Posted Date:August 22, 2016
| Author: | Matt Sessa, Deputy Chief Operating Officer, Federal Student Aid |
Subject: Federal Student Aid Posts Updated Reports to FSA Data Center
Today, Federal Student Aid posted a series of updates to its FSA Data Center, the centralized online source for Federal Student Aid data. In addition to posting updates to the quarterly application, disbursement, and portfolio reports, Federal Student Aid has added a new report relating to the Public Service Loan Forgiveness (PSLF) Program this quarter. The PSLF Employment Certification Forms (ECFs) Report provides information regarding the number and status of ECFs received from borrowers.
Key Findings in the Quarterly Reports
Federal Student Aid proactively posts these reports in support of open government initiatives to help ensure consistency, increase transparency, and establish self-service opportunities for interested stakeholders. While not exhaustive, the information below provides a snapshot of key findings in our most recent reporting. Because student loans are highly cyclical in nature, it is important to compare figures year over year whenever possible.
Tracking Toward Public Service Loan Forgiveness
The Public Service Loan Forgiveness (PSLF) Program, which was established under the College Cost Reduction and Access Act of 2007, permits Direct Loan borrowers who make 120 qualifying monthly payments under a qualifying repayment plan, while working full-time for a qualifying employer, to have the remainder of their balance forgiven. Although no borrower will be eligible for forgiveness under this program until October 2017, the Department introduced a voluntary Employment Certification Form in January 2012 to help borrowers track their progress toward meeting PSLF requirements. The PSLF Employment Certification Forms Report shows that through June 30, 2016, almost 950,000 ECFs have been submitted and of those, about two-thirds have been approved.
ECFs are denied when a borrower’s loans are ineligible for PSLF, the form is incomplete, or a borrower’s employer does not meet the PSLF requirements. An ECF will not be denied due to an ineligible repayment plan; instead, the borrower will be counseled to switch to a PSLF-eligible repayment plan if he or she is otherwise eligible for PSLF (i.e. eligible loans and qualifying employment). Borrowers are encouraged, but not required, to submit an ECF annually or whenever they change jobs to help track their progress toward meeting the PSLF eligibility requirements. Some borrowers may choose to wait until they are eligible for forgiveness before submitting documentation about their employment so this report may underrepresent the potential numbers of borrowers who may ultimately qualify for forgiveness under this program. As of June 30, approximately 432,000 borrowers have submitted at least one approved ECF.
Shifts in the Outstanding Loan Portfolio
Since the implementation of the Health Care and Education Reconciliation Act of 2010, which eliminated new FFEL Program loans after June 30, 2010, the make-up of the outstanding loan portfolio has shifted. Today, the outstanding student loan portfolio stands at $1.26 trillion. The FFEL portfolio represents 27 percent of the outstanding loan portfolio while the DL portfolio has grown to represent more than 72 percent. Perkins Loans comprise less than one percent of the Federal Student Aid portfolio. The federally managed portfolio, which includes Direct Loans and FFEL Program loans owned by the Department, is now more than $1 trillion, representing more than 80 percent of the total portfolio.
Increased Enrollment in Income-Driven Repayment Plans
Enrollment in income-driven repayment (IDR) repayment plans such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE) continue to increase. As of June 2016, nearly 5.3 million Direct Loan borrowers were enrolled in IDR plans, a 36 percent increase from June 2015 and a 110 percent increase from June 2014. Although another 1.1 million ED-held FFEL borrowers are enrolled in IBR and Income-Sensitive Repayment (ISR), there is a large overlap of DL and ED-Held FFEL IDR borrowers. Combined, approximately 5.5 million unique borrowers are enrolled in IDR plans.
Enrollment in the Department’s new income-driven repayment plan, REPAYE, has tripled since last quarter to 570,000 borrowers. The REPAYE Plan, which was first made available to borrowers in December 2015, enables Direct Loan borrowers to cap their monthly student loan payment amount at ten percent of monthly discretionary income, without regard to when the borrower first obtained the loans.
