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Reducing Cohort Default Rates Through Outreach and Education

A detailed plan is necessary for identifying and helping students at risk of loan default
University Business, April 2014

Student loan default can affect an entire campus, as high default rates negatively impact an institution’s federal funding. Therefore, it is essential to keep cohort default rates as low as possible. The right education and communication strategies can help borrowers gain the financial skills necessary to avoid default. This web seminar, originally broadcast on February 25, 2014, featured a financial aid director, who discussed how her institution overhauled student borrower outreach with the help of the right vendor partner.

Director of Financial Aid
Mississippi Gulf Coast Community College

Many administrators may not have had to worry about their institution’s cohort default rate in the past, but times are changing. The national average for the two-year rate has more than doubled since 2005. At MGCCC, we experienced a single-digit CDR for many years. Two years ago, we saw a significant, but still manageable, jump. Last year, we were shocked when our CDR reached over 20 percent. Why were we concerned? Recruiting is a major concern with default rates. We know these numbers are public information for parents and students. What will they think about a high number of students defaulting on their loans? Also, we have our reputation to worry about. We are a community college and very active in the community. We were worried about what community members and big donors would think. There are major financial concerns as well. If your CDR exceeds 15 percent for three consecutive years, there are limits on how you can disburse funds. Additionally, we were concerned about a loss of funding. If your CDR exceeds 30 percent for three years, you lose loans, Pell Grants, work study, and more.

Vice President of Repayment Solutions

Through years of experience we have learned a few lessons at Inceptia. The first thing we learned was that one solution does not fit all schools and all students. When you think about a rising CDR, there are two parts to finding a solution. The first is you need to take immediate action right after a student leaves school. The second part is the long-term approach.

Hussey: We started by taking a look at what we were doingw and found that there was room for improvement. One of the first changes we made was to our SAP policy. Previously, when students transferred into our college, they transferred in on good standing for financial aid, or financial aid warning. There was no suspension, regardless of whether a student had a SAP standing below our GPA standard. Last year, we implemented a new SAP for transfer students. If they transferred in over 15 hours, we placed them on suspension if they were not on our SAP grid. Another aspect we looked at was our student success seminars. We did not implement these to combat our default rate. However, since we already had a financial awareness component to these seminars, we were able to incorporate a few default management strategies into the program. We knew we were not doing enough in the realm of default management, so we had to come up with a plan that addressed both student borrowers who were currently in school and those who were out of school. Our first plan of attack was to be proactive, not reactive. I am a firm believer that education occurs inside and outside of the classroom. As the financial aid director, I know that my department has the responsibility to educate students about financial aid. That includes student loan borrowing. But what does that look like? We also wanted to be cost efficient. We don’t have an unlimited budget. We wanted to use our resources very wisely while being mindful of being employee efficient too.

Macoubrie: A common question we receive when we begin working with a school is: When can I expect results? If you are doing this yourself, you might also be receiving this question from your administration. It is really important to set expectations from the start. It is important to communicate to administrators where you are in what cohort year, so they understand what you can and cannot do. Currently, not much time is left until the 2012 cohort year closes. That rate will not be issued until September of next year.

Hussey: As with many schools, our students are required to go through the Department of Education’s entrance and exit counseling. But we knew that that was not enough if we wanted to see a decrease in our default rate. We partnered with Inceptia to address financial education and data analysis.

Macoubrie: There have been a lot of studies that show the most common reason students leave school is a lack of financial resources. The team at MGCCC decided that financial awareness, which can be done a variety of ways, was important for its students. You can do this on your campus yourself by having a finance professor speak to a group. Local partnerships are good; there are a lot of times when banks or other financial institutions are happy to talk to your students about budgeting and credit. There are also free online resources, such as those from the U.S. Department of Treasury. The Inceptia online tool MGCCC uses is Financial Avenue. This teaches money management fundamentals through engaging and interactive content. The difference between free tools and purchased tools is the reporting tends to be much more robust with purchased tools. This is important to bring up when you talk to your administrators about ROI. You can track students in the long term and decide how much your tools are actually helping. The courses in Financial Avenue are: Budgeting, Credit History, Credit Cards, Contracts, Identity Theft, and Paying for College. Sometimes, students, especially first-generation college students, are unfamiliar with paychecks. Many of these students leave school, get a job, and think they are going to make X. When they get their first paycheck, they can be surprised. These courses can help them understand what to expect.

Hussey: We teamed up with Inceptia for a data analysis. This was designed to help us see the students who may need extra assistance from us, before problems occur.

Macoubrie: We wanted to look for common data points of defaulters. Generally, we know the following students tend have a higher default rate: borrowers who do not complete school, first-generation students, those in certain majors or courses of study, and those without access to additional financial resources. Extra attention should be given to students who meet these defaulter criteria. We also look at students who are successful, because we want to help everyone be successful. Successful students tend to have higher high school GPA, higher ACT scores, a career goal in mind, and have more engagement in campus activities.

Hussey: Inceptia’s data analysis helped us refute a few assumptions we had about our highest defaulters. We had thought students who transferred in would have a high rate of default; Inceptia’s data analysis showed this not to be true. If we had worked off our original assumptions, we would have been targeting the wrong groups. In selecting a vendor partner, we wanted to stay FERPA compliant, and be sure the company we selected would protect the data we would send to them. We wanted to track their communications with students. We wanted a company that trained their staff to be able to answer all of students’ questions. And we especially wanted a vendor who would treat our students the way we would, which is warm and friendly. Inceptia met all of these requirements.

To watch this web seminar in its entirety, please go to:


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