Four Strategies for Student Loan Repayment Success
George Covino, USA Funds Vice President, Consulting
A report by the Association of Community College Trustees and The Institute for College Access & Success suggests practical steps that all postsecondary institutions – not just community colleges – can take to benefit their student loan borrowers. I suggest the following strategies to implement four of the report’s key recommendations at your institution.
Embrace default reduction as a campus-wide endeavor. When I work with schools on developing debt management plans, I typically start by convening a workshop and asking participants what they know about student loan debt and default at their school. What’s their cohort default rate? How about the average amount their students are borrowing?
Too often, those at the workshop don’t know these basics — but they should. The most successful default prevention programs involve awareness and support that goes beyond the financial aid office. Senior leadership should be on board, to hold everyone accountable for preventing default.
Analyze who borrows and who defaults. The most common default prevention strategy has been a blanket approach, with the same level of counseling and contact provided to all borrowers in a cohort. But that approach is inefficient; you’re committing too many resources to those borrowers who are likely to successfully repay their loans without intervention but too few resources to those who are likely to struggle with repayment. The solution? Take a targeted approach to default prevention, applying different levels of outreach based on a borrower’s level of risk.
Examine the National Student Loan Data System School Portfolio Report (SCHPR1) to determine patterns in your borrowers’ repayment behavior and characteristics of those most likely to default. Then tailor your borrower outreach accordingly, devoting resources according to default risk. Organizations like USA Funds can assist with this analysis and even perform outreach campaigns for you, if needed.
Provide counseling and information to borrowers when they need it. USA Funds experiences better contact and counseling rates with borrowers early in the loan lifecycle. Borrowers who have trouble repaying their student loans are more likely to respond to offers of help if you’ve opened up the lines of communication during the grace period.
Contacting borrowers about repayment during grace is a best practice for three reasons:
1. Borrowers receive important information about staying on track earlier in the repayment process.
2. You have an earlier opportunity to get updated contact information for borrowers
3. You establish yourself as a trusted adviser.
Improve entrance and exit counseling. Supplementing required loan counseling with financial literacy and student success training is an effective way to keep your students on track to complete their education with a minimum amount of debt. Surveys of students who have been exposed to USA Funds Life Skills financial literacy curriculum find that nine out of 10 report making at least one positive change in their personal finance or academic behavior.
The most successful financial education is offered as a requirement through multiple touch points that already are part of the typical student life cycle: orientation, student success courses and residence hall programs are just a few of the many existing programs where you can incorporate this training. Delivering this training by trained peer mentors can be especially effective.
For more information, visit www.usafunds.org.