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Guide to Reducing Alumni Default Through Repayment Plan Education

Despite a 7% drop in student loan default rates between 2013 and 2014, rates are still far too high: hovering close to 14%. Especially considering that default rates rose steadily for the 6 years previous, it is clear that graduates need help managing their debt.

But help from whom? Although parents, high school teachers and the federal government itself are all potential sources of student loan information, financial aid officers and counselors have the most power to influence a student’s loan decision-making. Luckily, making a dent in default may be as simple as educating students about the various repayment plans available to them.

Better Information, Better Counseling

“There is no question that we need better information, better loan counseling, outreach after people enter repayment to make sure that borrowers know their options,” Lauren Asher, president of the Institute for College Access & Success (TICAS), told the Washington Post. “And those options need to be improved.”

The article adds, quoting Department of Education sources, that as of late 2014, only 14% of graduates currently use an alternative repayment plan, even though around 20% of students are facing default on their student loans. The answer?

Laying Out the Options

Many students – if not most – graduate school believing there’s only one way to repay their loans: whichever plan they were put on when their grace period ran dry. But as any financial aid officer could tell you, students now have a wealth of repayment options, such as:

  • Graduated Repayment
  • Extended Repayment
  • Income-Based Repayment
  • Pay As You Earn
  • Income-Contingent
  • Income-Sensitive

Each of these plans offers students a different way to moderate payments (paying over a longer period, paying based on the amount of money they make, etc.), but they all share a common drawback: not enough graduates know about them.

Educating About Repayment

Luckily, that’s changing. According to a recent article from EdCentral, Income-Based Repayment now accounts for 28% of loans in repayment. This is better, and probably helps account for the drop in default rates mentioned above. However, any default is too high a price to pay, especially considering default’s dramatic negative effects on a graduate’s credit and opportunities.

Instead, alternative repayment should be a topic of discussion sooner. Create outreach programs to local high schools, so you can talk to kids about the importance of avoiding default and educate them on repayment options before they enter college. When students apply for their financial aid, consider sending a brief info sheet about repayment along with their award package.

Keep educating students all through school. Explain various repayment options during financial aid sessions, and put special emphasis on them during exit counseling. Introduce students to the repayment estimator early, and help them understand their private loan consolidation options as well. While there is no one solution, knowledge is power: Make an effort to give it to all your students.