Default Management Plan

If a student borrower defaults on their federal student loan, it can have negative consequences for both the student and your school. Schools should have a comprehensive Default Management Plan in place to identify and work with students at the earliest possible opportunity.

Identifying "At-Risk" Students

A successful Default Management Plan will identify and counsel student borrowers most at risk for defaulting on their loans.

Start by evaluating the data your school has about former students. Review the data for patterns, including:

  • High schools students attended
  • Courses of study
  • Grade point averages
  • Attendance patterns
  • Reasons for separation

The U.S. Department of Education considers students who have withdrawn from school prematurely or who have not met standards of satisfactory academic progress to be at risk.

By counseling these student borrowers and learning the causes of withdrawal or unsatisfactory academic progress, your school may be able to help students complete their academic programs and successfully repay their loans.

Determine Your Objective and Call to Action

After you’ve identified the school’s at-risk borrowers, think about the ways you currently communicate with students about loan repayment and consider enhancing or expanding those programs as part of your plan. You may want to:

  • Enhance your school’s entrance and exit counseling sessions to make sure student borrowers understand their repayment obligations.
  • Offer financial literacy programs more frequently throughout the loan process and in a wider variety of formats.
  • Communicate with students earlier and more often while they are in school and during repayment.

Then, think about what additional efforts you’d like to make and the resources you have available to implement them. For example, do you have the time, staff, and money to make telephone calls to student borrowers?

The final item to consider is what you want the student borrower to do after you’ve communicated with him or her. In most cases, you’ll want to encourage the student borrower to contact the servicer to either:

  • Make a payment to satisfy the delinquency,
  • Work out a plan to make the student borrower’s payments more affordable, or
  • Discuss other programs or arrangements that may be available.

Choose Your Communication Channels

Depending on your budget and the scope of your default management plan, you’ll want to consider a variety of ways to communicate with student borrowers who have delinquent loans.

These can include emails, text messages, printed letters, telephone calls, and messages on the school’s website. Each channel has its strengths and weaknesses, and you may want to adjust your communication channel strategy periodically to align with the results you achieve.

Note: Email is an unsecured communication channel. Do not state the student borrower’s loan status as current or not current in the communication. Please refer to your school's communication policy for guidance.

Evaluate Your Results

To evaluate the success of your efforts, go back and review your objectives. You might, for example, consider your counseling to be successful if it results in:

  • A stable or declining cohort default rate for your school
  • Fewer overall delinquencies
  • More delinquencies being resolved at the early stages
  • Fewer delinquencies reaching default