Back to current
Shoptalk Online Contents

Trends and Issues

Shoptalk Online 497, March 31, 2009

Trends and Issues

Helping borrowers in distress

Due to rising loan debts and the current economic climate, schools may be hearing from students who are approaching graduation that it's becoming more worrisome to consider the prospect of a monthly loan payment. Or you may have noticed a rise in e-mails or phone calls from former students who are having difficulty with their loan debt and don't know how to address the situation. In addition to those groups of students, it's likely that there are countless students and former students who are experiencing financial troubles and could benefit from guidance or assistance, but for whatever reason, are not reaching out for help.

It's in everyone's best interest to prevent a borrower from defaulting on his or her student loan. If a borrower defaults, his or her credit record is damaged and other consequences may result, such as wage garnishment, collection costs, and ineligibility for additional federal student aid. When a borrower defaults, the school's cohort default rate is negatively affected. And of course, a defaulted student loan costs the taxpayers who are helping to fund the federal student aid programs.

TG knows that our school customers are committed to assisting students and borrowers through these difficult times. TG is also dedicated to supporting our customers and borrowers in those efforts. In this article, we'll take a look at the various strategies and tools that can make a difference in these efforts.

What can schools do?
One of the most important things a school can do to help is to emphasize to borrowers the importance of identifying and contacting their lender or guarantor — or asking the school to help them do so — whenever financial difficulties arise. This information can be provided during the exit counseling process, but it's also essential to communicate this message to borrowers any time they indicate difficulty meeting their loan obligations.

Keep in mind that a student may have multiple types of federal loans, and if they are experiencing difficulty repaying one type of loan, it's likely they are having trouble repaying other types of loans as well. So it may be wise to advise your borrowers to seek help with their Perkins and Direct loans as well as their FFELP loans, as applicable. Remind them to contact the school from which the Perkins loan was obtained, or the Direct Loan Servicing Center, in order to receive assistance with those loans.

Finally, you may consider creating a brief handout for students to pick up at your office and to include in exit counseling materials, which describes repayment assistance information you feel would be most helpful or appropriate for your student body. By providing written information in easy-to-access formats, schools can supplement other types of borrower communication, and reach borrowers who are unable or unwilling to proactively request assistance. You could also post the information on your school's Web site, or send it electronically to your aid recipients.

Options
Besides knowing how to contact the lender and guarantor, your borrowers should be aware that there are other options available if they find themselves in financial distress. Federal student loan debt offers multiple repayment benefits and a variety of repayment options, including:

Deferment allows a borrower to temporarily postpone repayment of his or her student loans. The Economic Hardship Deferment may be the most appropriate deferment for borrowers who are employed but still experiencing economic hardship. Visit www.tgslc.org/borrowers/deferment/index.cfm for comprehensive information about various deferment options available to FFELP borrowers. Depending on the loan type, some borrowers may qualify for an interest subsidy during deferment.
Forbearance is another option that lenders make available to students who are having difficulty making regular payments on their student loans. This is a less desirable option than deferment, as forbearance does not provide any interest subsidy. See www.tgslc.org/borrowers/forbearance/index.cfm for more information.
Alternative repayment plans: The monthly repayment amount under a standard repayment plan may not be manageable for those borrowers experiencing financial difficulties. Some borrowers qualify for other special payment plans, such as graduated repayment, extended repayment, or, beginning July 1, 2009, Income-Based Repayment (IBR). Under IBR, the borrower's monthly payment amount is based on his or her total education loan debt, income, and family size during any period of partial financial hardship, as determined by a calculation performed by the lender.

How can TG assist?
While the school is a crucial player in helping to keep a borrower out of default, there are many other entities, including the guarantor, that have an important role in assisting borrowers as well. For example, TG encourages borrowers who are having trouble managing their debt to contact TG's default prevention counselors by calling (800) 338-4752 or sending an e-mail message to prevent.default@tgslc.org. TG's counselors can help borrowers understand their options for staying out of default.

