USA Funds’ Default-Recovery Efforts Help Taxpayers and Borrowers

USA Funds^®’ default-recovery activities benefited both student-loan borrowers and federal taxpayers during 2005.

According to reports from the U.S. Department of Education, USA Funds continued to expand its emphasis on loan rehabilitation to help student-loan borrowers resolve their loan defaults and restore their good credit. According the department’s report, loan rehabilitation accounted for nearly 36 percent of all USA Funds default recoveries, compared with 33 percent for the previous year.

USA Funds helped defaulted borrowers rehabilitate nearly $345 million in loans. This figure exceeds the combined loan-rehabilitation volume for the next nine guarantors that were most active in loan rehabilitation during the year.

“Loan rehabilitation is a better default resolution for many borrowers,” says Kevin Tharp, USA Funds manager, delinquency and default oversight. “Loan rehabilitation helps borrowers clean up their credit, because a successful loan rehabilitation removes the guarantor’s reporting of the default from the borrower’s credit record.”

Loan rehabilitation is more difficult to achieve than other default resolutions, such as loan consolidation, however. Borrowers must make 12 consecutive, voluntary, on-time monthly payments to rehabilitate their loans. Once a borrower makes the required payments, USA Funds places the loan with a lender, and the borrower’s account is restored to repayment status.

While continuing its emphasis on loan rehabilitation, USA Funds also maintained an exceptional overall recovery rate on defaulted loans, in excess of 35 percent, compared with the average for all other guarantors of 25.7 percent.

In addition to helping borrowers resolve their defaults, USA Funds’ default-recovery efforts benefited federal taxpayers. During the year, USA Funds remitted to the federal government approximately $725 million recovered from borrowers who were in default on their federal education loans. These funds helped offset the federal costs of student-loan defaults.

“USA Funds invests heavily in preventing loan defaults in the first place,” Tharp says. “But in the rare cases in which borrowers default, we work diligently to help them resolve their payment problems and to protect the federal fiscal interest in the student-loan program.”

To help borrowers resolve loan-default issues, USA Funds offers a convenient online resource, Loan-Payment Solutions. Borrowers can log in to the site, review their account statuses and payment histories, order important loan documents and correspondence, and take action to resolve their defaults. USA Funds also offers postsecondary-education and financial institutions a free brochure, “Resolve Your Default — Restore Your Good Credit,” to advise borrowers about their options for resolving education-loan default. Quantities of the brochure may be ordered online.