STUDENTS FIRST! PROCESS REDESIGN
CHANGE PROPOSAL AND ACTION PLAN

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SERVICE: Financial Transactions - Credit Policy

Current Situation:

Any charges create a credit account for students who register using ClassLine and do not pay with a credit card (Visa or Master Card). The account provides students not receiving financial aid the opportunity to pay for tuition, fees, books, and supplies throughout the term. A CreditLine application is used to ensure that Lane has information to assist with any future collection efforts. Students are encouraged to complete the application at the time of admission and when they charge books.

Lane established a credit policy that requires payment in full of all charges before registration is allowed for future terms. The policy is an attempt to control individual student debt and manage Lane's bad debt expense. Additional terms of the credit policy include:

• A minimum monthly payment of one-half the account balance or $150, whichever is greater
• a one percent per month finance charge (minimum of $1), calculated on the average monthly balance
• a $5 per month late payment charge (maximum of $25 per term) for missed payments
• referral to an outside collection agency for failure to pay as agreed
• account status information provided to a credit reporting agency
• addition of attorney, collection, and court costs to the account if referred for collection
• denial of official transcript requests for the period the account is in a delinquent status.

Further, Lane reserves the right to stop or suspend the extension of credit and withhold services if billings are returned by the postal service or the required minimum payments are not made on time. Withheld services include registration for classes or workshops and administrative withdrawal from registered classes.

In input sessions, students praised Lane for understanding their need to 'pay as they go' and were generally satisfied with the credit policy. Eight percent of students who responded to the OSRL survey reported that they were unable to register because they had an outstanding balance. Lane calculates a required monthly payment that students must make in order to keep their financial account in a current status. The payment amount is calculated so that the account will be clear by the end of the term. Problems with registration for the following term arise for students who are making the payments as required. Typically, registration for the next term begins while the current term is in progress. The payment due date is adjusted so that it is the day before registration begins. This date is typically only two weeks after the previous monthly payment for the prior term was due. The OSRL survey indicates that sixty percent of respondents pay their bills themselves. For another thirteen percent, expenses are covered by a parent or relative, twelve percent by financial aid, seven percent by a government agency, five percent by an employer, and three percent by other. The expectation of payment for both terms within the short time period creates a hardship for students, particularly those on a fixed monthly income. Students in input sessions expressed frustration about their inability to register even though their accounts were in a current status.

An appeal process exists for students to obtain a financial release to register. However, students indicated that the process is unsatisfactory. The appeal process requires completion of a detailed financial questionnaire that is available to be submitted for consideration after the initial registration date. Students are instructed that they must wait two days before they will be advised of the outcome by mail. A successful appeal allows the student to register. However, the student is reassigned a registration time that can be up to ten days after the originally scheduled registration date. By then, classes the student needs for program completion are frequently full. The delay in the appeal process requires the student to request special permission to be admitted to the class or postpone program completion until the class is offered in a future term. While students agree that Lane is generally sensitive to their needs, they also indicated that the time delays and uncertainty about the outcome of appeals detracts from study time at a crucial point in the term.

During input sessions, employees acknowledged student frustrations and admitted their own frustration with the credit policy. Employees expressed a strong commitment to meeting students' needs in a fair, consistent, helpful manner, while maintaining their fiscal responsibility to the college. Student accounts specialists cited the following frustrations:

• difficulty with staying current in servicing students' accounts due to the number of accounts (35,000)
• technology limitations
• inconsistent or non-existent tools for managing individual student accounts
• a widely-held belief that the lack of immediate financial resources should never prevent a student from being enrolled at Lane

Coopers & Lybrand, LLP (C & L), Lane's independent auditor, concluded the annual audit of Lane's 1995 financial statements with a Report to Management entitled the 'Aging of Accounts Receivable Deterioration'. The report addressed Lane's student accounts receivables and provided recommendations to improve internal accounting controls and achieve operational efficiencies. C & L cites a thirty-five percent increase in student account receivables over the past three years as well as an increase in the number of days receivables are outstanding. C & L's overall conclusion was that the increase results in 'weakened cash flow and potentially more write-offs due to uncollectibility'.

Lane employs the collection services of the Oregon Department of Revenue (ODR) and another private collection agency. During the past two years, ODR has been reorganizing their collections department. The department's performance in collecting accounts has deteriorated significantly during this time. However, Lane believes that ODR has the best information and tools to effect the collection of delinquent accounts and ODR's reorganization will result in improved collection. As of June 30, 1995, total student accounts receivables were $3,786,000. Of this total, sixty percent ($2,304,000) was held by ODR or private collection agencies. C & L suggested that Lane conduct performance evaluations of the collection agencies to ensure maximum success rates and overall service.

