Kellee Gunderson

Jessica,

You raise an excellent topic that has not often been discussed in these forums, and there are many aspects to this problem.
First, we should of course be doing our best to educate and assist students long before default is a possibility. Second, I appreciate that you bring up the idea of post-default consolidation and rehabilitation. While some actions by the student can positively impact a school’s CDR, we should not fail to assist students with options and information that will benefit them, even if it does not remove a default from our rate. Students who have already defaulted are either going through difficult personal circumstances or simply have no idea how to manage their finances. As you suggest, these students require ongoing education that is both firm and compassionate. A default does not have to end a student’s educational aspirations, but recovering from a default takes dedicated effort.

Kellee Gunderson

Myles Baker

Hi Kellee,

Thank you for the reply to Jessica's question.
Jessica and I work for the same institution and a new process we have started includes the Dept. of ED. With any student currently in default, we call the Department of ED with the student to discuss options of forbearance or payment options to clear a default. If these options aren't available, we would set up a consolidation loan to ensure the student still has a great financial plan. When we do this, should we be trying to ask the student how they went into default? Maybe try to work around the obstacles they may have and educate them in ways to make sure this doesn't happen again?

Thanks,
Myles.

Kellee Gunderson

Myles,

I think your last point is especially helpful. While some students face unique challenges, knowing what has lead to default could help us identify similar warning signs in other borrowers.

Kellee Gunderson

henry Dominguez

Taking the time to explain to each student the difference of borrowing responsible and irresponsible. Being transparent with each student regarding the cost of the tuition and the amount of fin aid available for the student. Giving each student the vision after graduation on paying back student loans and giving student the time to complete the EC and MPN on studentloans.gov

Kellee Gunderson

Henry,

Your point about transparency is absolutely critical for protecting individual students but also for the reputation and long-term success of our organizations. We desire high enrollment numbers and profitable schools, but we do not want students to commit to programs or loans that they cannot handle financially. Making sure that students fully understand how much money they will need to borrow, and how that loan obligation translates into a monthly payment amount helps them make good decisions. Including realistic salary expectations for the selected career path is also an important piece of the “vision” we offer of the student’s world post-graduation.

Kellee Gunderson

Robert Luke

Agreed...simply helping them out of default doesn't teach them to prevent it from happening again. We need to be proactive and work with the student to achieve a lifetime of good debt-management skills.

Katie Cotey

When a student is in default we need to be cautious on what we are advising the student to do when it comes to consolidation versus rehabilitation. The best thing to do is to call the lender/guarantor directly with the student to see what the best options are. Consolidation does resolve the default quicker (6-8 weeks), however, collection fees are consolidated into that debt on top of the default staying on their credit report for the next 7 years. If the student is eligible for rehabilitation, it is usually the best route to go. The point of the rehabilitation process is to establish a good payment history with the DOE. This is almost like a "timeout" period for the student where they need to make 6 consecutive payments in order to be eligible for Title IV funds and make 3 more additional payments for their loans to be in good standing where they can be deferred if wanting to start school, for example. It is a 9 month total waiting period, but the lender/guarantors usually do a great job in working with the student to see what kind of monthly payment they can make in order to help the student out of default. Sometimes those collection fees are taken off the account balance which can ultimately save the student money in the long run, not to mention the default will then fall off their credit report. Rehabilitation is usually a onetime ordeal and if the student fails to follow through on it, then it is a real loss for the student and consolidation might be the way to go. When handling these issues it is really important to hit it home with the student on their responsibility of the student loan and that they really need to follow through on that “one time gift” of rehabbing the loan. Regardless, the government will get their money back when it comes time for wage garnishments or seizing tax returns. Many students are afraid to pick up the phone to call their lenders because they are very unsure of all the options that are available to them. I usually like to take the time with that student and call the lender with them because it not only demonstrates good customer service by taking that additional step, but it also gives an opportunity to further educate them on their student loans and why they cannot be simply ignored. Unfortunately, these loans typically will stick with you unless you are eligible for some kind of loan forgiveness, disability discharge or death.

Kellee Gunderson

Katie,

I am thinking about your point regarding students’ apprehension to contact the lender—do you feel that the assistance you receive and the demeanor of the call center representatives has improved since the Department of Education increased focus on customer satisfaction surveys and servicer performance scores? Hopefully students are finding it less intimidating to work with these companies.

Kellee Gunderson

Katie Cotey

I do believe that the demeanor of the call center representatives has improved. Of course you will get a few that are questionable, but I usually call right back to speak with someone else if that is the case. I guess it is luck of the draw, but most of the time I get someone who is very knowledgeable and helpful. Looking at it from a student standpoint, it is nice to have someone with you who can ask questions that they don't even know to ask. This just helps more in building a good relationship with the student, provide excellent customer service and at the same time take the opportunity to educate them on default prevention. If the student doesn't fully understand what the servicer is advising them on, I am able to simply for the student on what the servicer is trying to explain and help them decide from there what the best route is whether if we need to Consolidate, Rehabilitate, apply for an IBR, Deferment, Forbearance, etc. If the servicer is requesting documentation we usually try and get everything filled out on the spot and send it off right away. It is amazing with internet access on what you can pull up and send off to the servicers so that you don't have to worry about it later because sometimes with these students later will never happen and it will again get pushed off putting them in the same situation. I recently had a student who was in default for 2 years and never contacted her lender. We called them up and managed to put her loans through a rehabilitation process. They asked specific questions since she wasn't working and had a child to support. They determined a $5 a month payment plan for her so that she can establish a good payment history with the DOE. She was very excited about it because she had no idea that it was that easy to figure out because she was then saved from wage garnishments and seized tax returns.