Six Tips for Quick, Effective Default-Prevention Communication

Carole Ann Simpson, a USA Funds^® debt-management consultant, offers financial-aid administrators suggestions about how to implement an efficient default-prevention communication plan for student-borrowers.

Creating and maintaining a plan for preventing your student-borrowers from defaulting takes a lot less time than you might realize. In fact, with the right tools and as little as two hours a month, schools can communicate with delinquent borrowers, and provide the assistance borrowers need to keep their loans current.

As school financial-aid professionals, your students trust you. After all, they’ve been working with you for several years, and you have helped them as they financed their college education. You are in the best position to continue helping them if they get a couple of months behind in their loan payments.

Experience shows us that many students who default on their student loans never took advantage of deferments or forbearances. Many students don’t know that if they become unemployed they could be eligible for an unemployment deferment for up to 36 months during their repayment period. You can help them understand all of their repayment options and keep them on track to successful repayment.

Many schools that currently use USA Funds Debt Manager^® spend two hours or less each month sending letters and/or e-mail messages to their delinquent borrowers. Schools can customize the content of each letter or message and decide how often to communicate with borrowers. Some financial-aid offices even enlist the help of their Federal Work-Study student-employees to download and print letters each month.

USA Funds Debt Manager is a Web-based communication tool that helps financial-aid administrators connect with borrowers and prevent student-loan defaults.

Here’s my advice for how you can create the most-successful default-prevention communication plan:

1. Start early. Consider sending a letter during the borrower’s grace period. Contacting students who don’t have any repayment issues helps you further establish yourself as their adviser for the repayment process.

2. Send the next letter early in the delinquency stage — at 30-to-60 days. Financial-aid administrators often can locate borrowers more easily at this point in the delinquency stage, and contact at this time helps prevent these borrowers from being intimidated by calls they may be receiving from their lenders and guarantors. If the delinquency progresses, the frequency and urgency of the calls can increase.

3. Use a helpful tone in your letters and messages to borrowers. Help borrowers understand that you are not collecting these loans — you’re there to help them understand their options and find the resources they need.

4. Consider using e-mail in addition to sending letters. Students and former students often open their e-mail messages with more interest than they do with their U.S. mail.

5. Provide Internet and telephone contacts in your communications. Use links in e-mail messages to Web sites such as USA Funds’ Loan-Payment Solutions.

6. Chart your progress. USA Funds Debt Manager has a number of reporting options to help you gauge results. The Communication Strategy Performance Report tracks the letters you sent in the past month and tells you how many of the students who received those letters no longer are delinquent on their student loans. The Delinquency Aging Report tells you how many of your borrowers are delinquent and calculates an estimated cohort-default rate.

USA Funds debt-management consultants and USA Funds Services representatives can help you program USA Funds Debt Manager to run the letters and reports you want — and that setup generally takes less than two hours.

To learn more about whether USA Funds Debt Manager is the right tool for you, call me toll-free at (866) 497-8723, Ext. 1945, or contact the USA Funds Services representative or debt-management consultant for your region.