3. Improve the Timing and Quality of Loan Counseling
Although at-risk borrowers default for a variety of reasons, even seasoned students need information and advice in order to make informed borrowing decisions and stay on track in repayment. Loan counseling is intended to serve this need for information, but many students only breeze through the required online counseling when they first enroll — and sometimes before really knowing whether they need, or how much, to borrow. Others skip their “exit” counseling altogether, even though these sessions contain valuable information on the repayment plans and deferment or forbearance options available to them. In essence, they’re missing critical advice on how to avoid default. Colleges and the federal government need to work together to provide more regular loan counseling, and to pair it with better and more relevant information to the student. Institutions can supplement the online counseling tools with additional guidance for borrowers. Students should review their outstanding debt and craft their own academic “budget” to make better borrowing decisions. That way, borrowers can mentally prepare for repayment and will be less likely to feel overwhelmed by the debt after they graduate or leave the institution.
4. Optimize and Streamline Federal Loan Servicing
Complaints about loan servicers are frequently heard from students, and the complexity of the system leads many students to give up on the process of managing loan repayment. There are currently 11 different entities servicing federal loans, each of which uses its own name, brand, web portal and procedures to communicate with borrowers. Many students are confused by the correspondence, which they believe to be junk mail or spam. Instead, Congress should streamline the loan servicing model, making these contractors invisible agents of the federal government, each with identical processes and practices, to avoid confusion. And borrowers should receive communications they clearly recognize as being from the Department of Education — the primary holder of the loan. While waiting for Congressional action which is bound to take a while, colleges can work to help borrowers understand the complex system by explaining the role of the servicer and by encouraging them to begin using servicers’ resources, like loan repayment calculators, while still enrolled.
5. Provide Better Assistance and Contact to Borrowers Struggling to Repay
When students “default,” they do so only after 270 consecutive days, or nine months, of being delinquent on their loans. It’s easy to spot students experiencing trouble with repayment, especially when their bills are just starting to come due. Colleges and the federal government should use available data on repayment and delinquency status to help these students before it’s too late. Colleges themselves should contact students who are delinquent on their loans using college letterhead or logos to remind them of the consequences of default and the options available to them. Loan servicers should provide elevated levels of assistance to struggling borrowers. And severely delinquent borrowers who have missed at least six months of consecutive payments should be automatically enrolled in an income-based repayment plan and given follow-up contact and counseling.
Together, colleges and the federal government can prevent otherwise likely defaults and the associated costs for borrowers and taxpayers.
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.
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