Six steps to a default management plan for your campus

By Rob Davenport, senior writer at TG’s HigherEDGE^®

Here’s a February Valentine most schools don’t want to receive: draft cohort default rates. If you’re not familiar with them, cohort default rates, or CDRs, tell schools how many of their borrowers started loan repayment in a given year and then defaulted within the next two years. This February’s rates reflect borrowers who entered repayment in fiscal year 2012 and then defaulted.

Why worry about rates? Many career schools have seen their CDRs climb in the last three years, with some rates rising close to the sanctionable 30 percent level. A series of high rates can bar schools from federal financial aid programs vital to many schools and students. To head off CDR problems, schools need to lay out a plan of action — a default management plan. Typically, a default management plan details what needs to be done to curb default, how to measure success, and who to hold accountable for results.

How can you go about creating this all-important document?

Follow these steps.

Form your team — Default prevention takes a village, or campus, in this case. Start a conversation about default with student touch points, including the registrar, bursar, admissions, and faculty. From these areas, form a committee and build consensus on how to help student borrowers graduate ready for repayment.
Do some homework, a.k.a. research — Most schools have limited dollars to devote to default prevention. Maximize your prevention “reach” by doing a borrower data dive. Look for trends among defaulted borrowers, such as low G.P.A. Based on this analysis, focus strategies on helping these vulnerable borrowers.
Baseline school practice — Compare what you do for default prevention with what other schools do. Do you meet or exceed the standard set by your peers? For example, have you appointed an on-campus leader for default management like other schools? Do you offer student financial literacy training?
Establish some S.M.A.R.T. goals — Set goals that meet the S.M.A.R.T. standard — that is, goals that are specific, measurable, attainable, relevant, and time-bound. Example: Reduce default by a set percentage within a few years. Write these goals into your plan.
Pick your point person — Along with setting goals, appoint at least one person to marshal your school’s default aversion efforts. This person could manage day-to-day default prevention work, but also serve as editorial traffic cop in writing a plan.
Write your game plan — The meat of your plan should center on tactics for helping at-risk borrowers. To this, you could add results from your borrower analysis, overview of campus default management, and long-term goals. Build in accountability, meaning divvy up tasks and set deadlines.

Resources to tap now

The Department of Education’s Information for Financial Aid Professionals, or IFAP, website (www.ifap.ed.gov) has much that schools need to manage default, including links to CDR data. Schools could also consider hiring a third-party servicer that offers help in drafting a default management plan.

This article supported by TG HigherEDGE