March 8, 2011

Wayne Sparks and Metro Tech’s Rosalind Martin Talk Cohort Default Rates

OGSLP’s 2009 two-year draft cohort default rate increased slightly over last year’s 2008 official rate of 9.2 percent. This means that more than 90 percent of student loan borrowers in Oklahoma are repaying their federal loans, which is impressive considering that student loans are secured with no collateral or demonstrated credit history. Wayne Sparks, OGSLP’s Default Prevention Manager, believes that cohort default rates fluctuate depending on each individual state’s economy and various other factors, such as type of institution attended, retention rates, default management programs and ability to contact student loan borrowers.

What should I focus on when I’m working to improve my school’s cohort default rate?

Metro Technology Center’s cohort default rates remained under 5.5 percent from 2003 to 2008, and for four of those years, under 4 percent. Rosalind Martin, Metro Tech’s Financial Aid Director, indicates that her 2009 draft rate increased a few percentage points over last year. When asked what they believe has the most significant impact on student loan repayment and default prevention, Wayne and Rosalind agree that the following elements are key:

• Successful entrance and exit counseling, and both agree that in-person counseling, although time consuming, is the best method to convey this important information to the student.
• A carefully crafted default management plan that is followed faithfully.
• Accurate contact information for the student loan borrower (including address, home phone, cell phone and e-mail address).
• Well-informed students who understand their repayment options and the consequences of non-repayment, though unfortunately, Wayne’s research indicates that over 85 percent of cohort borrowers default within the first 11-15 months and never take advantage of a forbearance, deferment or income based repayment plan option.

How does Rosalind maintain Metro Tech’s low cohort rate? She has a default management plan!

• Most students that receive student loans talk face to face with Metro Tech's financial aid staff.
• Metro Tech doesn’t originate loans until the borrower has been in class for 30 days and met the school’s attendance requirements.
• Borrowers are counseled that options like deferment and forbearance are available to keep their loan current if they’re unable to make payments.
• Metro Tech uses OGSLP’s Default Prevention School Tool to send letters to borrowers every month.

Interested in building your own custom default management plan? OGSLP offers several tools to help, including:

• Delinquent Borrower by School Report
• Default Prevention School Tool (DPST)
• Cohort Analysis
• Entrance & exit counseling toolkit
• Teaching support for in-person exit counseling

What do I look for when I’m reviewing my cohort back-up data for possible challenges?

Rosalind indicates that when reviewing Metro Tech’s cohort default accounts for possible challenges, she concentrates her review on borrowers within the numerator (defaulted borrowers) that have multiple loans, including one that shows as ‘defaulted’ and another that shows as ‘in repayment’. She’s found that these are the borrowers that have been incorrectly included in her school’s numerator

Of last year’s cohort challenges submitted by schools, here’s a sample of valid challenges reviewed by OGSLP:

• Loan was repurchased and no subsequent claim paid
• Rehabilitation achieved
• Borrower has multiple loans in one cohort default rate calculation that belong in several cohort default rate calculations
• Borrower has multiple loans that should be included in only one default rate calculation
• Incorrect last date of attendance or less-than half-time enrollment date
• Loan paid in full prior to expiration of grace period
• Repayment began before expiration of grace period
• Loan fully cancelled

Special thanks to Rosalind for sharing Metro Tech’s best practices in default management and cohort review. For more information about OGSLP’s default prevention initiatives, contact Wayne Sparks at 405.234.4358 or wsparks@ogslp.org. We’re here to help!