Student Lending Analytics Blog

Perkins Loan Cohort Default Rate Rises to 10.04% For 2007-08 Cohort

Department of Education published their Orange Book for the Perkins Loan program showing that 10.04% of borrowers entering repayment in 2007-08 defaulted by September of 2009.  The comparable number for 2006-07 cohort was 8.32%.  The average Perkins loan in default was just over $1,950 for the 2007-08, which is up from almost $1,800 from the earlier cohort. 

• The Perkins CDR is higher than the draft 2008 cohort default figures for the federal student loan program, which were recently announced at 7.2%.  It also showed a more dramatic increase in going from 8.32% to 10.04% then the federal student loan CDR wich grew from 6.7% to 7.2%. Given that these loans are going only to the neediest students, it probably shouldn't be a surprise that the default rates have risen faster than for the federal loan programs. 

What Impact Would Elimination of FFEL Program Have On Private Student Loans?

This is a question that I am often asked at conferences by concerned financial aid administrators who have seen the significant drop in private (non-federal) student loans and wonder if there is another shoe to drop should lenders such as Sallie Mae and Citibank no longer make federal student loans. 

Discover Financial reiterated their commitment to their private loan product in their 10-K today:

"We currently offer both federal and private student loans. In September 2009, the U.S. House of Representatives passed the Student Aid and Fiscal Responsibility Act (“SAFRA”), which is currently under consideration in the U.S. Senate. If passed in its current form, SAFRA would require all federal student loans to be made directly by the federal government starting July 2010, rather than by private institutions through the Federal Family Education Loan Program. Because SAFRA allows financial institutions to continue offering private student loans, we do not expect SAFRA to have an impact on our ability to continue offering private student loans, even if we discontinue offering student loans under federal programs."

A few thoughts:

College Board Reports A 50% Drop In Private Student Loans For 2008-09

College Board released their 2009 Trends in Student Aid today.  I will be digesting the report over the next week and posting analyses.  Having assisted the College Board with their analysis of the private student loan market, it didn't come as a complete surprise that they reported a 50% decline in private student loans from $23.8 billion in 2007-08 to $11.9 billion in 2008-09.  Private student loans from the private sector declined by 51% from $22.3 billion to $11.0 billion, with state sponsored programs (such as Massachusett's MEFA, New Jersey's NJCLASS and Minnesota's SELF program) dropping 39%, from $1.5 billion to $900 million over the past year.  Note that the College Board adjusted their earlier 07-08 private loan preliminary estimates upwards, from $19.1 billion to $22.3 billion, which accentuated this decline of $11.9 billion. 

SLA Webinar on "In The Trenches: What Financial Aid Administrators Think About...

The webinar focused on the results from SLA flash surveys conducted with the financial aid community on the following topics:

• Federal student loan reform
• Private student loan availability
• Financial literacy
• Financial aid counseling
• Perkins loan reform

As I mentioned on the call, many groups are interested in what financial aid administrators are thinking these days as webinar participants included lenders, guarantors, consultants, investors and government officials. 

Here is a copy of the presentation materials:  Download In_The_Trenches_Financial_Aid_080609

Upcoming SLA Webinar: What Do Financial Aid Administrators Think About...?

Join us for a Webinar on August 6 at 1:30 ET Space is limited. Reserve your Webinar seat now at: https://www2.gotomeeting.com/register/113163931 Wonder what your peers are thinking about: *  Federal student loan reform? *  The new Perkins loan proposal? *  Financial literacy programs? *  Availability of private student loans? *  Financial aid counseling? Join Tim Ranzetta of Student Lending Analytics on Thursday, August 6th at 1:30pm ET for an informative (and free) webinar highlighting results of recent SLA Flash Surveys.  These surveys, which generate hundreds of responses, tap into the pulse of the financial aid community.  Participate in this webinar if you are interested in learning how your peers are reacting to this dynamic environment.

What Do You Think About the New Perkins Loan Program?

Thanks to the University of California for sharing their thoughts on the new Perkins Loan program as proposed in H.R. 3221, the Student Aid and Fiscal Responsibility Act (SAFRA). 

