Developing A Holistic Approach to Student Loan Debt Management
USA Funds and Truckee Meadows Community College in Nevada have partnered to promote a holistic approach to student loan debt management. The partnership has included implementing a financial literacy curriculum and peer counselors for TMCC students, communicating to student loan borrowers to promote successful loan repayment, applying analytics to better target outreach to borrowers, and launching an institution-wide “college completion” summit. Attendees in this web seminar heard from a leader at TMCC and an industry expert about the keys to developing a holistic approach to student loan debt management at any institution.
George Covino: Student loan debt and default rates are issues of national concern. According to the Federal Reserve Bank of New York, outstanding student loan debt totaled $1.118 trillion during the second quarter of 2014. The most recent official three-year cohort default rate (CDR) from the U.S. Department of Education shows that nearly 14 percent of all federal student loan borrowers default within the first three years of entering repayment. In order to deal with this, we found that it’s best to have a holistic approach to debt management. The four elements of our approach are: an institution-wide commitment; personal financial education; outreach to student loan borrowers; and applying analytics to better target default prevention efforts.
First we’ll discuss institution-wide commitment. The Department of Education recommends that schools have a default-prevention task force to ensure that issues related to student debt have ownership beyond the financial aid office. Representatives from the aid office, registrar, business office, faculty, advising, student activities and other departments can use their expertise to integrate effective debt management efforts into current programs. The task force has the responsibility to identify factors impacting the institution’s CDR, establish measurable objectives and identify steps for improving the institution’s rate. The task force should set out measurable outcomes and establish work plans in a regular periodic review.
Sharon Wurm: As an example of institutional commitment to financial aid default prevention, we had a college completion summit a year ago in the fall. We didn’t have the funds to be able to do a statewide one, so we did one just for TMCC with support from a small grant that we were awarded from USA Funds. We had 140 college staff and faculty members join together to connect the dots between various student success initiatives across the institution. We realized after we took a look at our completion effort that we didn’t need to do anything new—we were doing a lot of good things. But we did need to bring it all together so that everybody was informed, because often departments didn’t know what other departments were doing.
Covino: Second, we want to talk about financial education and training. The good news is that students say they want financial literacy information. Through USA Funds Life Skills Financial Literacy Curriculum, we find that nine out of 10 students who have completed at least one lesson reported making at least one positive change in their personal finance or academic behavior. We encourage schools to think about adopting a “life of the student” philosophy. There are multiple touch points where it makes sense to provide students with financial education, starting with the admission process, right through graduation, grace period and beyond.
Wurm: USA Funds invited us to their symposium, where our vice president for finance got excited about peer mentoring for our financial literacy program. She has since created a financial literacy committee that focuses not only on financial literacy for students, but also for faculty and staff.
We were also invited to apply for a USA Funds grant, and we were able to establish a peer mentoring program that is student-led and student-driven. That’s something we picked up from the symposium: The programs that are most successful are the ones where students are “driving the bus,” with guidance from a financial literacy specialist.
Our peer mentors do a lot of workshops and are invited for in-class sessions, and they use social media and different online tools. Topics that we have in our curriculum include paychecks, rent and utilities, identify theft, Credit Card 101, how to live on a budget, grants and scholarships, and paying off your student loan debt. Another online tool we use is USA Funds Life Skills, which is an online financial literacy curriculum that is delivered in videos with a short quiz at the end. About 1,700 students used Life Skills last year.
Covino: Third, let’s talk about borrower outreach and communication. Our work at USA Funds clearly shows that the further from the grace period a borrower is, the more difficulty we have getting in touch with that student. Contact during the grace period can not only provide the borrower with important information for staying on track, but it can also ensure that your contact information is up-to-date. It also gives you the opportunity to establish your role as a trusted advisor and not necessarily as a collector.
There are many tools and solutions available from guarantors and other partners. For example, the USA Funds Borrower Connect suite of products offers the opportunity to manage your own outreach campaigns, to analyze delinquent and defaulted borrower characteristics, and to target your interventions to outsource the calls to our expert call-center staff.
Wurm: We started by using Borrower Connect in the fall of 2011. Our intention was to target students who had reached grace and delinquency periods. We made multiple attempts and multiple contacts via letter and email campaigns. In Borrower Connect we are able to track all these activities and results, and we can see our projected cohort default rate at any given time. In August 2013 we started using Borrower Connect InTouch, an enhanced effort with one-on-one phone calls to students. USA Funds calls our delinquent students and students in the grace period and attempts to get them to manage their debt—to either start making payments, go into deferment, or go into forbearance or hardship.
Covino: Lastly, let’s discuss data-driven default prevention. The most common approach that institutions take to default prevention is the blanket approach that results in the same level of contact and counseling to all borrowers. That leads to too many resources being applied to the borrowers who are most likely to successfully repay on their own, and insufficient resources being applied to borrowers who are likely to struggle with repayment and potentially default.
A targeted approach allocates resources by applying varying levels of outreach, contact and counselling according to segmentation of borrowers by default risk.
Wurm: This is another area where we are so indebted to USA Funds, because to analyze our data in this manner would have taken probably one full-time person many, many weeks. They are the experts—they look at this kind of data all the time. They were able to help us examine our borrower characteristics and figure out who our most at-risk students were. They sorted every borrower in our 2012 and 2013 cohorts into one of 10 default risk categories. Based on this default risk analysis, USA Funds applied a custom calling campaign. Early outreach increases the likelihood of contact and successful counseling.
After one year of the targeted campaign, USA Funds was able to reduce our high- and moderate-risk borrower categories by 16 percent. We had a 7 percent reduction in borrowers who became 1-90 days delinquent. We had a 5 percent reduction in borrowers who were more than 90 days delinquent. Our projected default rate dropped from 6 percent in 2013 to virtually no borrowers greater than 270 days delinquent for 2014.