Many are concerned that our nation is heading in the direction of another financial crisis. Almost 10 years since the great recession involving sub-prime mortgage loans, we could be facing another collapse due to the excessive amount of student loan debt affecting over 44 million Americans owing more than $1.4 trillion. That’s about $620 billion more than the total U.S. credit card debt and it’s getting worse with over 3,000 student loans going into default every day. Former students with and without a degree have become distressed borrowers needing assistance. The accounts receivable management profession plays a vital role in helping these borrowers resolve their unpaid debt. While both federal and private student loans offer high volume, consistent placements and larger average size balances, there are many differences between the two. Today we discuss some of the differences and our collection approach for each product.
In most cases the student doesn’t have credit history in order to qualify for the loan on their own. Often their parent or grandparent will cosign for the loan. Initially I attempt to reach the former student in an effort to set up a repayment plan. Once I make contact I set the tone by demanding the balance. After I have the borrowers attention I then update their full and complete information. The demographics I update are: the mailing address, phone numbers and, most importantly, their place of employment. I always avoid yes and no questions and ask less important questions that lead into the main question I want to ask. For example, I ask if they are working full time or part time. I then ask what their occupation is and for whom they work? By starting with non-invasive questions the borrower becomes comfortable and you lead them to the answer you desire.
If I get the runaround from the borrower or if they do not have the ability to pay, I head straight to the co-borrower. Even though the co-borrower signed their guarantee they really don’t want to pay for the loan. They have their own expenses and did not expect for the loan they guaranteed to go into default. It’s our job to educate the co-borrower and advise them why it’s important for them to accept responsibility and repay the loan. Once the borrower or co-borrower has agreed to pay, setting them up on a secured arrangement is of the utmost importance. When demanding payment I give them the options that are best suited to resolve the account. I advise them that we can set the arrangement up via checking or savings and ask which option is best for them. If they claim to not have their checkbook I advise them that I can get the routing number so long as they know their account number. If they claim to not know their account number I immediately respond saying, “that’s okay, we can make an exception and set it up via debit card. Go ahead with your card number as soon as you’re ready.” I have found success with the aforementioned collection approach for all types of debt throughout my career.
Federal loans offer income-based payment plans so collectors are able to offer various options to the borrower. Unlike private loans the statute of limitations doesn’t apply and many of the loans are non-dischargeable in bankruptcy. Federal loans can also be recovered by seizing income such as disability or tax refunds without having to take the borrower to court.
Private loans do not have as much flexibility when it comes to repayment plans. To make things even more difficult, the borrower could be under the impression that they already have an arrangement to repay the debt. This happens when the federal collector offers an arrangement that is all-encompassing. Unfortunately for the borrower the “all-encompassing” arrangement does not include their private lenders. If collectors are unable to resolve the loan on a voluntary basis with the borrower, private lenders may have to take the borrower to court and get a money judgment in order to use garnishment as a way of collecting. Once a judgment is in place the lender can also force liens on the borrowers’ assets. This approach may be necessary as private student loans are subject to the statute of limitations.
Sam Eidson is the Director of Compliance for Delta Outsource Group, Inc. He also serves as Secretary for the Missouri Collectors Association.