Special to the Business Journal
Every college faces some common issues.
They compete to attract top-level students and faculty. Schools need to provide state-of-the art learning tools. They also need to reduce the default rate of student loans.
Maintaining a low default rate is not only the right thing to do, it’s the smart thing. If a school’s default rate exceeds 25 percent for three years in a row, that college will no longer be eligible for federal Stafford loans.
This hurts everyone.
First and foremost, it affects the students who are denied educational funding opportunities that enable them to attend their first choice for college. Second, the school’s credibility is undermined when it is unable to offer Stafford loans because its default rate is too high.
Finally, the students who default on their loans lose as well. They sully their credit rating and cheat themselves out of the chance to be good citizens and positively resolve financial problems.
– Loan Programs
I feel passionately about counseling students on repayment of their federal Stafford loans because I personally benefited from this program. I knew that education was the key to economic and social empowerment for myself and family, and very much wanted to attend college. I was able to attend college in part because of the loan program.
Today, it is my privilege to assist students in obtaining financial aid for college. Educating students about their rights and responsibilities is also immensely rewarding because I know that honoring one’s commitments is an important link to adulthood.
I know that most schools are doing their best to reduce the loan default rate at their college. And I know that most students truly want to do the right thing. But this alone is not enough.
To reduce their loan default rate, there are several proactive steps a school can take.
When students apply for financial aid, the school must establish rapport with them immediately. They must thoroughly discuss their financial obligation and how important it is for them to repay their loans.
– Involve Students In
They should put the pencil to the paper and figure out exactly what their payment will be. Then the financial aid officer can advise students to set aside that amount each month, before the loan comes due, just so they are in the habit of making the monthly payment.
As Benjamin Franklin once said, “Tell me and I will forget. Teach me and I may remember. But involve me and I will learn.”
Involve students in the loan process from day one. Financial aid officers should let students know that they are not bill collectors, but rather part of an educational institution trying to help young people complete their studies.
Part of earning their degree means being a responsible adult and repaying their federal loans. Financial aid officers must never threaten to withhold a student’s degree , they cannot do this legally , but should make it clear that students are expected to honor their agreement with the federal government. Expect them to do the right thing and most of the time they do.
– Loan Payments
May Be Deferred
If students fall upon hard times, financial aid officers can help defer payments on a loan. If a student does not seek help from the school, the college office of financial aid should initiate contact. Absolutely never give up on students.
Educators have heard every excuse in the book from “my dog ate my homework” to “I lost my job and can’t pay my loan.”
Financial aid officers must be sympathetic to these real life challenges and work with students to communicate their special needs to the lenders.
There are income sensitive plans, unemployed deferment and forbearance options to lower or postpone payments available for students who enlist the support of a financial aid officer.
It is always preferable for students to contact the college when they are having difficulty, but sometimes they are too embarrassed to let anyone know about their financial hardship.
That is why when the office of financial aid receives the monthly report on delinquent borrowers, it should assign an officer to call them immediately and let them know they have good news for them. The good news is that the college can help.
It is not easy to lower a school’s loan default rate, but it is simple. A student must receive good counsel on his or her obligation. The school must believe in its students enough to never give up on them. The college should also maintain a positive attitude about the benefits of the federal loan program and its graduates who may experience challenges repaying their loans.
Oliver is the director of financial aid at Platt College of Design.