Guide to Developing a Default-Management Plan

Default prevention and debt management must be a campus-wide concern. The program should have the support of the president or chancellor and should include participation by relevant senior executive officials, faculty, staff and students.

USA Funds^®’ online “Best Practices in Debt Management Manual” provides a guide for developing a plan for managing campus default rates. According to the manual, a school that successfully implements a default-management plan does the following:

1. Uses its resources efficiently.
2. Provides enhanced initial and exit counseling. 
3. Works to reduce the number of dropouts. 
4. Works to ensure that its borrowers can repay their student loans. 
5. Keeps in touch with its borrowers.

In addition to the goals listed above, a comprehensive default-management plan should encompass some or all of the following items:

1. Analysis of your student population. Your analysis should consider “identifiers” for borrowers who are successfully repaying their student loans and borrowers who are delinquent or in default. You may find that those borrowers who are successfully repaying their student loans are more likely have a certain enrollment status (full-time vs. part-time), be enrolled in certain programs or live a specific distance from campus. This analysis will help you plan appropriate steps to help keep borrowers on track for successful repayment.
2. Hiring and training of campus staff.  Does your staff have the skills and tools necessary to help students successfully repay their loans? Enlist your service providers —your guarantor, lender or servicer — to help provide training on skills, program features and technology.
3. Evaluation of the current default-management plan. Identify your goals related to your debt-management philosophy. Do you want to reduce or maintain your school’s current default rate? Are you interested in providing your borrowers with more information to help them successfully manage their education expenses and repay their loans? Your default-management activities should focus on your goals.
4. Aid-packaging philosophy. Consider how your aid-packaging philosophy affects your borrowers. Help students find alternatives to borrowing, and help to ensure that education-loan-debt levels are appropriate for all your student populations. 
5. Education of borrowers. Look at the way in which your school provides students with financial-literacy information. Providing students with information about budgeting, credit cards, potential earnings and other financial-literacy issues also gives them the skills they need to successfully repay their student loans.
6. Networking and development of external relationships. Learn from your service providers and colleagues. Make it a point to discuss debt-management activities with financial-aid professionals from similar types of institutions. Glean ideas from conference sessions.
7. Effective use of reports. Information that can assist you in your default-management plan often is contained in borrower-loan-status reports that your office receives. Delinquency and default reports can help you develop your list of “identifiers” in your student-population analysis. Talk with your service providers about information that you would find helpful, and see if they can provide that information in the format that would be most useful for you.
8. Development of a resource library. Brochures, books, teaching aids and other materials are available from your partners in the student-loan community. Discuss with your service providers the materials that are available to develop a debt-management-resource library for students and staff.

A school that is required to use a default-management plan to participate in the federal Title-IV student-aid programs should review U.S. Department of Education guidance regarding development of a default-management plan.
Among the resources in the USA Funds “Best Practices in Debt Management Manual” is a sample default-management plan.

For more information about the USA Funds “Best Practices in Debt Management Manual” and USA Funds’ other debt-management initiatives, contact your debt-management consultant.