By Bonnie Weaver, USA Funds Consultant
First student loan payments are coming due for thousands of members of the class of 2012 who left college campuses last spring. Making that first payment is critical to these borrowers’ successful repayment of their education debt and the prevention of loan delinquencies and defaults.
Here are some important considerations to promote successful student loan repayment.
Conduct a debt check. Encourage your borrowers to review information about all of their student loans to ensure they know what they owe and to whom they owe it. Borrowers should visit the National Student Loan Data System Student Access website, NSLDS, to check their federal student loans and the contact information for the servicers to which they will be making their payments.
Borrowers with Federal Family Education Loan Program loans guaranteed by USA Funds® may use USA Funds Loan SolutionsSM to obtain their loan information, find servicer contact information and access a variety of resources to help them manage their loans in repayment. Borrowers with private education loans should contact their lenders.
Pick the right repayment plan. Depending on the repayment plan selected, a borrower with $26,600 in education loan debt — the estimated national average for the class of 2011, according to the Project on Student Debt — would have monthly payments of as little as $103 or as much as $306 and total loan costs from $36,734 to $54,515. (This example assumes a single borrower with Direct Stafford loans carrying an interest rate of 6.8 percent, an adjusted gross income of $25,000, 3 percent annual growth in income, and residing in the continental United States.)
Counsel your borrowers to select the repayment plan that produces an affordable monthly payment, but one that also repays the loan as quickly as possible, to avoid additional interest costs. A rule of thumb is that a borrower’s monthly payment should not exceed 10 percent of the borrower’s gross monthly income. You can direct borrowers to, or use as a counseling tool, the USA Funds Student Loan Repayment Calculator, which conveniently compares repayment plans for an individual borrower’s specific loan amounts and personal financial circumstances under all of the available repayment options, including loan consolidation.
Put payments on automatic pilot. Encourage your borrowers to establish auto-debit arrangements with their loan servicers. As long as the borrowers maintain sufficient funds in their bank accounts, automatic payment arrangements will ensure their payments always are made on time. In addition, Direct Loan borrowers, and many borrowers with Federal Family Education Loan Program loans, will receive a 0.25 percentage point reduction on their interest rates for auto debit.
Ask for help. Direct your borrowers who are unemployed or facing other financial challenges that will make it impossible for them to make their first payment to contact their loan servicers immediately and discuss their repayment options, including deferment or forbearance to temporarily reduce or delay their monthly loan payments.
The additional interest costs borrowers may incur by using deferment or forbearance will be less than the costs and potential damage to their credit from missing their loan payments. Consider scheduling follow-up communication with borrowers who are resuming repayment following a period of deferment or forbearance to ensure they get back on the repayment track.
USA Funds offers tools to help you identify and communicate with specific groups of borrowers, including those entering repayment after grace period or periods of deferment or forbearance. USA Funds Borrower ConnectTM helps you aggregate data from various sources to identify relevant groups of borrowers and distribute mail, email or telephone communication to them. USA Funds Borrower Connect InTouchSM is a staffing solution for postsecondary institutions that lack the resources to carry out borrower communications themselves.
USA Funds provides free resources to help student loan borrowers understand their repayment options and obligations. USA Funds Life Skills® lessons “103 What Do I Need to Know About Repaying My Student Loans?” and “104 What If I Have Trouble Repaying My Student Loans?” are especially relevant.
USA Funds also supplies free magnets to colleges and universities to help them inform borrowers how to access their loan information on NSLDS, as well as the free publication Student Loan Repayment Success: Four Steps to Take Now, which offers advice on preparing for a borrower’s first student loan payment.