5 Reasons Schools Should Send A Yearly Debt Letter To Student Borrowers

 

 

By Amy Glynn, Vice President of Financial Aid & Community
Initiatives at CampusLogic

A loan letter, sometimes referred to as a debt letter, is a “letter” sent to student loan borrowers each year  recapping for the student pertinent information about his or her loan debt to date. For example, estimated monthly payments and percentage of loan limits used.


Loan Letters Gaining Traction
Indiana University (IU) implemented a loan letter to all student borrowers in 2012; student borrowing has declined by 18 percent. Indiana and Nebraska have passed laws mandating annual debt letters while other states have proposed legislation. Georgia’s chancellor requires a debt letter for all students, a move impacting all four-year public institutions in The University of Georgia System.

Four reasons you should send a yearly debt letter:

1 - Master Promissory Notes Aren’t Enough

What other industry allows an open-ended loan application—one that can be added to for up to 10 years? The Master Promissory Note (MPN)  simplified and reduced the amount of paperwork collected over a student’s lifetime, only making them complete the loan application once every 10 years. Having a student complete an MPN reminds him/her that real money is trading hands. A loan letter makes student borrowing even more tangible.

2 – Students Need to Physically Handle Debt

The importance of students seeing the money they are borrowing as more than numbers on a page is monumental. There was a time when students would sign loan documents each year, later signing the physical check over to the school. I’m not saying we go back to the days of paper checks, but I think sending a letter each year reminding students of their growing debt is important. Right now, for many, there’s no other place students regularly receive this information.

3- Students Don’t Know How Much They Have Borrowed

A Brown Center on Education Policy at Brookings study found that among Federal Loan borrowers 28% said they had no Federal Loan debt. An additional 14% said they didn’t have any student debt. This means, at minimum, 42% of students with loan debt are unaware of it. It’s scary that borrowers are making the largest financial decision of their lives to-date, yet they don’t know how much they’re going to have to repay. 

4—Students Don’t Know the Repayment Terms On Their Loans.

According to LendEDU’s recent study of student loan borrowers:

-          93% don’t know the difference between subsidized and unsubsidized loans

-          94% don’t understand their loan repayment terms

-          73% thought Sallie Mae was a person, not a company

These statistics indicate students don’t understand the terms of their loans. How do we combat this? Education. And more education. We need to find new, relevant ways to educate students on potential loan debt, both before and during the borrowing process. A good loan letter can do just that—just ask the schools that are seeing tremendous results from implementing them.