Jun 19, 2016 / by Alec Reinstadtler
DEFAULT MANAGEMENT HAS CHANGED
Five Best Practices for School and Student Success
A number of societal factors in recent years have combined to create significant economic barriers for today’s students – soaring education costs, increased loan borrowing, and lower average starting salaries, to name a few. With more and more students plunging into a mine of student loan forbearance and delinquency in recent years, and without the salary to justify the cost of college – ascending student loan Cohort Default Rates (CDRs) pose a legitimate threat to the future of higher education.
Colleges that rely on Title IV student financial aid are faced with tightening budgets, increased competition for resources, and struggle with prioritizing repayment success. Unfortunately, these schools can lose their ability to disburse all Title IV aid if their three-year CDR is greater than 30 percent for three fiscal years in a row. Additionally, an institution can lose eligibility to disburse loans if its CDR is greater than 40 percent in a single year.
Given that many schools and students rely on Title IV aid as their primary educational funding source, losing the ability to disburse federal aid could mean the loss of jobs for faculty and staff and the destruction of educational opportunities for many students. This not a risk that US educational institutions can afford to ignore.
Thankfully, there are practical ways – and practical benefits – in working to minimize student loan defaults. Just as schools incur penalties for high CDRs, they can enjoy perks for low CDRs, too, such as the ability to make single disbursements, and to avoid holds on loans to first-time students. This can result in increased operational efficiencies, and cost savings.
Your school can reap the rewards of lower CDRs by following the Loan Science default prevention and management success tip guide. Begin by following these five steps to a lower CDR for your school:
Start with Your CDR Goal in Mind
Create a plan for reducing your CDR by first determining the CDR your school would like to target. For instance, if your CDR is at 25 percent now, and your ultimate goal is 15 percent – a tradeoff will need to take place between your ideal number – and how much your school can actually invest to reach it.
Organize Your Servicing Data and Reporting
Organize your school’s data, so you can always accurately measure your CDR without having to wait until the government releases the information. Since the Department of Education uses the official CDR to determine your school’s eligibility for benefits – or determined sanctions – it’s imperative your school know how it is tracking toward the CDR goal. If you wait until the Department of Education sends out the draft rates, it will be too late.
Harness the Power of Predictive Analytics
Maximize the effectiveness of your budget dollars with the power of predictive analytics instead of relying on historical data. Most schools think that merely measuring by graduates and drop outs is predictive; but instead, it’s about using multiple data elements to determine which are most predictive. Predictive analytics, empower you to more precisely target outreach and, as a result, save money.
Consider a Champion/Challenger Outreach Strategy
By splitting the portfolio of your school’s borrowers in a cohort in half, and then assigning them to two default prevention vendors, you can determine critical performance criteria that measures performance for each vendor. The benefits of this approach include full insight into the performance of your selected vendors, and in turn, vendors who are directly competing work harder than when they have all of a school’s business.
This allows your school to possess the insight and justification to change vendors based on performance. If one is significantly outperforming the other, you can assign everything to the better vendor, or choose another vendor to compete.
Leverage Your Internal Resources Wisely
Historical perceptions about default prevention have caused some schools to decide to take default prevention management in house. The predominant rationale is that it puts the school in charge of their destiny. While this approach was relevant in the past, it’s no longer a valid tactic for success. Schools’ budgets are shrinking while performance expectations are rising – and companies that have established themselves in this industry are not like the ones that dominated the industry in the past. Instead, they’re more efficient – and get better results for their school customers.
The advantages these companies have over schools include better data and analytics to help target outreach efforts, better reporting to measure performance, and call center tools, to name a few. Today’s schools simply cannot afford to invest in industry leading call center tools like predictive dialers, TCPA dialers, real-time analytics software, and advanced skip tracing tools. Leveraging your school’s internal resources – while outsourcing critical default prevention management – can help schools find solutions faster.
Is your school doing all that it can to lower your CDR or prevent higher CDR rates in the future? This first introductory default management article is part of Loan Science’s Default Management and Prevention series, designed to help your school dive deeply in to each of the five tips above. Stay tuned for the next post on Step 1: Starting with your CDR goal in mind.