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Date: February 18th, 2008
Author: Greg Ayers
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There is a great deal of interest in the higher education community about a proposal to calculate default rates on federal student loans based on a three-year, rather than the current two-year cohort of borrowers. Here are five key points for you to consider:
- It’s Still a Proposal, Not Yet Law. The three-year cohort default rate calculation was included in legislation passed by the U.S. House of Representatives to reauthorize the Higher Education Act. But conferees for the House and Senate now must work out differences in the versions of reauthorization legislation passed by both chambers. The three-year cohort rate calculation was not included in the Senate version. The compromise bill with the new cohort rate calculation then needs to pass both houses of Congress and be signed by the president.
- The New Calculation Won’t Take Effect for a Few Years. According to the provision passed by the House, the three-year cohort default rate would not become a standard for determining school eligibility to participate in federal student aid programs until fiscal 2012.
- Default Rate Standards Would Also Increase. The three-year default rate calculation will mean higher default rates for virtually every postsecondary institution. The revised provision in the House bill takes that into consideration by raising the default rate standards that determine eligibility for federal student aid. For example, schools that record default rates of 30 percent or more, rather than the current standard of 25 percent or more, for three consecutive years, would be subject to sanction. The default rate standard for qualifying for the waiver from delayed and multiple disbursements also would increase to 15 percent, instead of the current 10 percent cohort default rate.
- The Proposal Offers Earlier Appeals and Steps to Avoid Sanctions. The House proposal would permit schools with cohort default rates in excess of 30 percent for two consecutive years to appeal to the U.S. Secretary of Education claiming exceptional mitigating circumstances. In addition, after the first year of an excessive default rate, a school would be required to establish a default prevention task force to develop a plan, which would have to be submitted to the U.S. Department of Education, for improving the institution’s cohort default rate. After the second consecutive year of an excessive default rate, the school’s default prevention task force would be required to review and revise its plan.
- Congress Supports Greater Accountability for Student Loan Defaults. It is clear from the proposal that members of Congress want a more accurate measure of student loan defaults and enhanced efforts to prevent default.
Working together, schools, lenders, student loan guarantors and the Education Department can make this new standard work by redoubling efforts to assist former students with the repayment of their loans. As an example, I invite you to review the default prevention services that USA Funds offers students and schools, by visiting www.usafunds.org/financial_aid/debt_management on the USA Funds Web site.
Greg Ayers has more than 20 years of experience in the federal education loan program — including 15 years in loan policy and compliance activities. As senior vice president, policy and administration, at USA Funds, Ayers monitors federal legislation, regulations and policy guidance from the U.S. Department of Education. He also develops and disseminates USA Funds' student loan policies and oversees USA Funds' human resources and administrative services functions.
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Date: January 21st, 2008
Author: Steve Wood
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Schools understand they must provide entrance and exit counseling, report timely and accurate enrollment information to the U.S. Department of Education, and share academic-progress information with all school departments. But the ideal default-prevention/debt-management plan should do more than just meet federal regulatory requirements.
Consider some of the following suggestions as you develop or update your school’s plan.
1. Start early! When you host open houses for high school students and their parents, start the discussion about how important it is to live like a student while in college. USA Funds Life Skills, USA Funds’ financial-literacy program, can help you focus students and parents on the importance of budgeting. Bolster your message by repeating these sessions during freshman orientation and freshman-seminar classes.
2. Use online loan counseling. Federal regulations mandate that all students who receive Federal Stafford loans and Grad PLUS loans complete loan counseling. This counseling is another opportunity to stress the importance of managing debt. USA Funds Loan Counselor allows students to review the required counseling information online and when it’s convenient for them.
3. Involve your peers throughout campus. Creating a successful debt-management/default-prevention plan doesn’t begin and end in the financial-aid department. Work with peers in the academic-affairs and student-affairs areas to ensure good communication throughout campus.
4. Give students annual loan updates. Review students’ indebtedness with them each year, and point them to tools such as repayment calculators that can help them determine estimated monthly payments using different repayment options.
5. Keep accurate enrollment records. Make sure your debt-management/default-prevention plan calls for accurate and timely reporting of students’ enrollment data. Maintaining these records helps ensure the accurate timing of borrowers’ grace periods, if applicable, and repayment periods. Consider regularly comparing your school’s records with loan data from the National Student Loan Data System.
6. Communicate with student-loan borrowers. Use letters, e-mail messages or phone calls to introduce yourself as a resource for students who need to discuss repayment options. Contact students who become delinquent in their loan payments to help them successfully repay their loans. USA Funds Debt Manager can help you stay in contact with your students during their academic programs and after they leave school.
Steve Wood is a national debt management consultant for USA Funds®, the nation's leading education loan guarantor. Steve offers financial aid administrators suggestions for programs and services to include in a default prevention/debt management plan.
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Date: January 7th, 2008
Author: ElaineHudson
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Why must I provide documentation?
