At Aid Officers' Meeting, Colleges Share Tips on Lowering Loan-Default Rates

July 18, 2011

Colleges seeking to lower their cohort default rates should focus their efforts on borrowers who have withdrawn from college, missed their first payment, or failed to complete an exit interview.

Those were among the "Secrets to a Successful CDR" that were shared with student-aid officials on Monday at a session here of the annual conference of the National Association of Student Financial Aid Administrators.

The panelists also advised aid administrators to educate borrowers about loan repayment throughout their enrollment, not just during entrance and exit interviews. Hold informational sessions in residence halls, they suggested; include loan information in campus newsletters; and post fliers in bathroom stalls. ("It's a great way to capture an involuntary audience," quipped Allene Begley Curto, associate director of financial aid at Springfield College, in Massachusetts.)

Cohort default rates, which measure the percentage of borrowers at a college who default within two years of graduating, are important because they are used in determining eligibility for federal student aid. Currently, colleges are barred from federal student-aid programs if their two-year default rates are 25 percent or higher for three successive years, or above 40 percent in a single year.

Default rates have been rising in recent years, due in part to the down economy. The draft rate for 2009 is 8.9 percent, an increase of nearly two percentage points over the two-year rate for the previous year.

Participants at Monday's session were advised to collect multiple references from borrowers for help in tracking them and to begin "skip-tracing" efforts as soon as mail sent to a borrower is returned. They were urged to work with campus registrars, enrollment officers, and development offices to keep borrower addresses current.

Attendees also got some advice from their colleagues in the audience, who shared strategies for minimizing debt and reducing defaults. Mary Beth Courtright, director of financial aid at Massasoit Community College, said the Massachusetts college notifies students of their maximum eligibility, but requires them to request a particular amount, along with a description of how they'll use it. If they plan to put some of it to a noneducational purpose—such as paying off a credit-card bill for jewelry—the college will reduce the loan amount accordingly.

Dena M. Norris, a program coordinator in default prevention at Metropolitan Community College, in Missouri, said her college discourages overborrowing by requiring students to calculate what their monthly payment would be if they borrowed the maximum amount.

And Jami Fleming, director of financial aid at the University of the Rockies, in Colorado, said her college reminds students of their obligations and repayment options 30, 60, and 90 days after they enroll, to make sure the message sinks in.