Campus-Based Loan
Management:
A Necessary Tool for
Helping Students Manage Their Debts
New research highlights the
effectiveness of campus-based default prevention and debt management
initiatives. The Education Sector report, “Lowering Student Default Rates:
What One Consortium of Historically Black Institutions Did to Succeed,” shows
how colleges and universities
help students manage their student loan debt effectively and successfully.
The study examines a group
of colleges and universities in Texas that serve many low-income students. Its findings illustrate many of the everyday
practices and policies used by campuses to administer the Perkins Loan
Program.
There are many sections of
the report, which is about helping students manage debt in general, that
describe just how the institutions manage the Perkins Loan Program and prevent
defaults, such as the following: “From
the initial financial aid package to providing individual counseling on loan
repayment when students leave, institutions can take steps to help students
avoid default. Schools can also maintain
contact with students after they leave campus, communicating with them about
when they need to begin repayment and where they should send their repayment
checks.”
·
From the flexibility offered to financial
aid officers for including the loans in students’ award packages to maintaining
contact and informing borrowers through campus-based loan servicing, default
aversion is inherent throughout the Perkins Loan Program.
Further, the report states: “Partnerships
with outside entities—all with experience in skip tracing, the process of
finding and successfully contacting borrowers, collections, and personalized
customer service—proved as important to successful default management as
on-campus relationships.”
·
Currently, schools are responsible for
managing Perkins Loans, engaging their borrowers throughout the loan process
and managing third-party vendors that successfully help students avoid default
and, in some cases, work with them to get them out of default.
Much like this small group
of HBCUs in Texas, the efforts of the trained professionals who administer
Perkins Loans have led to steadily decreasing default rates. This past year, the need based Perkins Loan
Program achieved a cohort default rate (CDR) of 5.15%. By way of comparison, the CDR for the
Stafford Loan Program is 6.9%.
After successfully lower
their default rates, many of the Texas schools began to focus their resources
on other programs, and this was often followed by increased defaults. According to the study: “This is perhaps the most compelling evidence of the effectiveness
institutional measures to lower default rates—not that default rates declined
so quickly at first, but that for colleges and universities that diverted
resources and attention away from default management, the rates began to climb
back up.”
·
While this new research demonstrates the
effectiveness of campus involvement in the loan process, and default management
is major element of campus-based loan servicing, the House-passed SAFRA bill (H.R.
3221) would eliminate this aspect of Perkins, transferring these
responsibilities to the U.S. Department of Education. H.R. 3221 can be modified to preserve this
unique element of the current Perkins Program, allowing current schools to
continue serving their students and more colleges and universities to become
involved in this form of default management as the program expands, with little
or no federal costs.
Although Education Sector
focused on this effort of small HBCUs in Texas, the paper warns
campus-involvement “must not be limited to these institutions,”
explaining: “Many colleges across the
country, particularly large public universities, have ‘HBCUs’ within
them—groups of students who are at higher risk off defaulting and who need the
attention and resources that institutions like HBCUs dedicate to serving these
students.”
·
Many large public universities participate
in the Perkins Loan Program, and as the program is need-based, schools target
these loans to low and moderate income students. Families with Dependent Students comprise the
largest percentage of Perkins borrowers. During Award Year 2005-2006, 72%
percent of these families had an income under $20,000.
The report also offers
recommendations for policymakers, stating campus involvement in helping
students manage their debts and collaboration among schools and third party
vendors should be part of any federal support of default aversion
activities. While these recommendations
focus on the largest federal loan program (Stafford Loans) via SAFRA’s “College
Access and Completion Fund,” campus-based loan servicing offers an established,
successful means for delivering these services efficiently and effectively for
at-risk students through the Perkins Loan Program.
The full report from Education
Sector, “Lowering Student Default Rates: What One Consortium of
Historically Black Institutions Did to Succeed,” is available online at:
http://www.educationsector.org/usr_doc/Default_Rates_HBCU.pdf