Why documentation? I’ve been a financial aid professional since 1976 making me either slightly crazy, a true veteran or both. Throughout the years I have consistently witnessed schools make one of two mistakes that are deadly – to cash flow, to bad debt and for the student, as well. One of the two biggest mistakes that schools make is failure to document.
Document what? Each school has the responsibility to create and update solid policies and procedures. While that typically creates its own items of documentation, anything that happens with a student that falls outside the parameters set in those policies and procedures MUST be documented.
As professionals and employee in the FA department, we talk to students every day. We know the students and their challenges. A program reviewer does not. An auditor does not. An accrediting team does not. Our job is to create a clear picture of what occurred so that an outsider does know what happened.
Put yourself in an auditor’s shoes and ask yourself: Why wasn’t a student terminated for not making satisfactory progress in attendance. While you may know that the student’s car broke down or their child was ill the documentation, or lack of it, will put the file in question and funding at risk. Without proof, a program reviewer would require termination of the student and monies refunded. An auditor would report it as a finding requiring your response and possible repayment of funds. An accrediting team would report it as a deficiency. These are just the highlights of what can happen and, if enough files are missing documentation, the cost to your school, the consumer (your student) and the emotional cost of your staff can be significant.
It is so much easier to place the student on probation and if the student doesn’t meet your probationary requirements, allow them to appeal (have a form available) and require they present documentation (car repair bill, doctor bill, etc.) Don’t forget to make sure your written policy and procedures include this process.
Stay tuned for the next article and I’ll discuss the second of the two deadliest sins that puts schools at risk.
Elaine is a seasoned veteran and consummate professional in the financial aid arena. She has worked with post-secondary education institutions for over 30 years to include both clock and credit hour schools in both traditional and non-traditional institutions. Having worked for the Department of Education and conducted program reviews for the Nebraska Student Loan Program, her eye for detail and knowledge of every aspect of Title IV Funding are exceptional. Her stellar track record ensures a school will benefit from her expertise and guidance.
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Date: October 15th, 2007
Author: Jonathan Liebman
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Unless you’ve been living in a cave lately, you’ve no doubt heard at least a little something regarding changes in the student loan industry. As an astute “school person,” you’re trying to assess how these changes will affect you, your school and your students. Well, I can tell you with absolute certainty, the answer is…nobody knows!
Here’s what’s happening, in a nutshell: The government is taking away about $20 billion in subsidies to the lenders (give or take a billion or two) to help fund an increase in Pell grants. While this re-appropriation is good for Pell recipients, much of the angst school owners are experiencing stems from their uncertainty about whether or not the lenders will continue to view their schools as viable investments.
I’m no financial aid wizard (though I do know a lot of industry “buzz” words!), but perhaps I can help put things in perspective and provide you with some suggestions to consider:
- Talk to your lender(s) and seek assurance that doing business with your school will still be beneficial to them. There are no guarantees, of course, but maintaining effective communication is a good start.
- Avoid having a single lender or one that can appear to be a “preferred” lender. If your school has a list of recommended or suggested lenders, make sure the list is created with the best interests of the student/parent borrowers in mind, taking into account things like interest rates, fees, loan benefits and other relevant factors.
- Consider pursuing the Direct Lending program as another option. This process is by no means simple, nor can it be done quickly (or cheaply!). Nonetheless, if you lose your FFELP funding, your options are limited.
- Explore additional options for “gap” financing in the event that your Title IV funds are reduced. Many companies provide this service, with varying creditworthiness and other requirements. You need to explore all your options.
- Remain ever-vigilant in your default management systems. You won’t see the effects of this effort for a couple years, but it must remain a constant priority.
- Check with your state association to find out how other schools are dealing with the current lending climate.
The most important advice I can give you is to talk to a financial aid expert, arm yourself with as much information as possible and continually monitor the situation as it unfolds. You can’t afford not to know what’s going on.
Jonathan Liebman is President/CEO of Specs Howard School of Broadcast Arts in Southfield, Mich. He is a board member of the Career College Association and the Michigan Association of Career Schools. In 2005, Jon was appointed by Governor Jennifer Granholm to the Michigan Higher Education Assistance Authority. Contact him at jliebman@specshoward.edu.
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Date: July 11th, 2007
Author: John Gennace
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Well, it has been a month since we were in New Orleans and the “fog” of Bourbon Street should have lifted for everyone by now. This was the first Career College Association Annual Conference that I have attended and I can say without reservation that it was a very positive experience. I had the opportunity to meet many wonderful people that I am looking forward to working with in the weeks and months ahead. The marketplace is evolving rapidly, particularly on the lending side, so it will be intriguing to see where we are a year from now.
What about the rest of you that have attended prior conferences? How did New Orleans fare in comparison? What were some key takeaways and lessons learned this year? It would be great to hear some other perspectives.
John Gennace is a Vice President with Nelnet’s Career Education Solutions team. Nelnet is the proud sponsor of the 2007 Imagine America Fact Book. John has more than 15 years of sales and sales management experience and recently worked for Tuition Management Systems. He is also a veteran of the United States Marine Corps and served overseas during the first Gulf War. John resides in Pennsylvania with his wife and four children.
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