

• Our sponsor MSFAA
• Our partners
• MSFAA
• MHEAA
• ?

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Michigan in 2006

• MSFAA Annual Conference June 25-28, 2006

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
USAF in Nevada

• Hosted a pre-conference meeting for their
  customers
• Outlined their products and services
• LSDA
• Helped schools produce action plans
• Heightened awareness for the pending state
  kick-off

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
GLHEGC in Ohio

• Conducted 4 workshops which drew 114 attendees
  representing 60 schools
• Outlined products and services
• Developed reporting format for schools to track
  activities, results, and report back to FSA

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
TG on the road

• Will conduct a series of 10 workshops in 7 states
• Will include the Default Prevention Teams
  message
• Will acquaint customers with their products and
  services

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Default Prevention Team in 2007

• New York
• California
• Illinois
• ?
• ?

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Measuring our success

• Reduction in the CDR in states we focused on
• Or smaller increase relevant to other states
• Increase in activity
• Partnerships
• Evidence in Nevada

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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Federal Student Aids Default Prevention Team
Mark Walsh Eileen Marcy 816-268-0412 215-656-324
9 mark.walsh_at_ed.gov eileen.marcy_at_ed.gov Craig
Rorie John Pierson 215-656-5916
404-562-6269 craig.rorie_at_ed.gov
john.pierson_at_ed.gov
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2006 NCHELP DEBT MANAGEMENT CONFERENCE
Thank You
Please complete your conference evaluation
form. Your feedback is important to us!
Sybil Phillips - Director Portfolio
Performance Management Mark Walsh Team
Lead Default Prevention Team
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