Attachment A:

Default Prevention and Management:

A Plan for Student and School Success

Section I Overview
Section II Early Stages of Enrollment
Section III Late Stages of Enrollment
Section IV After Students Leave School
Section V Enhanced Entrance and Exit Counseling
Section VI Tools and Activities for Schools

Section I Overview
This Sample Default Prevention and Management Plan provides all schools with
activities, techniques, and tools to promote student and school success and reduce student
loan defaults in the Federal Family Education Loan (FFEL) and William D. Ford Federal
Direct Loan (Direct Loan) programs. Schools participating in the FFEL or Direct Loan
programs for the first time, or schools participating in the FFEL or Direct Loan programs
that have undergone a change of ownership that resulted in a change in control are
required to use a default prevention and management plan to participate in the Title IV
Programs (34 CFR 668.14(b)(15). For such schools, implementation of the nine Default
Prevention and Management Activities listed below will satisfy that requirement.
Schools required to adopt a default prevention and management plan have the option to
submit their own plans to the Department in lieu of adopting this Default Prevention and
Management Plan. However, all schools are required to follow regulatory guidance
including: entrance counseling and exit counseling for borrowers, reporting timely and
accurate enrollment information to the U.S. Department of Education (the Department),
and sharing satisfactory academic progress information across campus. In addition to
these regulatory requirements, schools that are not required to use a default prevention
and management plan should strongly consider implementing some or all of the non-
regulatory measures in this plan. Additionally, many of the activities that you apply to
your school’s FFEL and DL borrowers may be successfully applied to your school’s
Perkins loan borrowers.

Default Prevention and Management Activities

Entrance Counseling Page 2
Financial Literacy for Borrowers Page 3
Communication Across Campus Page 3
Exit Counseling Page 4
Timely and Accurate Enrollment Reporting Page 4
NSLDS Date Entered Repayment (DER) Report Page 5
Late Stage Delinquency Assistance (LSDA) Page 5
Loan Record Detail Report (LRDR) Data Review Page 6
Analyze Defaulted Loan Data to Identify Defaulter Characteristics Page 6
Benefits of Adopting a Default Prevention and Management Plan
The activities in this Default Prevention and Management Plan promote student and
school success by increasing retention and reducing delinquency and default. Schools
and students receive benefits when schools implement the activities, techniques, and tools
outlined in this plan. Schools benefit by avoiding any limitations on participation in the
loan programs due to excessive cohort default rates (CDRs). Students benefit by having
continued access to Title IV Student Financial Assistance Programs, learning good debt
management practices, and establishing a healthy credit history. Schools that are actively
committed to promoting student success help their students learn, graduate, obtain
employment, and demonstrate financial responsibility through repayment of the funds
borrowed to finance their education.

Consequences of Default for Borrowers

Borrowers who default on student loans face serious consequences. Stafford Loans are
considered in default after 270 days without payment. At the time of default, outstanding
interest is capitalized and collection fees may be added, resulting in a loan balance that is
higher than the amount borrowed. Defaulted loans are reported to credit bureaus, causing
borrowers to sustain long-term damage to their credit rating. Defaulters may also face
difficulty in securing mortgages or car loans, may have their wages garnished, and their
federal income tax refunds and other federal payments seized. Until the default is
resolved, collection efforts continue and the defaulter will be ineligible for additional
federal student aid. The Department, guarantors, and servicers undertake many activities
to prevent borrowers from defaulting. With a minimal amount of time, effort, and
expense, schools can play a critical role in helping borrowers avoid the damaging
consequences of default.

Consequences of Default for Schools

Schools may face serious consequences due to high CDRs. Consequences include the
loss of participation in the FFEL, Direct Loan, and/or Pell Grant programs. Schools may
also be provisionally certified. Effective, easy-to-implement tools that reduce defaults,
promote student and school success, help preserve the integrity of the loan programs, and
reduce costs to taxpayers are available to schools.

Section II Early Stages of Enrollment

The Department recommends that every school implement a default prevention and
management plan. Schools and borrowers benefit when schools incorporate default
prevention and management activities into their operations. Schools can undertake these
required and recommended activities that make up a default prevention and management
plan as early as during student enrollment in order to reduce the incidence of default.

