U.S. Department of Education FSA, Borrower Services

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U.S. Department of EducationFSA, Borrower
Services

• Portfolio Risk Management
• Presented by Daniel Pollard

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Student Loan Basics

• Approximately 400 billion in outstanding federal
  student loans.
• Nearly 30 million borrowers.
• More than 50 of the outstanding FFEL/DL balance
  is in consolidation.
• Average outstanding loan balance in
  consolidation is approximately 18,450.

Source National Student Loan Data System
(NSLDS), CSB Data Mart,, July 31, 2005
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What is Portfolio Risk Management?

• Portfolio risk management mitigates risk for
  performing and non-performing loans.
• Shifts from transaction management to portfolio
  management.
• Changes from monitoring performance to predicting
  portfolio performance.
• Focuses vision and concentrates efforts on
  default prevention and reducing the cost to the
  taxpayer.

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Advantages of Portfolio Risk Management

• 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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A Focused Vision

• Created a Portfolio Risk Management Group to
  focus on the risks associated with the Title IV
  Programs
• Responsible for supporting the performance
  evaluation of federally guaranteed loan programs.
• Identify and analyze risk exposure for Title IV
  programs.
• Work with schools, lenders, and guaranty agencies
  to insure that the Title IV programs continue to
  reduce risk of default.

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A Focused Vision (cont.)

• Transform data into information
• Analyze borrower behavior
• Identify significant patterns and trends of a
  delinquent borrower
• Identify risk parameters
• 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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Ways to Approach Portfolio

• New Commitments
• Monthly, Quarterly, Annual
• Transaction-focused
• Outstanding Balance
• Trends
• Dollars or Loans/Borrowers?
• What are your goals?
• Consolidated vs. Non-Consolidated

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Composition of the Outstanding Loan Portfolio
Source NSLDS and Common Services for Borrowers
(CSB) Data Mart 7-31-05
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Composition of the Outstanding Loan Portfolio
Source NSLDS 7-31-05
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Composition of the Outstanding Loan Portfolio
Source CSB Data Mart 7-31-05
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How Do You Manage Risk?

• 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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How Do You Manage Risk? (cont.)

• Use data mining to find patterns and subtle
  relationships in data and rules that allow the
  prediction of future results.
• Build tools to focus on the risk factors and
  proactively attack the risks.
• Communicate consistently and effectively with the
  borrower.
• Assist in improving financial literacy.
• Develop strategies tailored to your portfolio
  mix, borrower behavior, past performance, and
  current environment.

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Whats on the Horizon?

• Impact of Private Loans
• Bankruptcy Law -- Oct. 05
• Growth of Distance Learning
• Flat Economy

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Private Loans
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Private Loans (cont.)
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Summary

• Portfolio Risk Management is a commitment by
  FSA/Department of Education to focus on reducing
  risk of a portfolio of 400 billion.
• Increased focus on default prevention rather than
  the previous focus of default collector.
• Coordination of efforts within FSA as well as
  partnerships with schools and the FFEL community
  are critical to the success of reducing risk.
• Understand the performance of your portfolio.
• As a taxpayer, you are a share/stakeholder in the
  federally insured student loan portfolio each of
  you has a vested interest in insuring that your
  investment is managed well.

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Questions?