Default Prevention Works—Just Look at the Latest Data

With all the anxiety about subprime loans, including families losing their houses and borrowers defaulting, it’s nice to hear some good news. So, I’m happy to announce that, according to draft data from the Department of Education, ASA achieved an even lower Cohort Default Rate (CDR) for borrowers that began repayment in 2006 than for borrowers that started repayment in 2005.. This means that we’re helping more borrowers every day avoid defaulting on their student loans. And we’re doing it through a combination of innovative research and passionate, caring counselors committed to keeping defaults down with a “one borrower at a time” approach.

Let’s talk numbers. ASA’s CDR for the 2006 group was 1.48 percent, down from 1.57 percent for the prior year. Compared to the latest national CDR available—4.6 percent for 2005—ASA’s rate is about one-third of the national default rate. We’ve consistently had one of the lowest CDRs among all guarantors since we signed our Voluntary Flexible Agreement with the Department of Education (ED), which aligned our financial model with successful default prevention and opened the door for us to find default prevention techniques that help borrowers succeed.

A quick review: CDR is a measurement, calculated by ED, of the percentage of students who enter repayment and default before the end of the next fiscal year. It’s an important indicator, because history shows that borrowers who make monthly payments on time in the first years of repayment are much less likely to default later on. So a low CDR means that a guarantor, in conjunction with its school, lender, and servicer partners, is doing a good job of instilling financial awareness and healthy practices in borrowers for now and the future.

How does ASA do it? With default prevention as our goal, we continually focus on research and development efforts that look at default in new ways. We carefully track borrowers’ successes and difficulties, identify high-risk populations, and tailor our intervention efforts and counseling approach to meet their specific needs.

One of our most effective solutions is Journeys, an outreach program that provides guidance to recent graduates just entering repayment. Journeys combines a quarterly newsletter, which centers on debt management and other life skills grads need in the “real world,” with personal phone calls from ASA counselors. With this kind of support in the early stages of repayment, our borrowers find more success at managing their loans: Our data shows that borrowers contacted through our Journeys program experience roughly 50 percent fewer defaults than borrowers without any contact.

ASA’s success in helping borrowers succeed wouldn’t have been possible without the flexibility permitted by our VFA, which is designed to foster experimentation on the best practices of default prevention. ASA has been able to realize this mission by investing our resources in the development of innovative ways to positively impact borrower outcomes.

As always, we’d like to hear about your thoughts and experiences in finding effective ways to reach, engage, and positively impact student loan borrowers.

Posted by Mike Ryan on March 14, 2008 at 01:11 PM EST

post a comment