LEGAL ISSUES
STUDENT FINANCE
implementation of default prevention plans. For example, because student success and student loan repayment success are so strongly correlated, it’s critical that an institution’s default prevention plan dovetail with its student retention initiatives. We believe that every good default prevention plan begins and ends with the data. Colleges should analyze which of their former students are defaulting on their loans and identify the characteristics common to their defaulted borrowers. One institution with which we worked thought that its defaulters were students with low GPAs, those enrolled in distance education and remedial courses, first-generation students and those who registered late. Reviewing the data, the institution learned that true characteristics common to its de- faulted borrowers included failure to meet satisfactory academic progress standards, failure to graduate, those having zero EFC and those with average loan indebt- edness of around $6,500. Colleges need to know who they’re dealing with, so they can target default preven- tion efforts to the right students and former students. Tere are many resources to help institutions
in developing and implementing default prevention plans. Te U.S. Department of Education hosts de- fault prevention resources, including a sample default prevention plan, online at
www.ifap.ed.gov/DefaultPre- ventionResourceInfo. USA Funds consultants currently are engaged in helping more than 100 colleges and universities develop, update and implement default prevention plans.
TAKE A “LIFE-OF-THE-STUDENT” APPROACH We believe that the most effective default preven- tion initiatives engage students and former students throughout their experience on campus, and in the years after they leave school. Te first key student touch point is during the loan application and origination stage, when colleges can give their students a solid start by enhancing entrance counseling and by incorporat- ing financial literacy and education loan information in new-student orientations. Te second stage – the in-school period – when colleges have the most direct contact with students, is often overlooked as a default prevention opportunity. Schools can incorporate per-
sonal finance education in the curriculum, including in first-year experience courses, enhance student retention efforts, and provide counseling to borrowers on an an- nual basis rather than solely for entering and departing students. Te third stage – graduation and grace period – offers the opportunity for enhanced exit counseling of borrowers, contact with students taking leaves of absence or withdrawing and collecting updated contact information for departing students. During the fourth phase — repayment — colleges and universities have the standing to be trusted advisers to their students, to reach out to them with advice and support to see them through the repayment of their student loans. Regular contact with student loan borrowers is a proven best practice for preventing loan default.
CArOl.bUChlI@USAfUNDS.Org
ANNE.fISChEr@
USAfUNDS.Org
Carol Buchli and Anne Fischer are USA Funds consultants who work with colleges and universities to develop, review and implement student loan debt management, default prevention and financial literacy plans.
NOV/DEC 2012 •
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