Entrance Counseling
Regulations require that first time borrowers of FFEL and Direct Loan program loans
receive entrance counseling. During entrance counseling, schools must explain how the
master promissory note works, emphasize the importance of repaying the loan, describe
the consequences of default, and show borrowers sample monthly repayment amounts

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based on their program of study at your school. Schools may enhance entrance
counseling to include financial literacy and ensure that borrowers thoroughly understand
all information. In addition, schools should collect as much contact information about
borrowers as possible during entrance counseling to facilitate future contact if needed.
These activities will ensure more knowledgeable, responsible borrowers, and result in
fewer defaulters as well. (Section V Enhanced Entrance and Exit Counseling)

Financial Literacy for Borrowers

The Department recommends that schools provide borrowers with information
concerning the income potential of occupations relevant to their course of study,
counseling at various stages of enrollment, interactive tools to manage debt, repayment
options, and school contact information. Schools can offer this information through a
variety of media such as counseling, classes, publications, e-tutorials, electronic
newsletters to email accounts, adding the information to award letters, or using a
combination of methods. To help students manage their debt, some schools are limiting
access of credit card companies to their campuses. Schools should also provide
borrowers with entrance counseling material and the following resources, at minimum, at
enrollment and following graduation or withdrawal:
• Estimate of required monthly payments on the borrower’s loan balance,
• Calculators to help estimate and manage debt,
• Loan servicer contact information,
• Contact information for delinquency and default prevention assistance on campus,
• Introduction to NSLDS for Students,
• Repaying Your Student Loans publication.

Early Identification and Counseling for Students at-Risk

Students at-risk generally refers to borrowers who withdraw prematurely from their
educational programs, borrowers who do not meet standards of satisfactory academic
progress or both. Counseling at-risk borrowers should focus on the causes of withdrawal
or unsatisfactory academic progress and solutions to resolve these matters. The end
result of working with at-risk students will be more borrowers completing their
educational programs, equating to a higher retention rate for the school and lower
numbers of defaulted borrowers.

Communication Across Campus

Communication of information relevant to the prevention and management of defaults
must be a school-wide effort and should not be the responsibility of only a single office.
While communicating certain information across campus is mandatory, communicating
additional information is highly recommended. To promote success, school officials
should examine their communication procedures for effectiveness and inclusiveness.
Information regarding borrowers’ academic progress and enrollment status should be
components of the information received by all relevant offices across campus including
the offices that disburse funds and authorize payments. Accurate and timely
communication among school entities and the Department not only ensures the right aid
is getting to the right student, but such communication will help schools comply with

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regulations regarding the school’s standards of administrative capabilities, accurate and
timely reporting of borrowers’ enrollment status, and satisfactory academic progress.

Default Prevention and Retention Staff

Having dedicated default prevention and management staff has proven invaluable for
many schools. The Department recommends dedicated staff because they are in an
excellent position to establish working relationships with borrowers from early in the
students’ experience through repayment. Many schools are also dedicating staff to
student retention activities, a key to school and student success as well as default
reduction. Where resources are limited, the Department recommends combining these
two functions, as they are similar in nature. An emphasis on both will particularly benefit
at-risk borrowers.

Section III Late Stages of Enrollment

During the later stages of enrollment and after students have left school, there are many
default prevention and management activities that will help reduce defaults and help
ensure borrower and school success.

Exit Counseling
Regulations require that schools provide exit counseling. Exit counseling is an effective
way to prevent defaults and is often the last opportunity that borrowers have to work with
someone at school regarding their loans. In-depth counseling that focuses on fully
explaining repayment plans and choices that fit the borrowers’ needs is essential. Exit
counseling is the opportunity to clear up any misconceptions students may have about
their loan obligations and re-emphasize the consequences of default. Schools should take
full advantage of this opportunity to work with their students. A large percentage of
borrowers in delinquency either did not have the benefit of receiving this information or
did not receive it timely. Thorough exit counseling is a cornerstone of default prevention
and is mandatory. (Section V Enhanced Entrance and Exit Counseling)