Although borrowers enrolled in IBR and PAYE plans are eligible to make reduced payments based on a partial financial hardship (PFH), the percent of borrowers benefitting from PFH has continued to decrease as borrower incomes increase and the proportion of first-time certification borrowers in the IDR portfolio declines. As of June 2016, 73.1 percent of Direct Loan IBR and PAYE borrowers and 71.4 percent of ED-held FFEL IBR borrowers were making PFH payments. Note: The ICR, ISR, and REPAYE plans do not offer reduced payments to borrowers based on partial financial hardship.
New Defaults and Delinquency Rates Fall
In an effort to measure more accurately the flow of defaults, Federal Student Aid began publishing information about new Direct Loan defaults earlier this fiscal year. Because defaulted federal student loans are rarely written off, Federal Student Aid’s open stock of defaults continues to grow even as delinquencies and new defaults have declined. For the third consecutive quarter, new Direct Loan defaults have decreased as a percentage of recipients in repayment the previous quarter. During the most recent quarter (FY2016 Q3), about 260,000 borrowers, or 1.7 percent of recipients who were in repayment last quarter, entered default, compared with 2.1 percent one year ago.
In addition to the decrease in new defaults, both DL and ED-held FFEL delinquency rates are down compared with the same time period last year. The 31+ DL delinquency rate has experienced year-over-year decreases of 11.4 percent by recipient count and 9.4 percent by total dollar balance. As of June 2016, the active repayment 31+ delinquency rate for DL was 18.6 percent by recipient count and 14.4 percent by total dollar balance compared to 21.0 percent and 15.9 percent one year ago. While the ED-held FFEL portfolio tends to have higher 31+ delinquency rates than DL, with rates at 18.9 percent by recipient count and 20.9 percent by total dollar balance, it still represents year-over-year decreases of 12.6 percent and 9.3 percent. When calculating a delinquency rate that includes deferment and forbearance in addition to active repayment, the 31+ delinquency rate for DL decreases to 13.4 percent by recipient count and 10.0 percent by total dollar balance while the ED-held FFEL 31+ delinquency rate decreases to 13.9 percent by recipient count and 14.7 percent by total dollar balance.
Default Recoveries
Thus far in FY2016, the Department has collected approximately $14.1 billion in defaulted student loans through guaranty agencies and private collection agencies. Through the quarter ending June 30, 2016, guaranty agencies have collected nearly $7.4 billion in defaulted student loans while private collection agencies have collected $6.7 billion. Note that guaranty agency collections include collections on defaulted student loans through the Treasury Offset Program (TOP), but not collections reported by private collection agencies, as PCAs are not involved in the TOP process.
During the most recent quarter, nearly three-fourths of the recoveries made by private collection agencies were due to rehabilitations; more than 15 percent were due to consolidations; less than seven percent were due to wage garnishments; and nearly four percent were due to voluntary payments. Fiscal-year-to-date, 60 percent of the recoveries by guaranty agencies were due to rehabilitations; 21 percent were due to consolidations; more than eight percent were due to Treasury offsets; seven percent were due to wage garnishments; and nearly four percent were in voluntary payments.
Decreased Application Volume and Aid Disbursements
Historically, FAFSA submissions have been impacted by unemployment rates. Since unemployment rates have slowed, FAFSA submissions have also decreased. In the first six months of the 2016-2017 application cycle, 13.2 million FAFSAs were submitted, a 3.5 percent decrease from the same time period last year. The 2015-2016 application cycle, which ended June 30, experienced a similar decrease in applications compared to the 2014-2015 cycle. Federal Student Aid regularly publishes FAFSA completions by high school and school district in order to help school officials and counselors gauge how many of their students have completed applications.
Aid disbursements have generally decreased consistent with the decline in applications; however, at this time, the 2015-2016 volume is not mature enough to make those comparisons. In addition to typical year-end data adjustments, 2015-2016 disbursements are likely to increase as a result of summer disbursements made for the 2015-2016 award year that occur after June 30. For the 2014-2015 award year, loan disbursements were down 3.7 percent from 2013-2014 while Pell Grant and Teach Grant disbursements were down 2.7 percent and 2.2 percent, respectively. This coincides with a three percent decrease in applications for that time period.
