Successful Repayment and Default Prevention: It’s Not an Information Problem; it’s a Motivation...

Successful Repayment and Default Prevention:

It’s Not an Information Problem; it’s a Motivation Problem

Presented: March 26, 2014Rebecca Isaacs

NMEAF

• Public education• Professors must take attendance—

accountability • Recruiters must share their experiences• Student ambassadors’ communication• It takes a campus, not just the financial aid

office, to create financially smart students

Tuesday, April 18, 2023 2

“It Takes a Campus”

You have to begin on day one.

“I didn't know anyone on campus except my brother. I didn't know how to pick the right classes or find the right buildings. I didn't even bring the right size sheets for my dorm room bed.“


Obama’s Launch Plan

[www.rueters.com, Michelle Obama, “Obamas Launch Plan to Get More Low-income Kids to College,” January 16, 2014]


[Homeroom, US Department of Education Blog, “Making College Affordable for Every American”, August 22, 2013 ]

FSA RecommendationsFully Implement the Department’s Plan:

• Engage Campus-Wide Stakeholders• Identify Your Unique Borrower Profiles• Set and Track Goals• Implement Borrower Awareness Programs• Strengthen and Enhance Orientations• Strengthen Entrance and Exit Counseling• Track Riskiest Borrowers• Partnerships

Tuesday, April 18, 2023 5Tuesday, April 18, 2023 5


U.S. Department of Education Fact Sheet,September 2013

“… Schools have increased borrower awareness of obligations through incorporating borrower topics at orientation sessions and providing enhanced entrance and exit counseling. Other best practices include borrower tracking, increased contact with delinquent borrowers…and partnering with other stakeholders to optimize default prevention, resolution, and reduction.”

[Fact Sheet September 30, 2013.]


NY Times Editorial Columnist, Gail Collins

“…Don’t you think there should be someone in charge of calling [students] once a week and yelling: ‘$800 a month until you’re 51 years old’?”

[New York Times, “The Lows of Higher Ed”, September 14, 2012]

Motivate the borrower to make the first payment:•Take action: Motivate borrowers to get started on the right foot to successful loan repayment. •7 out of 10 borrowers that ultimately default never made their first payment.


Primary Objective


Student Facts:Who struggles most?Students who drop out of college before earning a degree.

Motivation• You still have to pay

your loans!• Get back to school…

– How close are you to graduating?

– Is there another option?



Average debt of college seniors: $29,400*• Monthly payment over 10 years: $338

Average debt of college seniors in NM: $17,994*• Monthly payment over 10 years: $207

*The Project on Student Debt, The Class of 2012

www.projectonstudentdebt.org

Student Facts:


A successful financial education program must be strong enough to influence the behavior of the most difficult students.

The students most likely to default are the most difficult students to influence.

We have a motivation problem, not an information problem.

Consider this…


Debtor Psychology

Two Obstacles:

Avoidance: “I don’t want to deal with this…”

Ignorance: “I don’t know what to do about this…”

First obstacle is much harder to overcome than the second…A

VO

IDA

NC

E

IGN

OR

AN

CE

Three Causes of Avoidance:

Fear• Confrontation• Negative treatment• Personal embarrassment


Debtor Psychology

Procrastination & Apathy• “It’s only a student loan…”• “It’s a government loan – it

will take someone a long time to come after me.”

• “What are they going to do, repossess my brain?”


Debtor PsychologySecond Cause of Avoidance:


Debtor Psychology

• “I cannot afford the past due amount…”

• “I have so many other problems…”

• “There is nothing I can do right now…”

Third Cause of Avoidance:

Feelings of BeingOverwhelmed or Helpless

How do we overcome avoidance?

Borrower Communication that is:

Persistent…

Relentless…

Sustained…


Debtor Psychology

Marketing Rule of7

Second Obstacle: Ignorance

• Lack of Information about options and resources

• Confusion about who to call


Debtor Psychology


How do we overcome ignorance?

• Give recommendations, not information

We must tell borrowers what to do and how to do it. “Contact your servicer”

“Ask About…”

“Here are links, resources, contact points…”


Debtor Psychology


• Cohort analysis: What demographics make up the largest default group?

• Change your processes accordingly.• Track your changes.• Develop counseling for your dropouts.• You will be surprised at your successes!


Case Study

Start at the beginning…• Entrance counseling• Communicate every

time they borrow• Suggest actions that

can trigger successful borrowing

• Emails and text messaging are simple and affordable means of communication


Student,

This semester, you borrowed: $X

Your total loan amount so far is: $X

Your monthly payment will be: $X

Here are some resources to help you with successful loan repayment.

Love,

School

Yes; I did say text messaging!



“I authorize my schools… and their respective agents… to contact me… at … my cellular telephone… using automated dialing equipment or artificial or prerecorded voice or text messages.”

“Mandated exit interviews are not a “teachable moment” for this information; we need to inform students more smartly. Consideration should be given to information at the time repayment kicks in --- usually six months post-graduation.”

[Inside Higher Ed, Karen Gross,Student Loans I: Yes, Something Is Wrong, March 21, 2014]

Karen Gross is president of Southern Vermont College and a former policy adviser to the U.S. under secretary of education.


Don’t Stop!One-off communications ARE NOT enough!

Tuesday, April 18, 2023

• Call Center• Emails• Text Messages• Web Resources• Skip Tracing• Targeted Mailings

Persistent, relentless and sustained communication of recommendations, options and resources.

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Communication Strategy:


RecommendationsSponsor or Link to Online Resources:

• U.S. Department of Education Resources• Link to other Commercial Resources


RecommendationsTiming of Borrower Communication

• Begin NO LATER THAN 60-Days Delinquent - Why?

• 60-Days Delinquent = 3 Payments Due• Average 1st Year Student Owes: $150• Average Senior Owes: $900• Avoidance in full swing…


Communications Schedule


Sunday Monday Tuesday Wednesday Thursday Friday

Week 1 Email 2PM

Text4 PM

PMPhone

Week 2 PM Phone

Email 4 PM

Week 3 Email 3PM

PMPhone

Week 4 PMPhone

Email2PM

Text 1PM

Sample communication schedule, 60-269 days

Communications Schedule


Sample communication schedule, 270-360 days

Sunday Monday Tuesday Wednesday Thursday Friday

Week 1 Email 2 PM

Text 4 PM

PMPhone

Week 2 Text 2 PM

PMPhone

Email 4 PM

Week 3 Email 3 PM

Text 1 PM

PMPhone

Week 4 PMPhone

Text 3 PM

Email 2 PM

Results – How Do You Know?

Follow delinquency• This month’s 60-day delinquency is next month’s

90-day delinquency.• You want the month-to-month delinquency

trends to aim downward.


ConclusionCommunicate where students are…

Use automation…

Don’t stop…

Questions?


Rebecca IsaacsNMEAF

[email protected]

Successful Repayment and Default Prevention: It’s Not an Information Problem; it’s a Motivation...

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