STUDENT FINANCE LEGAL ISSUES
Weathering the Perfect Storm
by Carol Buchli & Anne Fischer C
olleges and universities and the students and alumni they serve are coping with a “perfect storm” of factors that challenge student loan bor-
rowers in the successful repayment of their debt. Among the factors are:
• Te weak economy, which has made finding employ- ment more difficult, especially for people like college graduates who are trying to enter the workforce. As a result of the recession, personal incomes have not kept pace with rising student loan indebtedness, so for many borrowers, student loan payments are taking a bigger chunk from their paychecks.
• Growing student loan debt — as evidenced by outstanding student loan balances now exceeding $1 trillion — makes it more difficult for borrowers to manage their monthly student loan payments with funds left over to pay for other vital expenses, like food, shelter and clothing.
• Many students are leaving campus with a mix of loans – federally guaranteed and lender-owned, federally guaranteed and federally owned, and Federal Direct loans, not to mention Perkins, private and institutional loans. Tese borrowers often are making multiple monthly payments to different entities, heightening the likelihood that they’ll miss a payment.
• For the first time, the federal government is re- porting default rates for cohorts of student loan borrowers for a three-year period, transitioning from the traditional two-year cohort default rates. Te three-year default rate (13.4 percent) published in September was nearly 50 percent higher than the most recent two-year default rate (9.1 percent).
So what can campus administrators do to weather this perfect storm, improve their institutional default rates and help their former students avoid the serious financial penalties that come with loan default?
22 NOV/DEC 2012 •
TODAYSCAMPUS.COM
ENGAGE THE ENTIRE INSTITUTION IN STUDENT LOAN REPAYMENT SUCCESS Student loan default prevention isn’t the responsibility of just the financial aid office. Te benefits of low loan default rates, and the downside of high rates, affect the entire institution. Likewise, a wide range of institutional departments can take steps that can enhance student loan default prevention. Academic areas can incorporate financial literacy information, for example, in freshman experience courses. Enrollment management and student support staff can help increase student retention, per- sistence and completion, which are strongly correlated with successful student loan repayment. Te registrar’s office needs to ensure timely enrollment reporting, so student loan borrowers benefit from a full grace period after they leave campus. Institutional research staff can track the data necessary to identify borrowers at risk of default, so the institution can target those students for additional support at the earliest stages of enrollment. Critically important is recognition by the campus ex- ecutive that student loan debt is a priority issue for the institution to address.
HAVE A PLAN AND ACT ON IT Federal regulations require certain colleges and uni- versities to prepare and submit default prevention and management plans. Because they posted three-year default rates of 30 percent or greater, more than 200 col- leges and universities will be required to establish default prevention task forces and submit default prevention plans. If those institutions have similarly high three-year default rates next year, they will be required to review and revise their plans, and if their defaults persist above the threshold for a third year, they could be subject to loss of eligibility to participate in federal loan programs. Beyond this requirement, the U.S. Department of
Education strongly encourages all postsecondary insti- tutions to have default prevention plans. We encourage institution-wide involvement in the development and
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