Six Questions to Help Analyze Your Default Prevention Progress

Submitted by: Shannon Cross, USA Funds Account Executive

You have your school’s official cohort default rate for 2011. Now let’s look to the future and see how your default prevention efforts are faring with your existing cohorts of student-borrowers.

Consider your answers to these six questions. Those answers will help you gauge your future cohort default rates — and adjust your default prevention efforts accordingly.

1. Where are you getting your portfolio information?

Use reports from the National Student Loan Data System and servicers to get information regarding your active cohort periods. Delinquency reports received directly from servicers offer the most recent data. Review the reports to determine who’s in the cohort and whether their repayment status is current, delinquent or defaulted.

2. What is your current default rate goal?

Aim for a rate that’s at least in line with or below that of your peer institutions and the national average.

3. How many borrowers in your 2013 portfolio have defaulted?

If you know your current default rate, then you’ll have a better idea how close you are to your goal.

Say, for example, your 2013 cohort default rate goal is 10 percent. Your 2013 cohort has 200 borrowers. You see that 10 of those borrowers currently are in default, which means that the current cohort default rate is 5 percent. So now you know that 10 or fewer borrowers can default by the end of the cohort default rate period to achieve your 10 percent goal.

4. How many more borrowers are likely to default based on current data?

The number of borrowers who currently have defaulted represents your “best-case” default rate and assumes no additional borrowers will default.  Now determine how many borrowers currently are delinquent. If there were no intervention for these delinquent borrowers, they could default — and that number plus the number of defaulted borrowers represents your “worst-case” default rate.

Let’s look at another example with our 2013 cohort of 200 borrowers. Ten borrowers have defaulted, and another 30 currently are delinquent. That makes your “best-case” default rate 5 percent. To determine your “worst-case” default rate, add the 10 defaulted borrowers to the 30 delinquent borrowers — which would represent a default rate of 20 percent.

You also could determine the average number of borrowers who are defaulting each month. This step allows you to project what your cohort default rate would be if that trend continues.

Here’s another example. Ten borrowers from your cohort of 200 borrowers currently have defaulted. If you are averaging one defaulted borrower per month, and there are 12 months remaining in the cohort default rate period, then you are likely to have 12 more defaulted borrowers. That would bring your total number of borrowers at the end of the cohort default rate period to 22 — which translates to a default rate of 11 percent, slightly higher than your 10 percent goal.

5. Which borrowers are likely to default?

Determine the characteristics of the borrowers who already have defaulted to help identify borrowers who are at risk of defaulting in the future. Understanding who’s most likely to default helps you focus on those who are likely to need the most repayment help.

6. What percentage of the 2013 portfolio currently is delinquent?

Delinquent borrowers are a target audience for borrower outreach. And the lower the percentage of delinquent borrowers, the better the borrowers in the portfolio are performing in successfully repaying their loans.

You already may have determined how many borrowers are delinquent as you were figuring your projected cohort default rate. The percentage of the cohort that these delinquent borrowers represent is a good indicator of how your portfolio is performing. A delinquency percentage of greater than 50 percent would put your portfolio at high risk of exceeding a 30 percent default rate.

If your 2013 portfolio of 200 borrowers currently has 80 who are delinquent, for example, that means your current delinquency rate for the cohort is 40 percent.

Analyzing your cohort data helps you set expectations, identify trends, develop goals, inform future default prevention efforts — and, most importantly, establish the best ways to keep students on the path to successful repayment.

Visit the USA Funds^® website at www.usafunds.org if you need assistance with cohort management, borrower outreach, and financial literacy and student success training.