(February 2010) A new report highlights the effectiveness of campus-based default prevention and debt management initiatives. The Education Sector report, “Lowering Student Default Rates: What One Consortium of Historically Black Institutions Did to Succeed,” shows how colleges and universities help students manage their student loan debt effectively and successfully.

The study examines a group of colleges and universities in Texas that serve many low-income students. Its findings illustrate many of the everyday practices and policies used by campuses to administer the Perkins Loan Program. This new research is very beneficial to COHEAO’s policy positions, as it offers evidence of what our members have known all along: campus involvement in the loan repayment process is an effective method for helping students, particularly needy students, manage their student loan debts.

There are many sections of the report, which is about helping students manage debt in general, that describe just how the institutions manage the Perkins Loan Program and prevent defaults, such as the following: “From the initial financial aid package to providing individual counseling on loan repayment when students leave, institutions can take steps to help students avoid default. Schools can also maintain contact with students after they leave campus, communicating with them about when they need to begin repayment and where they should send their repayment checks.”

Further, the report states: “Partnerships with outside entities—all with experience in skip tracing, the process of finding and successfully contacting borrowers, collections, and personalized customer service—proved as important to successful default management as on-campus relationships.”

After successfully lower their default rates, many of the Texas schools began to focus their resources on other programs, and this was often followed by increased defaults. According to the study: “This is perhaps the most compelling evidence of the effectiveness institutional measures to lower default rates—not that default rates declined so quickly at first, but that for colleges and universities that diverted resources and attention away from default management, the rates began to climb back up.”

Although Education Sector focused on this effort of small HBCUs in Texas, the paper warns campus-involvement “must not be limited to these institutions,” explaining: “Many colleges across the country, particularly large public universities, have ‘HBCUs’ within them—groups of students who are at higher risk off defaulting and who need the attention and resources that institutions like HBCUs dedicate to serving these students.”

The report also offers recommendations for policymakers, stating campus involvement in helping students manage their debts and collaboration among schools and third party vendors should be part of any federal support for default aversion activities. While these recommendations focus on the largest federal loan program (Stafford Loans) via SAFRA’s “College Access and Completion Fund,” campus-based loan servicing offers an established, successful means for delivering these services efficiently and effectively for at-risk students through the Perkins Loan Program.

The full report from Education Sector, “Lowering Student Default Rates: What One Consortium of Historically Black Institutions Did to Succeed,” is available online at:
http://www.educationsector.org/usr_doc/Default_Rates_HBCU.pdf

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