Five things every default management plan needs
Chansone Durden, TG Account Executive Team Manager
This
past March, the higher education industry let out a collective groan as draft
2- and 3-year cohort default rates (CDR) were released. Draft rates aren’t made
public, but the last official rates — made public in September 2012 — were on
the rise with the 2-year CDR at 9.1 percent (for fiscal year 2010) and the
first official 3-year measurement coming in at 13.4 percent (for fiscal year
2009). By all indications, that rise should continue, given the steep growth in
student debt and a sluggish labor market.
If
there’s a silver lining to the dark cloud of student loan default, it’s that the
increase is forcing many schools to candidly evaluate how well they support
their student borrowers. It’s also motivating schools to expand efforts in
things like debt management — to find more ways to send the message: “We’ve got
your back. Here are some things you can do now and later to succeed in
repayment.”
A
school’s default management plan typically
lays the blueprint for campus self-assessment and borrower education. Schools
sometimes see the default management plan in a negative light, since the
Department requires the plan for schools with high default rates. But a good plan
can serve a strategic purpose. It can be the key to unlocking campus
collaboration and getting many departments invested and working on default
prevention. It can spur research on why students default. And it can lay out a
comprehensive vision of how to tame default and promote a campus culture that
champions the student borrower. Also, upper management is more likely to see
value in the effort and throw weight into the project.
Five elements of a good default management
plan
You don’t have to build a plan from scratch. The
Department of Education provides a template on which a school can model its own
plan. The Department advocates attacking default throughout the life of the
loan. This means educating students in their options before they borrow and
supporting them as they repay, especially if their loans enter delinquency. Here
are some other suggestions to make your school’s plan more robust.
·
School
self-assessment — An institutional self-assessment can go in
many directions. Ideally, it should provide a baseline for your school’s
default prevention efforts, showing what your school does to tackle default and
how well it performs. To find this baseline, you could consider how effectively
your school helps students graduate on time and ready to manage loan repayment.
You might put together a history of your institutions’ default rates. And you
could talk with students, faculty, and staff about what your school can do to
better engage students so they feel supported and prepared when repayment time comes.
Other areas of self-assessment could include enrollment management practices, financial
literacy education, and even campus life and culture.
· Analysis of borrower default — An analysis of trends in
default could be part of a school’s self-assessment, but it could stand by
itself also. Why? An analysis will likely contain the seeds of expanded or new
efforts in helping borrowers succeed in repayment, and a separate section could
highlight these opportunities. Generally, an effective statistical analysis
will look for trends among borrowers whose loans enter default. For example,
borrowers who leave school prematurely without a degree may be prone to
delinquency and then default. Other factors that schools might consider: grade
point average, Pell-eligibility, part-time enrollment status, enrollment in a
particular program of study, local labor market conditions, and borrowing
levels by socioeconomic background.
·
Tactics
and strategies — The heart of any good plan is the section
that lays out what a school will do to better manage default. In the “Tactics
and Strategies” area, the school should use its default analysis and
self-assessment as a foundation on which to recommend new or expanded
initiatives that address weak points in borrower support. For example, if
borrowers without a degree tend to default more, schools could consider how to
maintain students through degree completion. Or if data shows that borrowers
from a given major have high rates of default, a school could consider how to
smooth the path to employment for this group.
·
Default
taskforce — It’s a good idea to get multiple departments involved in default
prevention, since many departments can affect the issue. Creating a taskforce
made up of representatives from such departments as admissions, the registrar,
financial aid, faculty, and other areas is key to the success of any school’s
default prevention. The school’s default management plan could designate members
for the taskforce and define their areas of responsibility with regard to
default prevention.
·
Success
measures — Plan developers should consider
factors that contribute to default, establish measures that address these
factors, and then set goals for these measures. These goals should be evaluated
periodically to show progress or the need for improvement. As an example, a
school could require students to take a certain number of debt management
trainings. Or it could commit to reducing default for a segment of borrowers by
a given percentage. The value of putting
such goals on paper is that doing so makes clear what success in default
prevention looks like for the institution.
Resources to tap now
If you’re looking for an example default
management plan, the Department of Education offers a comprehensive one, which
can be downloaded through the Information for Financial Aid Professionals
(IFAP) website. You could also do an online search
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