You are here

How Student Loan Services Impact the College Experience

Why universities that pick the right partner keep students in class and on track
University Business, May 2012

As new high school graduates anxiously await acceptance letters from their favorite colleges, many will start to plan for this new chapter in their lives by seeking student loans and financial aid to pay for it. After running the gauntlet of qualifying for loans and assistance, many will forget all about it.

The key to building a long lasting financial relationship with these student borrowers will be in how the loan is serviced; whether students are communicated with effectively by the servicer about when payments begin, requirements around deferments or forbearances, how payments can be made and other customer service issues. A student loan program is only as effective as the servicer administering it. Outdated software and processes are not only inefficient, but directly impair the college experience for many. Questions like “Does your company accept credit cards?” or “Do you communicate via email or text?” seem strange in this day and age, but for some servicers the answer is still “No,” and has driven student loan delinquencies higher than ever.

Colleges have the opportunity to look at this administrative function in a different light – one that understands it is in many cases the linchpin to a student’s ability to continue on the path toward graduation. The differentiator could very well be customer service. Financial executives in the education industry know they are in the business of helping individuals begin a responsible financial future. Universities and their financial aid partners would find a direct benefit to their students’ college experience and commencement potential by implementing four basic principles in their loan servicing operations:

  1. Manage information accurately. Most legacy systems used by these organizations are so outdated that they simply can’t keep up with the flow and, equally as important, the dissemination of information to students and recent graduates.
  2. Use more than one channel to communicate through. Anyone who has any insight into the minds of the twenty-something crowd knows they are far more likely to return a text or email than a phone message. This statistic has been true for years. Yet many loan services still think a letter or voicemail is the most effective way to reach a student borrower. With the proliferation of devices, these outlets must allow individuals to choose how they would like to be contacted.
  3. Start early. Too many servicers wait until the loan is in repayment to start contacting customers. While their Business Requirement Documents say that’s an acceptable practice, it puts loans on the fast track to 180-day delinquency. Thoughtful marketing campaigns that begin during the grace periods will help reduce this significantly.
  4. Be nice, it works. The natural inclination for anyone – certainly a loan servicer – is to conclude that every borrower who is late on a payment does so consciously. However, there are far too many situations where the individual never received a statement because it was sent to an incorrect email or mailing address. Cut them some slack and don’t be curt at the first contact. Even if they did miss a payment, the kindness exhibited by a servicing firm will yield far better results than putting them on edge right off the bat.

We in the loan services industry have the honor and privilege to assist students in furthering their education. Doing so will require embracing modern age technology and marrying it with tried and true customer service practices.

David Johnson is president of First Associates Loan Servicing, LLC, a consumer loan servicing firm. He can be reached at