Withdrawals
Many borrowers who default on their loans are borrowers who withdrew from school
prior to completing their academic programs. These borrowers, at the highest risk of
default, can often be identified while still on campus. Early identification and timely
intervention can improve student retention and reduce the number of defaulted loans. In
addition to fulfilling the regulatory requirement to provide exit counseling to students,
schools should attempt to work with students even after they have left school by
encouraging them to complete their programs of study and helping them resolve the
issue(s) that prompted their withdrawal. Consider offering job placement services for a
limited timeframe to students who have withdrawn. In addition to providing a valuable
service, schools can take advantage of the borrower’s return to campus to provide
counseling. Note that an employed borrower, even one earning less than if he/she had
completed school, is better able to make loan payments than an unemployed borrower.

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Timely and Accurate Enrollment Reporting
Timely and accurate enrollment reporting to the Secretary or the guarantor as appropriate
is required by regulation and promotes school and student success. There is a direct
correlation between late or inaccurate enrollment reporting and loan defaults.
This school activity ensures that borrowers receive their full grace period, and further
ensures that contacts from the loan servicer such as correspondence and telephone calls
occur in the appropriate timing and sequence. The servicer’s contacts are designed to
increase the likelihood that borrowers will satisfy loan obligations. Timely and accurate
reporting of changes in enrollment status is required of all schools. Adhering to a
monthly schedule of reporting changes in enrollment status will help with data accuracy
and is recommended. (Section VI Tools)

Section IV After Students Leave School

There are simple and effective default prevention and management activities for schools
that will help borrowers during repayment. In addition, there are activities to help
schools correct data and improve prevention and management practices and initiatives.

NSLDS Date Entered Repayment (DER) Report

The DER Report is available to schools upon request from NSLDS. The Department
recommends that on a bi-monthly basis schools compare their DER Report to their
institutional records, and make any necessary corrections to their borrowers’ status using
NSLDS Enrollment Reporting. Schools should not assume that a borrower’s DER is
correct, as it is subject to change. Lenders can change a student’s enrollment status based
on data from the clearinghouse or a student’s request. Likewise, a school can update
enrollment information based on information it receives from the student or another
reliable source. Reviewing the DER Report will result in more accurate data, assuring
that borrowers enter repayment in the correct cohort year and that schools receive
accurate cohort default rates (CDRs). (Section VI Tools)

Early Stage Delinquency Assistance (ESDA)

ESDA begins at the time of separation or early in the grace period. ESDA is a highly
focused effort by lenders, guarantors, and schools to assist particular borrowers to prepare
for entry into loan repayment. Certain borrowers, such as those who have failed to
complete their academic program, or borrowers who share specific characteristics or
academic or related experiences, may be more likely to encounter difficulties initiating
and maintaining on-time loan repayment. ESDA activities afford lenders, guarantors, and
schools an opportunity to provide focused, enhanced loan counseling, borrower
education, and personal support during the grace period, and in so doing help decrease
the chances of later loan default. In addition to ESDA, schools should utilize default
aversion assistance offered by guarantors and similar assistance from the Direct Loan
Servicer for borrowers who are at least 60 days delinquent.

Late Stage Delinquency Assistance (LSDA)

Though guarantors and the Direct Loan Servicer are extremely effective in working with
borrowers throughout repayment, they lose touch with some borrowers. Schools can
often help to re-establish this critical communication during the late stages of
delinquency, serving as a liaison between delinquent borrowers and staff experienced in

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borrower assistance. LSDA techniques enable schools to rescue severely delinquent
borrowers, those who are more than 240 but less than 361 days delinquent, from default.
LSDA can be successfully implemented with a minimal investment of time and staff.
Even for a large school, the number of borrowers in this delinquent group is generally
small. Several telephone calls a month lets the most delinquent borrowers know that they
have options, and that help is available. (Section VI Tools)

Maintain Contact with Former Students

Schools find that all of the practices and strategies mentioned previously are much easier
to employ if they are able to reach and keep in contact with their former students after
they have left campus. By collecting ample reference information including cell phone
numbers, e-mail addresses, and numbers and names of a variety of family members such
as grandparents and cousins, schools have the resources to maintain contact with former
students. Allowing borrowers to continue to use school e-mail accounts after they have
left campus is not only a convenience to borrowers, but also a quick, easy, and effective
method of contacting them after they have left school. One of the best methods schools
can employ to avert defaults is to work with borrowers during every stage of repayment.
Work with lenders, guaranty agencies, and servicers to identify delinquent and hard to
reach borrowers, or those who have not been contacted at all to assist them with their
repayment options and obligations. Contacting borrowers is an essential activity upon
which successful default prevention and management can be built. Contact from the
school may be the only effective technique to save a borrower from the negative
consequences of default.

