Have you ever thought, “I really wish I had known that before,” when presented with something new? In the complex world of federal student loans, this frequently happens to borrowers. In the wake of the COVID-19 health crisis, the topic of financial wellness is as salient as ever. Scenarios can showcase what happens when borrowers aren’t aware of key information to help them achieve success in their financial journeys.
This blog shares a few of those examples, how reading beyond the headline is important to understand the full story, and how schools are making a positive difference in providing guidance to their students.
Opportunities for Change
Student Loan Forgiveness
A recent analysis by a national group, and a corresponding Forbes headline touted only 32 student loan borrowers in the income-driven repayment (IDR) program have received loan forgiveness. Seemed shocking. But after a deeper dive into the facts it isn't surprising at all. Income Contingent Repayment, the earliest IDR version, was introduced in 1995 (26 years ago) and borrowers were required to meet the annual deadline to update their income information (a process called “recertification”) and make 25 years-worth of payments before being granted forgiveness.
More recent IDR plans have been introduced with shorter repayment requirements (20 years) but borrowers remain challenged at overcoming complexities such as:
- Understanding the best repayment plan for their situation.
- Complying with the repayment program and not missing deadlines for the annual recertification process.
- Paperwork processing delays, lost paperwork, and inaccurate denials.
IDR and Default
IDR is a highly effective program at keeping borrowers who struggle to make standard payments out of default. According to Inside Higher Ed, “Borrowers in IDR are about half as likely to default on their loans as borrowers who are not in IDR.” But why are any borrowers defaulting if they’re enrolled in an IDR program?
A report from The Institute for College Access & Success (TICAS) noted that Department of Education (ED) data showed more than half of borrowers enrolled in IDR missed their recertification deadline "which can lead to unaffordable spikes in monthly payment amounts, as well as interest capitalization that can add substantial costs.”
In 2015, the Government Accountability Office found 2,252 recipients’ Teacher Education Assistance for College and Higher Education Grant (TEACH) grants were mistakenly converted to loans from August 2013 through September 2014. ED uncovered 63% of recipients who began their service before July 2014 had their grants converted to loans. Of them, 32% were on track to meet the program requirements or had properly completed them. Since then, many have reported their grants were mistakenly converted to loans as a result of paperwork snafus, missed deadlines, or receiving incorrect information from the loan servicing company overseeing the program for the government.
Latest reports thankfully state more than 6,500 teachers have had unfair student debts erased and ED is standardizing the TEACH certification deadline and making program improvements.
Unprecedented Times Call for Proactive Measures
So how do we make a difference and ensure students are properly armed to maneuver through student loan complexities and achieve success?
First-Generation Student Success Programs
Being the first in your family to attend college (first-generation or first-gen) can feel like trying to navigate a maze without a map. First-gen families may need guidance on scheduling, the financial aid and admissions processes, and where to find helpful resources.
Many schools recognize the unique needs of first-gen students. For example, Florida Atlantic University (FAU) created a referral hub to provide services to inspire and assist first-gen students, including academic support, advising, financial assistance and scholarships, mentorship, and the “First and Proud” student organization.
First-Year Experience Programs
Speak with any college freshman and they’ll likely have something to share about their school’s first-year experience (FYE) program. Over 90% of four-year institutions and over 80% of two-year institutions now have some sort of FYE program in place. FYE programs directly correlate with students' better management of credit accumulation, actual degree attainment, and improved academic achievement. Check out these five schools with top ranked first-year experience programs.
Combine Financial Aid Resources with Financial Wellness
Providing the funds students need to get through school and teaching them how to manage the money was the impetus for Berkshire Community College to expand their Guardian Money Management for Life (MMFL) program. In addition to providing the right financial wellness lessons at the right time, they implemented a balance forgiveness program, paid internships and financial wellness coaching to provide holistic and individualized support. The outcome revealed a 92% retention of students who took the MMFL course and received balance forgiveness, compared to a 51% retention of those who took the MMFL course with no forgiveness.
Need for Ongoing Support
Students need to have resources and solid support systems to rely on for help. Student loan servicers are a good place to start, but providing borrowers with a trustworthy and impartial source to discuss anything from refinancing to consolidation to default rehabilitation is integral to student success.
If ever you're in doubt about student loan information, we're always here to help decipher the facts for you. And, if you're interested in employing a new or different financial wellness and student loan counseling service at your school, we can help. Contact us for assistance.