I am providing their comments in response to an aide to the House Committee on Education and Labor who had earlier indicated that legislators were interested in working with the financial aid community on finding a compromise solution to this interest rate subsidy issue.  I also am hoping that other financial aid administrators will use this as a forum to discuss any issues they might have with the proposed Perkins Loan reform, which has been overshadowed by the FFELP and DL debate. 

Here are the comments from the University of California: 

Reading SAFRA's Fine Print: Perkins Loan Reform

Here are the highlights from the Student Aid and Fiscal Responsibility Act, as it pertains to the Perkins Loan program:

• New name for Perkins Loans:  Federal Direct Perkins Loans

• Terms and Conditions:  Unless otherwise specified will be similar to Unsubsidized Stafford Loans. 
  
  • This effectively eliminates the interest rate subsidy during the in-school period that Perkins Loan borrowers currently enjoy
  • A House Committee on Education aide indicated that legislators are interested in working with the financial aid community on finding a compromise solution to this interest rate subsidy issue. 

SLA Flash Survey Finds 83% of Schools Outsourcing Perkins Loan Servicing

With dramatic change on the horizon for the Perkins Loan program, it seemed an opportune time to understand how the Perkins Loan program is currently being managed today.  Thanks to the following financial aid administrators for their technical support on this survey:  Margaret Carothers of Pitzer College, David Levy of Scripps College, Elisabeth Rankin of Saint Bonaventure University, Mark Lindenmayer of Loyola University Maryland and Jackie Ito-Woo of University of California.

Here are the complete survey results:  Download SLA_Flash_Perkins_Loan_071309

Here is a summary of the results:

Brookings Institution: Future of Student Financial Aid (May 26, 2009)

The Brookings Institution last week sponsored a panel discussion titled "The Future of Student Financial Aid."  Panelists included:

• MICHAEL MCPHERSON, President, The Spencer Foundation
• SANDY BAUM, Senior Policy Analyst, College Board; Professor of Economics, Skidmore College
• PHILIP DAY, CEO and President, National Association of Student Financial Aid Administrators
• CELIA SIMS, Legislative Assistant, Office of U.S. Senator Richard Burr (R-NC)
• ROBERT SHIREMAN, Deputy Undersecretary, U.S. Department of Education

Here were some of the more interesting comments from the transcript: 

Georgetown's Shares Best Practices on Perkins Collections

Thanks to Susan Coates, Assistant Director of University Loan Programs at Georgetown University for sharing this information.  Georgetown was recently featured in a post about schools achieving extremely low Perkins default rates.  Their 2006-07 cohort default rate for Perkins loans was 1.39%, which ranked in the top 10 for larger schools (over 500 borrowers entering repayment). 

Here is the Georgetown process:

• Georgetown University uses the electronic master promissory note and requires students to complete on-line loan entrance counseling each year they receive a Perkins Loan.  This provides the student borrower with the cumulative amount borrowed, reviews their rights and responsibilities, and reaffirms that Georgetown is the lender. 

• Prior to graduation, we require the student borrower to complete on-line Loan Exit Counseling which provides the student detailed repayment information, reviews their rights and responsibilities along with deferment and cancellation provisions, and again reaffirms that Georgetown is the lender. 
  
  • In order to ensure that the student borrower is aware of their loan obligation to Georgetown and to complete the Loan Exit Counseling, three notifications of the counseling requirement are sent to the student borrower. 
    

• Once the student borrower is in repayment, Georgetown is willing to work and be flexible, in accordance to federal regulations, with student borrowers who are having difficulty with repayment. 
  
  • We encourage the student borrower to contact our office for payment options. 
    

• Georgetown uses a loan servicer, which sends the required due diligence letters and 90 day telephone call.  
  • In the interim, Georgetown sends monthly delinquency letters for 60 days to 6 months. 
    

• Accounts are placed with an outside collection agency after 6 months of no activity, i.e. no contact or payment, and Georgetown feels that we have exhausted our efforts.  This has worked well for Georgetown.

Related posts: 

• Midwestern University shares best practices on minimizing Perkins and Stafford defaults
• Who's best at collecting on Perkins Loans?