USA Funds Cuts Annual Default Rate to Below 2 Percent

Nation's leading guarantor averts $10.7 billion in potential student-loan defaults

USA Funds Cuts Annual Default Rate to Below 2 Percent

INDIANAPOLIS — USA Funds^®, the nation's leading education-loan guarantor, has cut its annual default rate to below 2 percent. For the year ending Sept. 30, 2002, USA Funds posted an annual default rate of 1.97 percent, a significant reduction from the previous year's default rate of 2.51 percent. USA Funds has cut its annual default rate by more than half since 1998.

"Our significant investment in default-prevention activities as well as the default-prevention efforts of our partners in the student-loan program have combined to reduce loan defaults for the benefit of all program participants," said Carl C. Dalstrom, USA Funds' president and CEO.

The annual default rate compares the dollars in default on loans guaranteed by USA Funds against the dollar value of all USA Funds-guaranteed loans in repayment. This default rate often is called the "trigger" default rate, because higher default rates trigger lower federal reimbursement to a guarantor.

Dalstrom reported that the decline in the annual default rate reflected the results of several USA Funds initiatives, including the following items:

Promoting successful repayment. USA Funds offers postsecondary institutions the leading online entrance- and exit-counseling services for borrowers. In addition, the guarantor supports a wealth of online and print information to keep borrowers on the path to successful repayment.
Massive default-prevention campaign. Under a performance-based agreement with its guarantor-servicer, USA Funds contracts for a team of 200 full-time specialists, backed by the latest technology, who work with borrowers who have fallen 60 days or more behind in their loan payments. These representatives make more than 20 million telephone attempts annually to contact borrowers and counsel them about the options for resolving their loan delinquency. As a result of this massive effort, USA Funds averts default on nearly 93 percent of past-due accounts on which lenders have requested the guarantor's assistance. During fiscal 2002, USA Funds prevented approximately $10.7 billion in loan defaults.
USA Funds' debt-management initiative. USA Funds offers schools a team of seven debt-management consultants who conduct free workshops and one-on-one consultations to help schools enhance their default-prevention efforts. USA Funds also convenes a Default-Prevention Council, which develops and disseminates tools to help postsecondary institutions reduce their default rates. Among the fruits of the council's work are USA Funds' financial-literacy program, Life Skills^SM, and an online Best Practices Manual, which provides tools and resources to enhance campus default-prevention efforts.

Dalstrom noted that other student-loan program participants play a vital role in combating loan defaults. "Lender and servicer due-diligence efforts as well as campus-based debt-management initiatives are key components in the battle against loan defaults," he reported. "USA Funds will continue to invest heavily in default prevention and work intensively with borrowers to keep them out of default."