The Default Management landscape is changing, and it’s important to stay abreast of regulations- both old and new. With regard to managing your school’s portfolio, planning, education and organization are critical to the stability of your institution.
1.Educating the Current Student Body- Although your current students won’t affect your CDR for years to come, it’s important to establish an education plan. Start with the basics of financial health- equating it to physical health- before moving onto building a simple budget. Next, teach the students about credit and debt; include the mantra that credit is not a form of payment- it’s merely a delay of payment…plus interest. Lastly, in a separate session, talk to the students about their loans. It’s important to familiarize them with terms such as default, deferment, forbearance, consolidation and repayment. Correlate the information that the students received about financial health, budgeting and credit-worthiness to that regarding their loan repayment options.
2.The Importance of Organization- Unmanaged default rates come with serious sanctions from the Department of Education, up to and including the loss of Title IV funding. Given the new regulations regarding the three year CDR, both withdrawn and graduated students are your school’s responsibility for years to come. Let’s illustrate this with an example:
Student A begins school in February of 2009. Without complication, they graduate in April of 2010. Their loans first become due 6 months after graduating in October of 2010. Since the year (for CDR purposes) begins on October 1 , Student A will fall into the 2011 CDR rate (10/1/2010-9/30/2011). This means that for the two year CDR, if Student A goes into default between October of 2010 and October of 2012, they will have a negative effect on your default rate. In the three-year rate, this period of time is extended from October of 2010 through October of 2013.
Each institution needs to have a process and procedure in place to not only track their former students, but to regularly keep in contact with them through the maturation of their loan(s). This is especially important for withdrawn students, as they often have a higher rate of delinquency and default.
3.Educating the Staff and Faculty- Default Management is not a one man/woman show, nor is it a sole function of the Financial Aid team. There’s no replacement for grass-roots level initiatives at the campus level; this should include as many staff and faculty members as possible. Faculty, in particular, keep in touch with former students- and this knowledge can be invaluable when it comes to tracking down long-lost students. If the staff and faculty are educated about the consequences of default- which can range from bad credit to wage garnishment to loss of social security benefits- they will be more apt to pass their knowledge along to their students.
What does your institution have in place to manage default?