Key Items to Note While Reviewing These Reports
To accurately interpret the data, please note the following items:
In the portfolio reports, recipient counts are based at the loan level. For that reason, recipients may be counted multiple times across varying loan statuses. For example, a recipient with one loan in deferment and one loan in forbearance would be counted once in each category. A recipient with two loans in the same status would only be counted once in that category.
In the portfolio reports by servicer, please note the differences in portfolio composition between the Title IV Additional Servicers (TIVAS) and the Not-For-Profit Servicers (NFPs). The NFP portfolio is overwhelmingly made up of accounts received from the Direct Loan Servicing Center in 2011-2012. These loans were already in repayment and current at the time they were transferred. As a result, the loans are more much stable and mature than the TIVAS portfolios. The TIVAS have high volumes of new borrowers who are much more likely to move in and out of delinquency. The TIVAS also service FFEL Program loans purchased through ECASLA and loans of all statuses received from the Direct Loan Servicing Center. Although the NFPs started receiving new borrowers in January 2015, many of those loans are still in an in-school status.
Active repayment includes all current and delinquent borrowers whose accounts are currently serviced by federal servicers. Borrowers with loans in grace, in school, in deferment, in forbearance, or in bankruptcy or disability status are not expected to make payments and are not included in this calculation.
The Direct Loan Portfolio by Delinquency Status and ED-Held FFEL Portfolio by Delinquency Status reports should not be directly compared with the quarterly performance metrics for federal student loan servicers. These reports define current repayment as less than 31 days delinquent while the most recent contracts with the servicers define current repayment as five days or less delinquent. The servicer contract performance metrics are at the borrower level while the FSA Data Center reports are based at the loan level. As a result, there may be duplication across the FSA Data Center reports in the event a borrower has loans in varying delinquency statuses.
In the loan and grant reports, the first tab of the workbook shows the number of recipients and disbursements for the specified quarter while the second tab shows the cumulative, award-year-to-date activity. The second tab of an award year’s fourth quarter report will show data for the full award year. Since the information is reported by specific loan type or grant program, a total unique grant or loan recipient count is not available by school.
Please note that since loan and grant reports are generally run shortly after the quarter’s end, initial runs often under-report activity as a result of reporting delays and activity that occurs for the award year after the run date (for example, summer disbursements).
The Consolidated Appropriations Act of 2016 requires the Department to allocate new student loan borrower accounts to eligible student loan servicers on the basis of their performance compared to all loan servicers utilizing established common metrics, and on the basis of the capacity of each servicer to process new and existing accounts no later than March 1, 2016. Prior to the passage of the Consolidated Appropriation Act, the Department established common performance metrics across all servicing contracts but maintained separate allocation pools to reflect differences in portfolio composition.
Given this requirement, beginning on March 1, 2016, new allocation percentages were based on performance under the established common metrics compared across all loan servicers. Since that time the Department has developed a revised methodology that will better reflect differences across servicer portfolios while maintaining the established common metrics. This methodology was applied for the period from January 1, 2016, through May 31, 2016, and revised allocations were put in place on July 1, 2016.
As part of Federal Student Aid’s assessment of how best to implement the provision included in the appropriations act, the organization has requested, received, and conducted an initial review of capacity plans from all servicers to assess the reasonability and risk of each servicer’s staffing, training, system, and other resource planning. We have experience working with each of our servicers and are already familiar with their systems and capabilities. Based on our experience and our initial assessment of the capacity plans, we are confident that all of our servicers can manage and process projected borrower account allocations for the next few months, while the volume of new accounts is relatively low. While we continue the process of completing and documenting our capacity assessment, we will monitor each servicer’s performance closely and can modify or discontinue allocations on short notice if any issues arise.
The FSA Data Center was launched in 2009 in an effort to increase government transparency by proactively posting information useful to businesses, institutions, the media, and individuals. In addition to the reports listed above, Federal Student Aid regularly posts strategic plans, copies of executed contracts, and school compliance reports, such as Clery Act reports and financial composite scores, on the FSA Data Center. Federal Student Aid is committed to continuing to expand the data sets available on the FSA Data Center in alignment with customer needs.