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Five Easy Tips for Keeping Your Default Rate in Check

September 20, 2013

Responsible RepaySeptember is here and fall has officially begun. The little ones are finally back in school after a seemingly never-ending summer. You are still optimistic about your favorite football team’s chances this season, no matter how bad they may actually be (sorry, Jets fans). And the Department of Education will soon be releasing your annual Cohort Default Rates. Now, while I haven’t figured out how to constantly entertain a couple of toddlers for the summer, I can offer some tips on keeping your CDR in check.

  1. Counsel withdrawn students. If you were to analyze your defaulted borrower population (which I recommend everyone do at least once per year), you would quickly see that the vast majority of your defaulted borrowers are students who withdrew before finishing one year at your school. This is the population you want to reach out to as often as you can, whether they withdrew from a single class or from school altogether. Part of your school’s advisement process should include sending students to financial aid whenever there is a withdrawal. Even if it is just one class, financial aid can check to see if the withdrawal will affect the student’s current or future aid eligibility. Would the student no longer meet SAP? Is the student better off hanging on and try to pass the class? For students leaving school, what are their plans? Do they plan on returning to school in a year or two? It’s important they know they need to stay current on their loans to maintain eligibility. Is a total withdrawal eligible for a refund? Can you convince them to cancel the remainder of any pending loan disbursements? Any hand-holding you can do for this population now may save you a few defaults in your CDR in a few years time.
  2. Grace period letters. A simple project to do a couple of times a year is to send letters to borrowers who are still in their grace period to remind them of their loan obligations. You can request reports from the major servicers (like the Grace Period End Report from Nelnet via Nsight). The report will list borrowers, their current addresses, those still in grace, and when grace is set to expire. Doing this project twice a year should catch all of your borrowers, but you can do this as often as you like. You can then prepare a simple letter, reminding the borrower that their first payment will be due soon. Let the borrower know who their servicer is and to keep an eye out for correspondence from the servicer. Remember, we are all familiar with all of the loan servicers, but a student or parent may have no idea who is servicing their loan and could disregard any mail they may receive. A helpful tip is to offer the servicer’s website and a link to the servicer’s autopay option. Borrowers that sign up for autopay are much less likely to default.
  3. Delinquent borrower campaigns. Schools can obtain delinquent borrower reports from NSLDS or from individual servicers. These reports tell schools which borrowers are behind on their loan obligations. Sort the reports via repayment dates to see which borrowers fall into an active cohort. It creates a lot of work to manage borrowers from an older, booked cohort. So unless your office personnel has a ton of free time on their hands, delete the older borrowers to get to a manageable population. You can then sort this report however you see fit and create different campaigns each month. We recommend reaching out to borrowers less than 90 days delinquent. Many of these borrowers just needed reminders of their loan obligations, or weren’t aware that repayment started. Others may have encountered trouble financially or have not yet found employment. Before their loan delinquency spirals out of control, servicers can counsel on an appropriate deferment option. You can make phone calls to these borrowers, let them know you are “checking in” to see how the repayment process is going, and hopefully open a dialogue with the borrower. Emails and letters are always helpful. Again, make sure the borrower is aware of who their servicer is and how to get in touch with them by phone, email, and website.
  4. Appeal your draft rate. Now I grant you that this can be a very labor intensive process. But it could be worth it in the long run if you can shave some defaulted borrowers from your cohort. In January-February, the Department will release your Draft Default rate, along with a Loan Record Detail Report (LRDR). The LRDR contains every borrower and loan that falls into that year’s cohort. It is well worth your time to sort through the report, take a look at the defaulted borrowers counting against your rate and then compare that borrower’s information against the information you have. You may find that an incorrect separation date was reported. The borrower could have been out of school, entered repayment, and then returned to school. That borrower should have been included in an earlier year. Sometimes the borrower resolved their default in the same year, and should no longer count against you. You may even have information that a borrower is now disabled or perhaps passed away, but was not reported to the servicer. Even pulling a handful of defaulted borrowers out of your cohort could make a difference in your school’s rate. 
  5. Implement a financial literacy program.  A financial literacy program can come in many shapes and sizes. There are many great online services that schools can implement at varying degrees of cost. Schools can also implement their own programs, and these programs can be classroom based, web-based, written publications, or even periodic emails to the student body. Literacy programs should stress the importance of responsible loan borrowing, but also other topics such as maintaining good credit, budgeting, and credit card responsibility. Many young students are balancing education, rent, utility, car payments, and many other bills for the first time. Financial literacy counseling can only have a positive long-term affect on your default rates.

Any one activity may have a limited impact on your school’s default rate. But together, these tips can dramatically reduce your default rate in future years. As always, your Nelnet representative is available for additional guidance on managing your default rate.  You can also contact us at 866.463.5638 or

Christopher Earnshaw, EASFAA Territory Manager, Responsible Repay

Christopher Earnshaw, EASFAA Territory Manager, Responsible Repay

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