Five Ways Colleges and the Federal Government Can Reduce Student Loan Default (Part 1)
This dilemma is increasingly relevant when more than one in seven borrowers nationally are defaulting within three years of entering repayment. Defaults under the new calculation have also been inching up, after Congress expanded the length of time former borrowers are monitored. Students’ ability to repay their loans has also undoubtedly been affected by a weak economy, stubbornly high unemployment rates, stagnant wage growth and rising tuition and fees. Thankfully, federal sanctions on colleges for loan defaulters don’t kick in until the third consecutive year of troublesome rates. For some, that tipping point will be this September. Many campus officials are looking for effective ways to prevent and manage student defaults. This is especially true at open-access institutions where many students have a variety of other financial hardships, such as at community colleges.
The range of default prevention and management options available — many of which can also be outsourced to third-party groups — means institutions need to tailor the approach that best suits their student population. At the same time, institutions should not be solely responsible for ensuring students can navigate repayment. As the primary holder of the loan, the federal government should also be stepping in to make several easy fixes that could reduce confusion for students and lead to more borrowers repaying their student loans. Some of these institutional and federal policy changes include:
1. Use Data to Inform the Strategy
As with any intervention, students who need the most help should receive the most attention. This approach is intended to reduce potential delinquency and default before it occurs, but in a cost-effective way. The first step to identifying students at risk of default is merging complex federal, state and institutional information systems into useable data. Student attributes of interest could include credit or program completion, field of study, dependency status and more. Especially when defaults are high and cohorts of students are large, colleges should encourage the use of data and analytics to drive default management and prevention. And the federal government should also continue recent efforts to use their own data to reach out to delinquent borrowers and offer extra assistance, such as ways to reduce loan payments.
2. Make Default Prevention a College-Wide Effort
Traditionally, most things student aid related have been the primary responsibility of the under-resourced financial aid office. But research has shown loan repayment is closely correlated with college completion more broadly, and completion is impacted by a multitude of connection points to the college. Bringing together staff, faculty and administrators across campus to address student loan repayment is key to brainstorming effective interventions for borrowers. What’s more, contacting students who have since graduated or left the campus is a tricky and resource-intensive affair that frequently requires the help of multiple staff or third-party outreach tools and call centers. With federal aid on the line, it’s never been more important to assemble the right team.
For more information on the topic of default prevention, read the recent report by the Association of Community College Trustees (ACCT) and The Institute for College Access & Success (TICAS) entitled “Protecting Colleges and Students,” available at www.acct.org.
This is the first of a two-part series by Bryce McKibben sharing five suggestions higher education institutions and the federal government could put in place to minimize student loan default rates. For the final three suggestions, please click here.
Author Perspective: Association