TG's Integrated Default Assistant™, or IDA™, can help schools focus on students who are at risk for becoming delinquent or defaulting on their student loans. Through IDA, schools can access reports, pre-formatted letters, and search a comprehensive database of default information to facilitate direct communication with at-risk borrowers.

The Positive+Balance Community^SM, available at www.PositiveBalance.org, is a TG Web site for educators and financial aid professionals seeking financial literacy information to provide to students and borrowers. The community features an online library of financial literacy resources, all of which are free and easy to download. TG's Positive+Balance™ presentations and training materials are available in the file library, in addition to educational resources from other reputable sources such as the Federal Trade Commission (FTC) and the Federal Deposit Insurance Corporation's (FDIC) Money Smart program.

TG also offers brochures that can supplement the materials the school provides to its students as they plan for repayment of their loan debt:

Managing Repayment outlines the options students have for managing their student loans, if making payments becomes difficult. The brochure explains deferment, forbearance, consolidation, and alternative repayment plans, and provides a list of the top ten ways students can avoid default.
New Directions: A Guide to Repaying Your Stafford Loans offers students useful information on their repayment obligations and provides tips on budgeting, estimating loan payments, deferment, forbearance, and avoiding default.

The publication also includes information on other topics, including managing money; the borrower's rights and responsibilities; the consequences of not repaying a student loan; how to estimate a loan payment amount; and the options available if the student has difficulty making payments.
Student Loan Default defines default, describes its effects on borrower credit, looks at various ways to avoid default, and describes how borrowers can resolve a default with the help of their lender or guarantor.

Schools can order TG materials, including these brochures, online at www.tgslc.org/order/index.cfm.

Other helpful information
When constructing a repayment information resource for its students, a school may consider including these online resources:

National Student Loan Database System (NSLDS), a comprehensive database made available by ED that allows borrowers to obtain information about the federal student loans that they have received throughout their education.
IBRinfo.org, a Web site provided by the Project on Student Debt that includes an easy-to-understand explanation of the Income-Based Repayment (IBR) plan, as well as a calculator to assist borrowers in determining if they might qualify for the plan and to estimate a monthly repayment amount under IBR.
myTG^SM, TG's new secure, Web-based account management tool, can help borrowers manage their TG accounts online and stay on track to repayment. Once borrowers register, they can manage their account in a variety of ways, including:
- Viewing a summary of their TG-guaranteed loans;
- Accessing detailed account information on each loan; and
- Reviewing their payment histories for any defaulted loans.
Borrowers can also access information on default prevention, deferments and forbearances, rehabilitation, and loan discharge and forgiveness, including forms and contact information for schools, lenders, and servicers.
The National Foundation for Credit Counseling can assist individuals in locating a community agency that provides free or low-cost services such as credit counseling, money and credit management education, bankruptcy counseling and education, and debt management plans.

Questions?
Should you have questions about how TG can assist you in helping your borrowers through the repayment process, contact TG customer assistance at (800) 845-6267, or send an e-mail message to cust.assist@tgslc.org.

Policy potpourri

Q.: Must students and parents report the stimulus payments received under the Economic Stimulus Act of 2008 on the 2009-10 Free Application for Federal Student Aid (FAFSA)?

A.: No. ED has determined that the stimulus payments that students and parents received are not to be reported as income on the 2009-10 FAFSA. For more information, see page 20 of the 2009-10 Application and Verification Guide or ED's Electronic Announcement posted on March 20, 2008, titled "Treatment of 2008 Economic Stimulus Payment in the 2009-10 Federal Need Analysis."

Do you have a question?
If you have a question that needs an answer, feel free to Ask TG™. Ask TG is TG's online query tool for borrowers, schools, and lenders. It includes a database of frequently asked questions about financial aid, student loan processing, and TG's products and services. To submit a question to Ask TG, visit tgslc.custhelp.com.