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December 14, 2009

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Mark Scanlan

Dr. Woo's landmark work, "Clearing Accounts: The Causes of Student Loan Default" (EdFund, 2002) should be required reading for anyone engaged in default prevention.

One of its insights is particularly relevant to today's environment: the impact of split servicing, the condition in which a borrower's loans are serviced by more than one entity. Dr. Woo concluded that this condition increased the likelihood of default by 22%. For years, lenders, guarantors, and secondary market holders took pains to try to serialize a borrower's loans to one servicer, and a single servicer was the norm for most borrowers. With ECASLA purchases and the transition to DL, split servicing will affect the approximately 50% of borrowers whose loans are not currently serviced by Sallie, Nelnet, AES, or Great Lakes.

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