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Federal Policy and Education Debt Management. NYSFAAA Conference – October 28, 2009 State of Industry - New World of Student Lending - Panel Paul C. Combe – President and CEO. A Growing Social Issue. ASA Confidential and Proprietary Information. 2. Trends in Student Debt.

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Federal Policy and

Education Debt Management

NYSFAAA Conference – October 28, 2009

State of Industry - New World of Student Lending - Panel

Paul C. Combe – President and CEO


A Growing Social Issue

ASA Confidential and Proprietary Information

2


Trends in Student Debt

  • 49% of Bachelor’s Degree recipients had debt in 1992-1993; increased to 65% in 1999-2000

    • Choy % Li , 2005

  • In 2007-2008 two-thirds of Bachelor's Degree recipients graduated with student loan debt:

    • Average debt - $23,186

    • Cumulative debt is growing at 5.6% per year or $1139

  • Of Bachelor’s Degree recipients who applied for federal aid and had AGI less than $25,000, 86.8% had average debt of $24,951

  • More Pell Grant recipients graduate with student loans than non recipients

    Source: Growth In Cumulative Education Debt at College Graduation by Mark Kantrowitz (July, 2009) (FinAid.org)

  • ASA Confidential and Proprietary Information

    3


    Consequences of Default

    Ruined Credit Record:

    Unable to purchase home

    Unable to obtain car loan

    Credit scores effect eligibility for apartment / employment

    Wage garnishment

    Tax refunds offset

    No additional financial aid

    ASA Confidential and Proprietary Information

    4


    We know how many default

    • Cohort Default Rate 2007-2009 6.7%

    • Trigger Rate 20072.05%

    • ED Cumulative Default Rate (10 years)13%

    • We don’t know how many borrowers have serious trouble, but don’t default

      • No federal data collected

      • ASA’s estimate, based on Trigger Rate Data is that at least 25% and 30% of all borrowers are delinquent more than 90 days each year

    ASA Confidential and Proprietary Information

    5


    What are the implications of growing debt for colleges?

    • Not just about enrollment

    • Alumni repayment and “brand tail”

    • Although donations grew by 18% in 2005, “The percentage of alumni making gifts declined”

      • Kaplan 2007:3

  • ASA Study with Miami University of Ohio

    • “Student Debt and Alumni Giving”

  • (ASA’s report on student debt and alumni giving is available in the “Press Room” at www.amsa.com. Click on “Reports & Studies.”)

    ASA Confidential and Proprietary Information

    6


    Giving Effected by Loans

    Alumni who graduated without any college loans were slightly more than twice as likely to donate (20.9%) than were those who graduated with debt repayment responsibility (9.8% ). (MWU Sample)

    ASA Confidential and Proprietary Information

    7


    Total Loan Debt: High vs. Low Debt

    Graduates with low TOTAL loans (< $20,000) are more likely to contribute to their alma mater (34.0%) than those with higher TOTAL loans (18.2%). (ASA Sample)

    ASA Confidential and Proprietary Information

    8


    Monthly Debt Repayment: None vs. High

    Those without debt responsibility were almost four times more likely to donate money than those with high debt repayment (>$175,000); 23.7% as compared to 6.4%. (MWU Sample)

    ASA Confidential and Proprietary Information

    9


    Sense of Debt Burden

    Students who “felt overburdened” by student loan debt were less likely to contribute than those who did not feel overburdened (2.5% vs. 16%). (MWU Sample)

    ASA Confidential and Proprietary Information

    10


    Sense of Debt Hardship

    Alumni who agreed with the statement “My loan repayments cause me more hardship than I anticipated” were less likely to contribute to their alma mater (4.4% vs. 15.2% contributed). (MWU)

    ASA Confidential and Proprietary Information

    11


    Debt Management Service as a Borrower Right

    • America has chosen debt as the primary method for funding access to higher education

    • You get what you measure

    • Access doesn’t end until the loan is repaid

    • If federal policy helps get them into debt, it is a federal responsibility to provide assistance to help them get out of debt

    • Education Debt Management = Entitlement

    ASA Confidential and Proprietary Information

    12


    What is Education Debt Management?

    • Effective education debt management is not just due diligence with a prescribed amount of letters and phone calls

    • Borrower based for all federal loans, source of capital is irrelevant

    • It’s about using federal college loans as “teachable moments”:

      • Debt Management is a “contact sport”

      • Use continuum of intervention / education activity (proactive and reactive) to target, engage, and impact the borrower’s financial wellness

      • It is proactive and focused on getting the right information to the right borrower at the right time

        • Moments of Truth

      • It is individualized and personalized

      • Uses CRM tools

    ASA Confidential and Proprietary Information

    13


    (800) 999-9080

    (617) 728-4670 F A X

    (800) 999-0923 T D D

    www.amsa.com

    American Student Assistance®

    100 Cambridge Street, Suite 1600

    Boston, MA 02114


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