Small Investment, Big Impact in Default Prevention

Small Investment, Big Impact in Default Prevention

Submitted by: Shannon Cross, USA Funds Account Executive

You might be surprised at the default prevention results you can achieve from a relatively small investment in targeted default prevention. Many schools find they can offer default prevention services that help support the success of their student loan borrowers for an amount that’s much less than 1 percent of the amount their institution receives through the federal student loan program.

The key is to invest in risk-based, strategic default prevention outreach services that allow your institution to develop outreach strategies that maximize the benefit of every dollar you invest in default prevention. You can work smarter, not harder.

Organizations like the Association of Community College Trustees and The Institute for College Access and Success support this approach. In their report “Protecting Colleges and Students: Community College Strategies to Prevent Default,” those groups note, “Regardless of whether colleges are at risk of CDR sanctions, they have a responsibility to help students make wise borrowing decisions and avoid default after they enter repayment. This responsibility extends beyond federally required entrance and exit counseling."

I recognize the budgetary constraints many schools face. Applying predictive analytics to determine those borrowers who are at the highest risk of default and develop a custom strategy that focuses outreach efforts and eliminates unnecessary default costs. In fact, USA Funds has determined that a school can conduct targeted default prevention efforts effectively for far less than 1 percent of what former students borrowed to attend their college or university. 

Although this figure can vary according to factors such as the percentage of borrowers who are delinquent and the volume of higher risk borrowers, the bottom line is that even a relatively small investment in default prevention outreach can have a big impact. Your school will have a lower cohort default rate, fewer federal loan borrowers will default, and taxpayers will benefit from a reduction in loan program costs.

If you’d like to learn more about using analytics to target your default prevention efforts, visit the USA Funds website at www.usafunds.org.