08 Jul Six Steps to a Default Management Plan
By Chansone Durden, TG Account Executive Team Manager
If you’re worried about cohort default rates (CDRs), you’re not alone. Many schools are concerned about 3-year CDRs, given a sluggish job market. What are the consequences? A series of high CDRs or one very high rate can push a school closer to sanctions, including provisional certification or even a loss of Title IV eligibility.
Whatever your rate, there are things you can do now to tackle default. First and foremost, draft a default management plan. If you have a plan already, consider how to make your plan even better. Default prevention is a major task for most schools, and a good plan can do multiple things to boost your effort. It can work as a blueprint for your default management activities, help establish accountability, and document your work on behalf of borrowers. It can also be useful in persuading campus administration to devote more resources to the default prevention cause.
How can you go about creating this all-important document? Here is a high-level summary of steps.
- Get management on board — Persuade your campus management team of the need for a plan, and you’ve got some instant credibility in the eyes of the rest of the campus. If management isn’t already enlisted in the default prevention cause, schedule a meeting with senior administrative staff and work up the chain as you can. The objective is to make your case quickly and succinctly, showing how default affects your students and even the financial viability of your institution. You should also show how effective default prevention practice can improve the student experience and help safeguard your institution’s long-term educational mission.
- Gather staff feedback and form a committee — Talk with campus departments that affect students, which could include the registrar, bursar, admissions, enrollment management, faculty, career placement, and financial aid or student services, to name a few. From these areas, you should draw representatives and form a team. Once your team is formed, make explicit the ramifications of default and start building consensus on how to help borrowers succeed in repayment.
- Understand borrowers’ needs and assess school practice — Analyze borrower data related to default. Generally, an effective statistical analysis will look for trends among borrowers whose loans enter default. For example, borrowers who leave school prematurely without a degree may be prone to delinquency and then default. You should also perform an institutional self-assessment. Ideally, the assessment will provide a baseline for your school’s default prevention efforts, showing what your school does to tackle default and how well it performs. To find this baseline, you could consider how effectively your school helps students graduate on time ready to manage loan repayment. You might put together a history of your institutions’ default rates. And you could talk with students on what your school can do to better engage students so they feel supported and prepared when repayment comes due.
- Appoint a default prevention point person — Along with setting such goals, you should consider focusing at least one person on your school’s default aversion efforts and training that individual in the details of CDRs, financial aid, and the consequences of default. This person will manage the day-to-day work of default prevention, including monitoring rates. He or she should also be responsible for drafting the body of the report using input from campus assessments, staff interviews, default data analysis, and other information.
- Establish goals — In creating a plan, be sure to set goals that meet the S.M.A.R.T. objectives. You’ve probably heard of this business management acronym for setting goals that are Specific, Measurable, Attainable, Relevant, and Time-bound. You have a ready measure in your school’s CDR, but you should set other objectives — for example, providing a given number of student workshops on managing debt or completing an analysis of a borrower cohort. Remember: you’ll have to keep pace with the changing needs of your students and the priorities of your campus.
- Outline, then draft a plan — Create the structure of your school’s plan and then draft, revise, and rewrite as needed. The heart of the plan should be tactics and strategies for addressing weak points in borrower support. But what if your school doesn’t have the staff to write a plan? Or perhaps you’d like to tap into the knowledge and resources of an institution devoted solely to default aversion? In this case, your school might consider outsourcing at least some of your default aversion responsibilities, including creating a default management plan, to a third-party servicer. Third-party servicers can be affordable given what they can offer, including consultation and a focus on strategies for delinquency prevention and default aversion.