Ed Pacchetti | Dec. 2013

U.S. Department of Education

2013 FSA Training Conference for Financial Aid Professionals

Increasing Your Student Borrowers’ Repayment Success

Session 38

Agenda

1. Introductions

2. The importance of loan repayment

3. Results from FSA survey of borrowers in grace

4. Resources for repayment

5. Panel: Best practices for encouraging loan repayment

6. Question and answer

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Context: Student Loan Repayment

• 37 million federal student loan borrowers

• The median amount owed by new borrowers is $10,000 and the average is $20,000

• Debt levels for graduate borrowers are significantly higher: a median of $31,000 and an average of $51,000

• The majority of new borrowers will choose the standard ten-year repayment plan

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Cohort Default Rates are Increasing

SOURCE: NCES, Condition of Education 2013, Table 400, Number of postsecondary students who entered the student loan repayment phase, number of students who defaulted, and 2-year student loan cohort default rates, by level and control of institution: Fiscal years 2007 through 2010; IFAP, September 30, 2013, National Default Rate Briefings for FY 2011 2-Year Rates and FY 2010 3-Year Rates.

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Characteristics of Defaulters

• Older (median age of 38 years old)

• Pell recipient/low-income

• Undergraduate loans only

• Median loan balance: $5,800

• Poor financial literacy

• Did not complete degree

SOURCES: NSLDS, as of June 30, 2013; The Student Loan Default Trap: Why Borrowers Default and What Can Be Done About It, National Consumer Law Center, July 2012; What Matters in Student Loan Default: A Review of the Research Literature, Jacob P. K. Gross, Osman Cekic, Don Hossler, and Nick Hillman; Journal of Student Financial Aid, 2009; Calculating the Contribution of Demographic Differences to Default Rates, Mark Kantrowitz, May 2010.

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What do we know about

new borrowers

who are just about to begin

repaying their loans?

Characteristics of Borrowers in Grace

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SOURCE: NSLDS, as of June 30, 2013.

Characteristics of Borrowers in Grace

Median loan balance for graduate students in grace

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$0 $50K$25K

$6,000Median loan balance for undergraduate students in grace

$0 $50K$25K

$14,500

SOURCE: NSLDS, as of June 30, 2013.

Typical Borrower in Grace

• 26 years old

• Graduated with a Bachelor’s degree

• Family income: $25,000

• Pell recipient

• Five loans in grace

• Undergraduate loans only

• Has not consulted any resources about loan repayment

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NOTE: Loan balance is the median for both undergraduates and graduates combined SOURCE: NSLDS, as of June 30, 2013; CFI, Customer satisfaction survey of borrowers in grace, June 2013.

Most Choose Standard Repayment• Nearly half of borrowers in grace plan to choose standard repayment.• A large number do not know enough or are undecided.

Source: CFI, Customer satisfaction survey of borrowers in grace, June 2013.

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Reason for Choosing Plan

Source: CFI, Customer satisfaction survey of borrowers in grace, June 2013.

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Consideration of IBR

Source: CFI, Customer satisfaction survey of borrowers in grace, June 2013.

• The majority (54%) did not consider income-based repayment (IBR) because they did not have enough information

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Understanding of Borrower in Grace• New borrowers

who completed their degree program rated their understanding of student loan options higher than borrowers who did not complete their degree

• There is a 14-point difference in confidence in their ability to manage their loans

Source: CFI, Customer satisfaction survey of borrowers in grace, June 2013.

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Borrower in Grace – by Balance• Borrowers with a

high balance (+$50K) were more likely to consolidate their loans and begin repayment than those who owed less

• They were also more likely to choose income-based repayment

Source: CFI, Customer satisfaction survey of borrowers in grace, June 2013; Questions 21: “At the end of your grace period, what action will you take related to your student loan(s)? and 29: “What repayment plan have you chosen, or do you plan to choose at the end of your grace period?”

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Borrower in Grace - Repayment

44% report not being contacted at all about their loans going into repayment

34% report not being aware of their repayment options

26% are undecided about what action they will take on their loans at the end of their grace period

35% of those planning to go into repayment at the end of their grace period, either don’t know or are undecided about their repayment plan

Source: CFI, customer satisfaction survey of borrowers in grace, June 2013.

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Borrower in Grace - ResourcesGone to find out information from… % of

RespondentsOnline loan servicer account management 40%Studentloans.gov website 25%Talking with friends or family 21%NSLDS website 18%Exit counseling at my school 18%Not used any of these sources of information 17%Studentaid.gov website 15%Phone number for loan servicer 14%Talking with staff at my school 12%Other online government resources 4%Online non-government resources 4%Other 4%Mobile phone apps 1%Social media resources 1%

Source: CFI, customer satisfaction survey of borrowers in grace, June 2013, Question 12: Where have you gone to find out information about your repayment options, your grace period, or how to manage your student loan(s)? – check all that apply.

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Resources

for Repayment

StudentLoans.gov

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FACT Tool

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Loan Repayment Estimator

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Available at Studentloans.gov.

Loan Repayment Estimator

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Repayment plans and loan payment calculators are available at: http://studentaid.ed.gov/repay-loans/understand/plans#estimator

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Panel Presentations:

Best Practices for Repayment

Sallie Mae - Loan Lifecycle Touch Points

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New Loan In School Entering Grace Exiting Grace

Open Rate 35% 40% 39% 38%

Click Rate 5% 13% 19% 26%

Delinquency Rate n/a 31% - control | 23% - test 38% - control | 22% - test 55% - control | 26% - test

IDR App. Rate n/a 1% - control | 2% - test 3% - control | 4% - test 2% - control | 6% - test

Key Points

• Highlights total loans and amount borrowed to date

• Online account set up• Look for future communications

• General reminder email• No action is required• Online account set up

• What is Grace• When to expect your first statement• In-School Deferment reminder• Income-Driven Repayment plan

information• Online account set up• Look for future communications

• Sent about 45 days before first payment due date

• Highlights total payment amount due and the due date

• Income-Driven Repayment plan information

Note: Delinquency measured at 15 days past due

QUESTIONS?

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