Loan Record Detail Report (LRDR) Data Review

Although an aggressive and proactive approach to default prevention and management is
a must for all schools, school responsibilities do not end with prevention plans,
initiatives, and strategies. Schools, borrowers, and the loan programs in general all
benefit from a thorough examination of the draft and official CDR data to ensure that the
rates are accurate and include the correct borrowers and loans. Upon receiving their
rates, schools should examine their LRDR, the report containing all the data that
comprises the CDR calculation. The Department recommends that all schools review
their LRDR regardless of their CDR. It is the school’s responsibility to challenge
incorrect data reflected in their draft CDR, or request an adjustment, or submit an appeal
of inaccurate data as reflected in their official CDR. (Section VI Tools)

Analyze Defaulted Loan Data to Identify Defaulter Characteristics

No matter how effective and far-reaching a default prevention and management plan is,
some borrowers default. A major part of any plan is to periodically review progress in
preventing defaults. One element of this review is a comprehensive analysis of
defaulters. Schools should gather information to discern who is defaulting and why.
Schools can then use this information to improve their default prevention and
management practices and initiatives. Internal data includes key information such as
high school attended, program of study, demographics, grades, etc. Reviewing the LRDR
also provides key data about borrowers that can assist in determining common
characteristics among defaulters. Causes for defaults can include, but are not limited to,
absent or incomplete internal procedures, practices, and communication, particular

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programs and course requirements or structure, and ineffective counseling. Frequent
examination of defaulter characteristics coupled with an assessment of default prevention
and management successes and shortcomings provide valuable information. Schools
promote success by taking preventive measures to correct ineffective practices thereby
preventing current and future borrowers from experiencing the same difficulties that
plagued past defaulters. One solution to preventing future defaults lies in understanding
what caused past defaults.

Section V Enhanced Entrance and Exit Counseling

In addition to complying with the applicable requirements in 34 CFR 682.604, 34 CFR
685.304, 34 CFR 668.165 and 34 CFR 668 Subpart D, the Department recommends that
entrance and exit counseling also include the following:

Requests for Borrower Information

• During entrance and exit counseling, obtain information from borrowers
regarding references and family members beyond those requested on the loan
application, and ask for cell phone numbers and email addresses for borrowers
and for family members;
• During exit counseling, obtain updated information from borrowers including
their addresses, cell phone numbers, email addresses, and addresses of their
references and various family members.

Information about Repaying the Loan

• Estimated balance of loan(s) when the borrower completes the program;
• Interest rate on the borrower’s loan(s);
• Name, address and telephone number for the borrower’s lender;
• During exit counseling, provide a sample loan repayment schedule based on the
borrower’s total loan indebtedness;
• Estimated monthly income that the borrower can reasonably expect to receive in
his or her first year of employment based on the education received at your
school;
• Estimated date of the borrower’s first scheduled payment.

Reminders about Personal Financial Management and Title IV Loans

• Schools should provide financial literacy resources to borrowers at enrollment,
throughout attendance, and following graduation or withdrawal;
• Students should borrow only what is needed and can cancel or return any funds in
excess of what is needed;
• Borrowers must inform their lenders immediately of any change of name, address,
telephone number, or social security number;
• If a borrower is unable to make a scheduled payment, he or she should contact the
lender before the payment’s due date to discuss a change in repayment plan or
other repayment options;
• General information should be provided about:
o Repayment options; and

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 o The sale of loans by lenders and the use by lenders of outside
contractors to service loans.

Section VI Tools and Activities for Schools

These recommended tools for schools ensure data accuracy and employ effective loan
counseling and default prevention and management techniques to aid students and
schools.

