American Student Assistance recently released a paper on the need for education debt management. The paper, “Approaching the Tipping Point“, raises a number of critical issues, including how to create incentives to encourage loan holders to communicate effectively, accurately and respectfully with student loan borrowers and provide neutral information about borrower options.
We have written previously about the need to eliminate conflicts of interest in loan servicing and collection. However, even without conflicts, servicers and collectors often do not have the resources or training to provide comprehensive debt management counseling. As ASA notes in their paper, “A two minute phone call between a servicer and a borrower can set up a forbearance after someone has run into problems, resulting in a loan in good standing–an adequate quick-fix remedy for borrowers who sincerely face a temporary period of economic hardship, and a win for the servicer who has kept the loan in ‘good standing.’ But forbearance may not be the solution. Education debt management is about finding the best long-term resolution to a borrower-specific problem, not just putting the problem off until another day with forbearance.”
ASA points out a common experience where collectors use a one-size-fits-all approach in working with financially distressed borrowers. This approach rarely works. Each borrower has a unique set of circumstances that requires individualized attention. It is not just frustrating, but expensive, inefficient and counter-productive that the current system fails to match borrowers with the helpful options that are generally available to them. We see this over and over again. A borrower ends up in default because she is not told about economic hardship deferment or post-default, she is told wrongly that the only way out of default is through rehabilitation and that she must pay a hefty lump sum and unreasonable monthly payments.
It remains to be seen who best can provide these debt management services. In many cases, legal assistance is necessary to ensure that the borrower has someone clearly on her side who will aggressively pursue her legal options. But there are few competent lawyers and counselors available to help these borrowers. It makes so much sense to try to help as many of these borrowers as possible earlier in the process. This won’t work for everyone, but it should go a long way toward building a system where borrowers are informed of their rights and given assistance that allows them to exercise those rights.