Further analysis of accounts receivable data suggests that, although the majority of accounts are fairly current, internal collection efforts of delinquent accounts need to be strengthened to prevent further aging and uncollectibility. There are minimal efforts to collect delinquent accounts that are between 60 to 180 days past due. Lane's management of delinquent accounts is largely limited to assessing late charges and mailing monthly statements to students with 'past due' messages. The main focus of collection activity is the financial hold on further registration. Student account restrictions in service including special individual payment arrangements, conversion to a cash basis, restriction of services, administrative withdrawal and monitoring of aging status is largely an unevenly administered manual process. The time employees spend in support of this manual process limits the time available to devote to internal collections. Technology limits the ability of student account specialists to easily identify delinquent accounts. Provisions have been partially made in existing computer programs to integrate the current credit policy terms with individual student account information. However, further programming requests to assist in accounts receivable management have been delayed.

Desired Situation:

Lane continues to provide students with the ability to charge tuition, fees, books, and supplies if alternative methods are not available. However, most students find alternative sources of financing through the expanded use of various credit cards and financial institutions. Students who maintain a current account status are allowed to register at any time. Accounts referred to a collection agency total no more than thirty-five percent of total outstanding student accounts receivable. Collection agencies are successful in collecting seventy-five percent of accounts within one year of referral. The carrying period for accounts receivable does not exceed 365 days before collection or write-off occurs. Credit policy terms are fully integrated with student account information. Student account specialists concentrate their efforts on the internal collection of delinquent accounts.

Proposed Solution:

Define Lane's philosophy of providing educational services as it relates to a student's ability to pay versus attending. Revise CreditLine policies to reflect the philosophy and adhere to consumer credit laws and other matters (bankruptcy, forgiveness of debt) requiring legal interpretation and compliance. Contract with additional credit card providers such as Discover and American Express to provide students with more options for payment. Explore the feasibility of a partnership with a financial institution to provide credit to students for Lane educational expenses. Redirect Lane's internal collection efforts to delinquent accounts between 30 and 180 days past due. Refer accounts over 180 days past due to collection agencies which have been selected based on successful performance according to Lane's criteria. Collect or write off accounts exceeding 365 days outstanding. Obtain technology necessary to support application of the credit policy.

Coach (from Redesign Team): Kay Malmberg
Sponsor: Marie Matsen
Due Date: July 1, 1997
Performance Measure(s):

Measurement	Tools for Measuring	Responsibility for Tracking Measurement
decrease the percentage of accounts referred to collection agencies from 60% to 35% of total accounts receivable and achieve 0 account receivable exceeding 365 days by July 1998	baseline = auditor's management letter follow-up = staff tracking system must be established	Students First! Center Process Owner Manager

Action Plan For Implementing Solution:

Task	By Whom	By When	Resources Required
Define a Lane philosophy of providing educational services as it relates to a student's ability to pay versus attending.	Executive Leadership Team	November 1996	None identified
Revise credit policy.	V. Whittaker, K. Malmberg, S. McDonald	Start: 12-96 Complete: 1-97	None identified
Incorporate CreditLine information into Lane admission application.	S. McDonald, S. Williams	Start: 11-96 Complete: 12-96	None identified
Complete computer programming required to support the credit policy.	N. Cheshire, K. Malmberg	Start: 2-97 Complete: 4-97
Revise consumer information in catalog, schedule and other sources of information to reflect the revised credit policy.	K. Malmberg, S. McDonald	Start: 2-97 Complete: 3-97	None identified
Develop written procedures for administering credit policy in a fair, consistent, customer- oriented environment.	Student Finance Team, K. Malmberg, S. McDonald	Start: 2-97 Complete: 5-97	None identified
Evaluate existing collection agency relationships including cost and performance.	Student Finance Team, V. Whittaker, S. McDonald	Start: 2-97 Complete: 4-97	None identified
Investigate other collection agencies and compare service and performance history to Lane's current providers. Recommend association with agencies who best meet Lane's needs.	Financial Team, V.Whittaker, S.McDonald	Start: 2-97 Complete: 4-97
Contract with selected collection agencies.	M. Matsen	Start & Complete 5-97	None identified
Develop written procedures for regular, consistent monitoring and collection of delinquent accounts receivable to minimize accounts referred for collection to a professional collection agency.	Student Finance Team, K. Malmberg, S. McDonald	Start: 2-97 Complete 5-97	None identified
Assign responsibility and train Students First! Center Student Finance team responsible for collection of delinquent accounts.	Student Finance Team Leader Manager, Implementation Team	Start: 4-97 Complete: 5-97	None identified
Implement active monitoring and collection of delinquent accounts receivable, including referral to collection agencies.	Student Finance Team	Start: 6-97	None identified
Assign responsibility for monitoring collection agency effectiveness on a regular basis.	M. Matsen, Student Finance Team Leader Manager	Start: 6-97	None identified
Streamline Lane's procedures for bad debt write-offs and recovery of bad debt.	Student Finance Team, V. Whittaker	Start: 6-97 Complete: 12-97	40 programming hours