Four Recommendations to Improve Student Loan Success
The following is adapted from remarks prepared for a presentation at a hearing held by the Republican Policy Committee Millennial Task Force on College Completion, Flexibility, and Affordability for an Emerging Generation.
April 12, 2016
Today, Navient helps more than 12 million borrowers successfully manage their student loan repayment. We use a data-driven approach to increase the likelihood that we reach at-risk borrowers, since we know that, nine out of 10 times when we reach a federal student loan borrower, we can help them avoid default. Our results speak for themselves. Navient-serviced borrowers have lower delinquencies and are 38 percent less likely to default.
As many of us know firsthand, college is expensive and more students, motivated by the value of a college degree, have turned to student loans to finance their education. Not surprisingly, students and families are genuinely concerned about their ability to afford a college education.
First, it’s important to put education loan borrowing in perspective. Forty percent of college graduates don’t borrow at all. For those who do, the average bachelor’s degree recipient leaves school with about $27,000 in debt.
These numbers may come as a surprise to some who have seen the many stories featuring borrowers struggling with up to six-figures in student debt. In fact, an analysis of media coverage found that the average reported student loan debt was more than $85,000 — three times greater than the actual average. Actually, less than 2 percent of bachelor’s degree recipients graduate with $85,000 or more.
The fact is that the overwhelming majority of borrowers have a manageable amount of debt and are successfully repaying it.
This doesn’t mean student loan debt levels are not a concern; averages aside, in a program this large and broad, there are many who have not experienced the outcomes they had hoped, and who struggle to keep up with their payments. That’s the situation we should be trying to prevent, and those are the people we should be trying to help.
The most compelling issue we see is among students who borrow for college but don’t complete their degree. They have the debt with none of the economic benefits. While their loan balances are less than the average, they are four times more likely to default.
Our recent survey of millennials, Money Under 35, reinforces the importance of completing a degree, especially when borrowing. The survey found that financial health increases with degree completion, regardless of whether an individual borrowed to pay for college. We found that borrowing to achieve a college degree is a worthwhile investment — but, only if you graduate. Young adults with debt and no degree were more likely to show financial stress in many aspects of their lives. And if they reach their 30s and still have student debt, they find themselves falling behind their peers who never went to college at all.
From our front row seat every day in working with college students and recent graduates, we have developed four key recommendations to improve borrower success and the federal student loan program.
First, we believe that students and families need better information about what it will cost to earn their degree along with the affordability of the amount they will need to borrow.
Students need to know exactly what they’re getting into before they sign on the dotted line.
And not all students and families need the same information. We should do more to identify students at risk before they borrow to help them make informed choices. In a recent survey we did of high school students, we found that the students most receptive to this idea of personalized outreach are those who are the first in their family to attend college — one of the segments who we need to reach.
Second, we need to simplify repayment.
Today, there are 56 options for a borrower in repayment, including nine income-based repayment plans, all with similar sounding names. So many options and programs create confusion. They should be and can be simplified. For example, collapsing the nine income-driven repayment options into one plan would be a good start.
Third, let’s help borrowers understand the benefits of paying their loan off early, if they can, rather than delay.
In the rush to help struggling borrowers, too many have trumpeted lower payments over longer periods as the universal solution despite the higher interest costs borrowers would pay. Yes, we need programs that help struggling borrowers through short-term and long-term challenges, but these programs should also help anyone enrolling in these options to understand the trade-offs, so they can make the right choice for their financial circumstances.
Finally, let’s encourage borrowers to engage with their loan servicers.
Default is avoidable, but borrower contact is key. If borrowers are led to believe that calling their servicer is useless, who benefits? There needs to be a concerted effort to encourage borrowers to contact their loan servicer as a resource. Our experience with over 12 million customers shows that borrowers who stay connected with their servicer are more likely to stay out of delinquency and default.
Contact works; let’s encourage it.
Helping students make better decisions to improve graduation rates, limit borrowing to affordable levels, keep their payments on track and actively engage with their servicers can ensure the student loan program achieves its true policy objective: providing access to higher education and success for all.
At Navient, we’re committed to working with Congress to enhance the success of individual student borrowers. We look forward to the opportunity to discuss our insights and ideas that would continue to improve student loan success.