The New York Statewide Default Prevention Project

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New York Statewide Default Prevention Project

The U.S. Department of Education continues to be concerned about the increasing rate and volume of Stafford Loans that enter into default each year. Although cohort default rates have dropped over the last decade, at least until the 2004 cohort calculation, the loan volume and the number of dollars going into default have both increased over that same period. Nationally, in FY 2003 and 2004, just ten states accounted for nearly half of the dollars and accounts that went into default. For FY 2004, New York placed third highest on the list of the 50 states.

As you know, loan delinquency and/or default exact a variety of consequences for students, colleges, guarantors, the Direct Loan Servicer, the U.S. Department of Education, the U.S. Treasury, and ultimately the taxpayer. As a result, the U.S. Department of Education FSA/Default Prevention and Management team has begun an initiative, the New York Statewide Default Prevention Project, aimed at expanding conversations within and beyond the Stafford Loan community to address continuing concerns about the rate of loan default, and also about the volume of dollars and accounts that go into delinquency and default, and the overall impact of those dollars and accounts on the integrity of the Stafford Loan program.

The project will focus on a process driven by an incremental increase in default prevention activity at each institution in the state, the aggregate leading to a reduction in both the rate of loan default and the dollars and accounts flowing into delinquency and default across the whole Stafford Loan portfolio. In this context, each institution's unique contribution will make a significant difference program-wide.

The project plan calls for encouraging the active engagement in enhanced default prevention by all sectors of higher education through the creation of a network to facilitate the exchange of best practices in default prevention; for each college or university to add at least some new activity to what they are currently doing in default prevention; and to broaden the conversation about loan default and delinquency in New York to a discussion of the links between loan default and student success.

In the long term, loan defaults are a symptom rather than a cause. There is a direct relationship between student success and the incidence of loan default. As more students succeed in selecting the right program at the right institution; in engaging in the campus’s academic and other educational activities; in completing their academic programs; and in preparing for and finding useful, meaningful employment, the incidence of delinquencies and loan defaults is reduced.

Institutional efforts designed to identify risky borrowers early and provide support to minimize the possibility of their default will be key to this initiative. One measure of this project’s success will be the active participation in default prevention conversations among an institution’s campus professionals involved with student persistence initiatives.

We are also cognizant of the changes in the terrain of the higher education costs and funding, and in the college loan market in particular. As you know, institutions and students are making increasing use of both Stafford and private or alternative loans. Overall indebtedness is increasing, a circumstance that holds the potential for adverse consequences for borrowers and schools. In order to protect the interests of their borrowers, and to protect their own institutional viability, schools will do well to take steps now to reduce the incidence of delinquency and default among their student borrowers.

In New York, an Advisory Team has been established to help the project remain on track and to explore new ways of achieving the project’s goals. Project Advisory Team members include knowledgeable individuals from every sector of higher education in the state, representing not only the financial aid and guarantor community, but also higher education professionals who routinely focus on issues related to retention, graduation and program completion in particular, and student success in general.




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The information presented on the NYSFAAA Website is provided as a service from the New York State Financial Aid Administrators Association to our constituents and represents our best efforts to assist students and their families in pursuing funding for higher education. NYSFAAA is a volunteer association of financial aid professionals representing the various institutions of higher education in New York State. We have collected information we believe to be important and reputable in finding and obtaining financial aid resources; however, we assume no liability for the use of this information. The New York State Financial Aid Administrator's Association, Inc (NYSFAAA) does not receive any money, gifts or compensation, related to educational lending activities, from any "lending institution" as defined in S620(8)a and S620(8)b of New York State Education Law. Hence, NYSFAAA does not meet the definition of "lending institution" as defined in S620(8)c of New York State Education Law. Therefore, institutions of higher education in New York and employees of those institutions are not subject to any potential conflicts of interest or legal restrictions under NYS Education Law in their interactions with NYSFAAA.*
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