Where do I begin?
FSA Assessments for Default Prevention and Management
http://www.ifap.ed.gov/qamodule/DefaultManagement/DefaultManagement.html

Loan Counseling
Students and Counselors
http://www.studentaid.ed.gov
The Student Guide and NSLDS for Students
http://www.studentaid.ed.gov
How much will it cost?
http://nces.ed.gov/ipeds/cool/
http://www.dlssonline.com/tools/search.asp (for Direct Loan Borrowers)
How will I pay for it?
http://studentaid.ed.gov/students/publications/student_guide/index.html
Will I make enough money in my chosen occupation to repay student loans I receive?
http://www.bls.gov/search/ooh.asp?ct=OOH
http://data.bls.gov/PDQ/outside.jsp?survey=nc
Repaying Your Student Loans
http://www.studentaid.ed.gov/students/publications/repaying_loans/index.html
Ombudsman Office
http://www.ombudsman.ed.gov
Ensuring Student Loan Repayment Best Practices for Schools
http://www.ifap.ed.gov/eannouncements/0119stuhbkbestprectice.html
SFA Assessments for Schools
http://www.ifap.ed.gov/IFAPWebApp/qualityassurance/SFAAssessment.jsp
Mapping Your Future
http://www.mapping-your-future.org
Jump Start Coalition for Personal Financial Literacy
http://www.jumpstart.org

Enrollment Reporting and Data Accuracy

NSLDS Enrollment Reporting Guide, formerly SSCR User’s Guide
http://www.ifap.ed.gov/nsldsmaterials/010904NSLDSEnrollRepGuide.html
NSLDS Date Entered Repayment Report, School Repayment Information Loan Detail
Report, and Enrollment Reporting Summary Report
https://www.nsldsfap.ed.gov
NSLDS Reports, requesting and formatting questions
https://www.nsldsfap.ed.gov Reports Tab
NSLDS User ID
CPS/WAN Technical Support 1-800-330-5947

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 NSLDS Customer Support 1-800-999-8219
Cohort Default Rate Guide for information on challenges, adjustments, and appeals
http://ifap.ed.gov/DefaultManagement/DefaultManagement.html

Default Prevention
FSA Assessments
http://www.ifap.ed.gov/qamodule/DefaultManagement/DefaultManagement.html
Ensuring Student Loan Repayment Best Practices
http://www.ifap.ed.gov/eannouncements/0119stuhbkbestprectice.html
NSLDS Reports and Exit Counseling
https://www.nsldsfap.ed.gov
NSLDS Reports, requesting and formatting questions
https://www.nsldsfap.ed.gov Reports Tab
NSLDS User ID
CPS/WAN Technical Support 1-800-330-5947
NSLDS Customer Support 1-800-999-8219
Late Stage Delinquency Assistance (LSDA) Guide:
For Direct Loan Schools,
Direct Loan Servicing/Schools website, accessed via COD website
http://www.cod.ed.gov
For FFEL Schools,
Default Prevention Strategies
http://www.ifap.ed.gov/qamodule/DefaultManagement/DefaultManagement.html or contact
your guaranty agency

General Connections/Publications
Information for Financial aid Professionals (IFAP) Library with publications, training,
tools, references, laws, etc.
http://www.ifap.ed.gov
The Office of Federal Student Aid
http://www.ed.gov/about/offices/list/fsa/index.html
The Student Guide
http://www.studentaid.ed.gov
NSLDS
https://www.nsldsfap.ed.gov or https://www.nsldsfap.ed.gov/secure/logon.asp
ED Pubs, the Department of Education Online Publication Ordering System, helps you
identify and order free publications from the Department. Examples of resources
available at ED Pubs include the following:
• Repaying Your Student Loans (in English and Spanish)
• The Student Guide
• Getting Ready to Pay for College
• Counselors and Mentors Handbook
www.edpubs.org
1-877-4ED-Pubs or [email protected]

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U.S. Department of Education Default Prevention and Management Team
If you require any assistance creating a default prevention and management plan at your
school, or to discuss any part of this document, please contact:
[email protected] or 202 377-4259.

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