At any point during a cohort year, you might be thinking about reviewing your default prevention efforts to ensure that you are managing your cohort default rate in a way that helps your students be successful while in school and in repayment. Based on our years of experience, we think it’s important that you consider both proactive default prevention strategies as well as reactive ones.
When it comes to default prevention, it’s best to incorporate both proactive and reactive strategies into your plan. Here in this post, we explain the differences between proactive default prevention and reactive strategies your institution can put to use for upcoming cohort years.
The best time to prevent a default is while the student is still in school. Throughout their education journey, there are many opportunities to provide students with information and interventions aimed at keeping borrowing to a minimum and helping students understand the choices they make regarding their finances. Here are some proactive default prevention strategies to consider:
Of course you want to have students complete counseling and document that activity, and the easiest way to do so is using the federal process. However, what else can you do to enhance the probability that students will learn and remember the material covered?
Some schools have had great success using peer mentors, in-person sessions, and additional counseling sessions to make sure that happens. Of course you have to follow the latest guidance from ED on additional requirements outlined in the Dear Colleague Letter Gen-15-06, which states in part, “…in all instances, the amount and scope of the additional material must be reasonable as to time, effort, and relevance to the student’s borrowing decision, and may not be administered in a manner that unreasonably impedes a student’s ability to borrow.”
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Helping students make the right decisions about how much to borrow, how to budget their funds and how to manage credit are all important factors in keeping them on track. Research shows that exposure to financial literacy topics over time causes positive changes in behavior, so make sure that you are providing opportunities to engage with these subjects throughout their time in school.
The single biggest factor in predicting student loan default is dropping out without a credential. Efforts aimed at increasing retention and graduation rates can provide the best payoff in terms of managing your cohort default rate. You also might want to take a look at how you are helping students make the transition from school to work, as finding a job is critical to help them get on the right path to repayment.
Because CDRs are calculated after defaults have already occurred, they are a lagging indicator. That means you also want to think about what strategies you are using to help those students who have left school and are dealing with loan repayment.
Identifying characteristics of students who are in default is an important first step in managing your cohort default rate. Understanding the academic, demographic and other factors of students who experience problems with their student loans can help you target both proactive and reactive strategies to the right populations. Check out this blog post to learn how Truckee Meadows Community College does their annual analysis of defaulted borrower characteristics.
Our experience shows that grace period counseling is one of the most effective reactive strategies you can use. You can think of it as a way to be “proactively reactive.” Once students are out of school, they are more likely to pay attention to information that helps them get on the right path to repayment. It’s a good time to remind them of the importance of establishing communication with their servicer and selecting the repayment plan that works best for their current financial situation. Grace period counseling can also establish a line of communication that will let your students know that you are still there to help them through the repayment process.
Many times, we’ll see a school cut back on default prevention efforts based on good results from past efforts. Even though your cohort default rate may be trending down, it’s important to maintain a level of effort that will allow you to continue to manage your rate and help your students be successful. It’s better to keep up the communication and other strategies to help students stay out of trouble so that your rate doesn’t start to creep up again.
At Student Connections, we are passionate about helping students and provide assistance to institutions with WhichWay® for proactive strategies and Borrower Connect for reactive strategies. We’d love to show you how we can help! To get started click on the links above.
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