With about 7 million Americans currently in default on their student loans, it isn’t surprising that Richard Cordray of the Consumer Finance Protection Bureau and Sarah Bloom Raskin, Deputy Secretary of the Treasury have begun asking whether loan service providers are doing enough to help. These agencies are the most frequent point of contact for people with student debt, few of whom remain closely connected to their college or university. Their jobs typically include educating and informing borrowers regarding the tools and options available to assist in the management of their student loans, offering multiple repayment options tailored to borrower preferences, and providing self-service tools for borrowers and options to receive bills and/or correspondence electronically. That’s a lot, and legitimate questions are being raised about whether they are doing all of those jobs well.
But I think there’s another question we should consider: Is the range of current support services provided sufficient, and if not, what more can we do? When it comes to other types of loans, most notably mortgages, loan servicers do quite a bit more to help borrowers in trouble. For example, they connect distressed borrowers to employment and housing counseling and make referrals to benefits access programs. Helping a borrower temporarily access food stamps or locate a less expensive apartment so that they can better manage their student loan payments is probably a cost-effective way to reduce default rates.
I’ve located at least one organization, Mortgage Keeper, that does this sort of work both for mortgages and student loans, and am interested in learning about others. I know of organizations like Single Stop USA, Benefits Bank, and other initiatives that help college students get more money while they are in college, which could help limit debt accumulation in the first place, but here I’m thinking about how to assist those already in debt. So please, share your thoughts and knowledge of similar organizations, research on the topic, etc!