Nation's leading guarantor helps borrowers resolve default, restore good credit

USA Funds quadruples loan-rehabilitation results

INDIANAPOLIS — USA Funds^®, the nation's leading education-loan guarantor, reports that it has quadrupled the dollars of federal education-loan defaults that it has resolved through loan rehabilitation. According to figures from the U.S. Department of Education, USA Funds recovered nearly $253 million through loan rehabilitation during fiscal 2003. That figure represents a fourfold increase from the previous year and is greater than the combined loan- rehabilitation volume for the next nine guarantors that are most active in loan rehabilitation.

"Loan rehabilitation provides a more satisfactory resolution for many borrowers in default, because a successful rehabilitation removes the default from the borrower's credit record," said Carl C. Dalstrom, USA Funds president and CEO. "Because loan rehabilitation requires a borrower to make 12 consecutive monthly payments, it takes longer to complete loan rehabilitation than other default remedies."

Despite the additional time required to complete loan rehabilitation, during fiscal 2003 USA Funds achieved an overall default-recovery rate of greater than 30 percent of its total portfolio of defaulted loans, well above the guarantor average of 25 percent.

USA Funds is taking the following additional steps to promote loan rehabilitation to borrowers who can benefit from that option:

• Providing financial incentives to the contractors who work with borrowers in default to make loan rehabilitation a priority.

• Providing borrowers with ongoing counseling about loan rehabilitation as a preferred default resolution.

• Communicating with borrowers who have made the eighth of 12 payments required for loan rehabilitation to advise them of the benefits of successful loan rehabilitation and the options for repaying their rehabilitated loans.

• Working with its lender partners to assist borrowers who face an increase in their monthly payments following successful rehabilitation by helping those borrowers consolidate their rehabilitated loans to reduce their monthly payments.

As a result, loan rehabilitation accounted for nearly 28 percent of USA Funds' default collections during the first quarter of fiscal 2004, compared with 26 percent for fiscal 2003.

"USA Funds invests significant resources to prevent loan default in the first place," Dalstrom said. "By focusing on loan rehabilitation, USA Funds is giving student-loan borrowers who have defaulted a second chance to fulfill their loan-payment obligations and the opportunity to start fresh with a clean credit slate. At the same time, we're saving dollars for federal taxpayers and protecting the integrity of the student-loan program by transforming loan defaults into loans in repayment."