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Include These Components in Holistic Default Prevention
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 Include These Components in Holistic Default Prevention
Submitted by: Shannon Cross, USA Funds Account Executive

Student loan default is getting a lot of attention these days, and with good reason. Nationally, borrowers have racked up more than a trillion dollars in student loan debt, and the latest figures show that nearly 14 percent of borrowers default on their federal student loans within the first three years of repayment.

But there’s plenty that your institution can do to help tackle the student loan default problem. The best approach is one that focuses on four different components:

• Institution-wide commitment.
• Financial literacy education.
• Borrower outreach and counseling.
• Data-driven default prevention.

Institution-wide commitment
How much do administrators, faculty and staff across your campus know about student loan default at your school? Do they know the importance of the cohort default rate? Do they know their school’s cost? How about the average amount their students are borrowing? What’s their institution’s cohort default rate?

Too often, campus administrators don’t know these basics — but they should. The most successful default prevention programs are those that have awareness and support that goes beyond the financial aid office. Senior leadership should be on board, to hold everyone accountable for preventing default.

Financial education and training
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. Results from USA Funds’ financial literacy program, USA Funds Life Skills, have shown that nine out of 10 students who completed at least one lesson from the program report making at least one positive change in their personal finance or academic behavior.

There’s no need to reinvent the wheel with this training. 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, supplemental counseling, student success courses and residence hall programs are just a few of the many existing programs where you can incorporate this training. Training from peers can be especially impactful.

Borrower outreach and counseling
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 grace period.

Contacting borrowers about repayment during grace is a best practice for three reasons: First, borrowers receive important information about staying on track earlier in the repayment process; second, you have an earlier opportunity to get updated contact information for borrowers; and third, you establish yourself as a trusted adviser, not a collector.

Data-driven default prevention

Historically the most common default prevention strategy has been a blanket approach, with the same level of borrower 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 and default.

The solution? Take a targeted approach to default prevention, applying different levels of borrower 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 need.

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