By Jack Remondi
Student debt is a hot-button issue this election season. Presidential candidates all agree action must be taken to ease the financial burden of the rising cost of college, but they have different ideas about what those actions should be. A fair and honest debate of ideas is the cornerstone of our democracy. Given the burdens placed on students and families to meet the high cost of college, during no other time in our history has this exchange been more important.
However, the debate is too often marked by inflammatory and false rhetoric about student debt.
Yet it’s important to understand student debt is the symptom, not the cause. And, when student loan borrowers struggle to manage their loans, some critics have turned to blaming servicers. Ultimately, this rhetoric hurts the very borrowers everyone wants to help.
Servicers are the last stop in a borrower’s journey with federal student loans. Servicers don’t set interest rates, determine the price of college, or issue any loans. As the nation’s largest servicer, we work with students only once they have arrived on campus and have already borrowed. Our work kicks into high gear once a borrower has left school and begins to repay the loans.
Servicers help borrowers navigate the overly complex array of repayment options as they work towards successfully repaying their loans. The number of repayment options — including deferment and forbearance — has grown to more than 50. These include 16 repayment programs, nine of which are based on income. Servicers understand the full range of available plans and assist borrowers to enroll in the right program for them.
Unfortunately, when servicers are maligned in the race to score political points or create sensational headlines, it can discourage borrowers from engaging with us, which ultimately hurts borrowers.
Our data show that more than 9 times out of 10, when we reach a struggling federal borrower, we successfully help him or her avoid default. Conversely, 90% of federal borrowers who end up defaulting have not responded to outreach. Through letters, calls, texts, and emails, we attempt to contact these struggling borrowers 230 to 300 times in the year of missed payments it takes to default.
Struggling federal borrowers who engage with their servicers will learn about the options to repay student loans in a way that best fits their individual circumstances. Income-driven repayment programs such as Pay As You Earn and Income-Based Repayment establish a monthly payment based on a percentage of discretionary income that can make short- or long-term financial challenges much more manageable. The Administration’s new Revised Pay As You Earn (REPAYE) can make monthly payments even more affordable for many borrowers.
These programs are working. According to Federal Student Aid data, delinquency rates are down, and the number of direct loan recipients enrolled in income-driven repayment plans has increased 235% since 2013. For Pay As You Earn, the increase is over 2,000%.
At Navient, we make it a priority to educate our federal borrowers about income-driven options, with more than 170 million communications annually about repayment options. These programs are our primary tool in helping borrowers avoid default. As a result, we are a leader in enrolling borrowers in these programs.
We are proud of our comprehensive default prevention efforts, which have driven the decline in the national 3-year Cohort Default Rate and the decline in delinquencies. For borrowers we service on behalf of the Department of Education, our default rates have been consistently below other major servicers. In fact, if all default rates matched our level, 300,000 fewer borrowers would have defaulted last year.(1)
A lower delinquency and default rate isn’t just a number. It’s people.
It’s the young professional who now has an easier time passing a pre-employment credit check. It’s the single mom who can now more easily secure a place to live. It’s the adult learner who will pay less for his car loan.
There is no question that the rising cost of college and low wage growth are driving increased anxiety over student debt.
It is also true that there are always ways to enhance the service experience; and we continually work to improve our practices and advance recommendations for policy and practice changes that enhance customer experiences. However, the debate about actions and solutions should be based on facts, not political rhetoric.
The good news is that there are a number of fact-based solutions for policymakers to consider that would make positive differences for borrowers.
First, we should better educate borrowers and their families about the total amount they will need to borrow to complete their degree — not just how to pay this semester’s bill. Students should be able to assess the likely economic benefits of their chosen field before they decide what school to attend and how much to borrow. And they should know the most common factors that lead borrowers to default. For example, borrowers who do not complete their degrees are much more likely to default — highlighting the importance of building a financial plan that results in graduation.
Secondly, Congress should simplify the repayment system. Do we really need more than 50 different repayment options? We believe that simplification will lead to increased borrower engagement.
For those who need income-driven repayment, it must be easier to enroll and stay enrolled. Today, borrowers can only enroll electronically through a separate government website or by completing a lengthy paper application. Neither of these are simple or provide instant plan enrollment. This clearly needs to be fixed. And the annual re-certification process is not much easier. Congress should work with the Administration and servicers to streamline these processes.
Further, policies should highlight the benefits of paying off a loan early, along with the cost of deferring payments. Borrowers should have options to pay less when their incomes are lower, but, ultimately, they save money and are better able to pursue other life and financial goals if they pay off sooner.
Above all else, let’s stop playing politics with the issue of student debt. The young are the future of our country.
We should be working as one voice of encouragement for the millions who have received financial assistance from the American taxpayer to pursue higher education.
All borrowers, and especially those facing financial strain, should be encouraged to engage directly with their servicers — not driven away from them by misleading and false rhetoric. Together, we can ensure that even those who are anxious about their loans know they have options. Help is a phone call away.
Jack Remondi is president and CEO of Navient, based in Wilmington, Del., which services student loans for 12 million customers.