Collector - February 2016 - 38


STUDENTLOANS

Working Together to Avoid Default
Financial literacy efforts and increased communication with servicers and collection agencies can help consumers
wrangle their student loan debts.
By Anne Rosso May

A

s regulators grapple with how to
help consumers deal with their large
amounts of student loan debt and
stay out of default, researchers, loan servicers
and collection agencies are speaking out to
offer their observations and suggestions.
Last fall, Federal Reserve economists
Alvaro Mezza and Kamila Sommer found
that student loan delinquencies are not
driven by high levels of student loan debt,
but rather by other factors that affect
borrowers' ability to repay: leaving college
without a degree, attending a for-profit
school and having a low credit score.
This research reflects what many
collection agencies are learning as they
interact with consumers struggling with
student loan debt. At a Consumer Financial
Protection Bureau field hearing and panel
discussion last May, Richard George,
president and CEO of Great Lakes Higher
Education Guaranty Corp., said that there is
a great deal of concern among loan servicers
about how to provide relief to overburdened
consumers with student loans, especially
those who do not finish their education.

"If we want our
students to be more
knowledgeable and
better consumers,
we have to give them
information they need
and present it to them in
multiple different ways."
38

"In our view, the focus really needs to
be on a different cohort of borrowers-not
the cohort that borrowed too much, but the
cohort that borrowed too little," George said.
"Unfortunately, when students drop out, they
also tend to drop out of communications."
In that case, he continued, the tools and
instruments a student loan servicer normally
has available to help cure delinquency and
prevent default with borrowers are not
accessible. "We really need to work together
to figure out how we can increase our level
of communication with that cohort of
borrowers," George said. "That might be
the most important thing we can do in the
student loan servicing environment."
Thomas Cox, CCCS, executive vice
president of Harvard Collection Services
Inc., noted that the Telephone Consumer
Protection Act is a big obstacle to effective
communication with consumers. Cox has
been involved in student loans and student
finance for more than 30 years.
"Many consumers no longer have a
landline and use only their cell phones, and
because of the TCPA it can be difficult to
contact them on the phone at all," Cox said.
"When you send someone a letter, it often
just goes straight into the garbage. It's much
more effective and helpful to have an actual
conversation on the phone. It benefits the
consumer immensely because there are late
fees, collection fees and interest that accrue
over time, especially when the loan goes into
default. If we can't talk to them, these fees
can add up quickly."

A NEED FOR FINANCIAL LITERACY
Another big problem is that student loans
are just plain confusing-especially to
young adults. Generally, students who
take out federal student loans are required

to attend student loan entrance and exit
counseling sessions, which review the debt
the student owes, the loan servicers' contact
information and tools to help consumers
start tackling the loan balance.
But if students fail to pay attention during
their counseling sessions, they may not know
where to send their payment, what they owe
or all the options that come with their loan.
Cox said that the students that he
encounters are often unaware of the National
Student Loan Data System, which is run
by the U.S. Department of Education. This
database provides consumers access to all of
their federal student loan data; it can help
them check their loan balances and show
them where their payments should be going.
Counselors typically talk about the database
in each student's loan counseling exit session.
"The only problem with that [database] is
if the consumer has additional private loans,
which the database doesn't show," Cox said.
"So consumers who check the database may be
under the impression that they just owe what
they see there, which might not be correct."
Wes Huffman, legislative director for the
Coalition of Higher Education Assistance
Organizations, noted that the traditional
thinking is that if student borrowers use
the information they learn in their federal
entrance and exit counseling-a big if-
hopefully they will apply it to everyday their
life. Unfortunately, this doesn't appear to be
happening, so educators and loan servicers
are stepping up their financial literacy efforts
in other ways.
"A recent trend among some colleges
and universities as well as financial literacy
providers is to provide a more holistic
approach," Huffman said. "Under these
models, which can be delivered via classes,
workshops or online modules, student loans

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