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Preparing for Student Loan Repayment

Loan payments will have been paused for 29 months when the suspension ends Aug. 31, 2022. There are three primary challenges with this: first, the sheer volume of student loan borrowers all entering repayment at the same time — all with varying situations and experiences. It is estimated that more than 42 million student loan borrowers have an outstanding balance. According to EducationData.org, at least 35 million borrowers qualified for payment relief under the CARES Act.

In addition, the 29-month payment pause has created a backlog of 9.8 million borrowers who are entering repayment for the very first time — all in September. Servicers are typically staffed to handle a combined 325,000 new borrowers entering repayment each month. Needless to say, they are going to be overwhelmed by requests for help from borrowers, likely resulting in long wait times and limited resource availability for outreach to find and counsel the borrowers that are not taking the initiative to help themselves.

The second challenge is that three of the existing eight loan servicers decided to discontinue servicing federal loans. FedLoan Servicing, Granite State and Navient collectively service 16 million student loan borrowers (approximately 35 percent of the total portfolio). Many of these loans will be transferred to new servicers just a few months before repayment begins.

While it’s not new to transfer loans from one servicer to another, we haven’t experienced anything on this scale before. On top of all the emails and notices students receive about the payment suspension, a third of borrowers are also receiving notices about changes to their loan servicer. These borrowers will need to set up online accounts with their new servicer to manage their loans and resume making payments when the pause ends.

That brings us to the third challenge — borrower attitudes and behaviors. Since March 2020, our call center associates have personally counseled more than 300,000 student loan borrowers. At first, there was an overwhelming sense of positivity throughout our interactions. Borrowers were excited to hear the news – many still unaware that payments and interest had been suspended months after being paused by the CARES Act.

Every extension, along with media coverage of potential broad-scale loan forgiveness, has made the idea that payments will resume less and less real. This was compounded by recently moving what was communicated widely as the "FINAL" extension, from January 31 to May 1. And then again moving it with less than a month notice from May 1 to Aug. 31.

Today, many borrowers we reach are apathetic, and often assume things will simply change again or possibly go away altogether. Some borrowers have already fallen victim to loan forgiveness scams, which have become more prevalent. Many borrowers have developed the habit of spending the money budgeted for student loan payments on other things. Twenty-nine months is plenty of time to build habits that will be hard to break.

A survey of student loan borrowers conducted Spring 2021 for the Pew Charitable Trusts found that 67% of the borrowers surveyed would find it difficult to afford payments if they resumed the following month. In addition, only 31% of those surveyed had taken proactive steps (i.e. applied for a payment plan) to help their situation during the payment pause.

This all leads to the potential for chaos and confusion. The question is what can we do about it?

Effective Strategies to Help Borrowers

As a trusted resource, schools play a critical role in helping borrowers enter repayment successfully and communication should be happening now. The best time to prepare a borrower for repayment is before the first payment is due. Borrowers that wait until the payment suspension ends to take action risk getting stuck in the back of the line for help.

Schools can help prepare borrowers through direct communication that informs them about the current state of federal student loans, provides links to self-service tools and resources, and directs borrowers to take action now.

We have found that a multi-channel communication strategy is the most effective way to engage with the most individuals. Live phone calling typically is the most effective means of reaching and counseling borrowers. However, schools aren’t likely to have the staff or capacity to reach the masses through this channel. This is where having a default prevention outreach partner can help.

Regardless of your ability or capacity for phone outreach, other means of communication are necessary to ensure that you reach and help as many borrowers as possible.

We also have found that text messaging and e-mail are effective and inexpensive methods for broadcasting key messages (i.e. “repayment will begin in September…are you prepared?”). Additionally, live chat is especially effective with borrowers who want help but can’t talk on the phone (i.e. they are at work), or who prefer the anonymity associated with chat.

Providing a chatbot also is really helpful to counsel borrowers outside of office hours. Chatbots can be configured to have virtually unlimited capacity so you don’t have to worry about staffing to support that channel once it is up and running. This can be an effective tool if you keep the messaging simple.

Given the capacity challenges servicers will face, another key tactic is to promote and encourage borrowers to utilize available tools and resources from StudentAid.gov. This site offers a payment plan comparison tool and is the place for borrowers to complete the online application to ensure that they are in right plan for their situation when repayment begins in September.

Historically, the standard practice for helping borrowers has been to get them on the phone, talk about their situation, agree on a plan for successful repayment, and then conference in their loan servicer to get the process started. One key reason for this last step is to get the servicer to apply an administrative forbearance on the loans to immediately bring the account current. We anticipate a surge of demand from borrowers given the 29-month backlog and the reduction in the number of servicers.

This surge will likely result in long phone hold times at the servicers, at least for the first few months of repayment. We have always experienced good service and responsiveness from the loan servicers, and while we are confident that will continue, the numbers are daunting. As a result, we are hoping for the best and planning for the worst.

In addition to outreach before payments resume, you have access to NSLDS data that can give you insight into problems as they arise and enable targeted outreach to those that need it most. All borrowers entering repayment in the same month will create a delinquency bubble that you can’t wait to address. If you take steps to help borrowers starting at 30 days past due, it should give you time to work through the bubble. If you wait until borrowers are more delinquent, it might create a challenge that is too large to overcome.

You also can use NSLDS data to anticipate what may happen with your specific cohorts of borrowers. We have found that by using historical data and predictive modeling, we can forecast the number of borrowers who will successfully make their first payments and compare that forecast to what actually happens in September. This will enable us to quickly determine the extent of each school’s challenge and adjust outreach accordingly.

It’s important that outreach strategies include borrowers beyond those that can affect a school’s cohort default rate. While official default rates for 2019 and 2020 will be artificially low (2020 will actually be zero), there has never been this type of broad-scale payment relief for this long. Nearly all borrowers are going to need information and assistance — especially those who are entering repayment for the first time.

By engaging your students, encouraging them to take action now, and using your data to inform and execute your outreach plan, you can be the trusted voice and provide the resources and support your borrowers need.

Email us at contact@studentconnections.com to learn more about how Student Connections can help you and your borrowers.