Carlo Salerno, an economist who focuses on higher education, posted a recent article on the Huffington Post that offers some of the most logical arguments I’ve seen for encouraging more – not less – communication between debt collectors and holders of student loans.
As Salerno states, “there’s really no good reason why anyone should ever even come close to defaulting on a federal student loan to begin with.” He goes on to say that “…everybody has access to affordable payments. In addition to deferment and forbearance options, Direct Loan borrowers have access to up to three different income-driven repayment (IDR) plans and even borrowers in the legacy bank-based lending program have access to an Income-Sensitive Repayment option. Sure, the income caps, terms and conditions across the programs vary but the fact remains that no borrower experiencing hardship has to choose between paying the electric bill and making their student loan payment.”
Collectors on the Department of Education contract tell me the same thing. They have so many options for borrowers; if they could only get them on the phone to discuss! Good collectors are counselors, listening to the consumer and finding the right way to resolve issues. And with student loan repayment options as good as they are- these should all be GREAT conversations with good outcomes for the borrower.
As the Consumer Financial Protection Bureau (CFPB) contemplates rules that will govern debt collectors, there has been a great deal of discussion around “call frequency” (how many calls may be reasonably placed to a consumer before the attempts would otherwise be called “harassment”). Needless to say, there is a broad range of opinion. One attempt per day? Three per day? One message left per week? How many per month? How many hours between calls on the same day? How many different numbers can you try (home, mobile, work)? The nuances are many.
Because of a small number of highly publicized egregious call frequency cases, many believe that all collectors are out there to make unending calls, with a business strategy of harassment. The reality for many is that this simply doesn’t make business sense.
What becomes apparent, though, is that not all debts are the same. In the case of student loans, the consequences of the consumer not engaging with the collector are significant – even life-changing for many. These consequences can include administrative wage garnishment, tax offsets, and the more complicated matter that interest accrues after charge off – so the balance keeps rising, and there is no statute of limitations on Federal student loans.
Salerno explains that loan servicers and the Department engage in extensive outreach campaigns to alert borrowers to the fact that they are in danger of default, that they have defaulted, and that there are many options available to them to cure the situation. Yet they often experience the same response that collectors of all types of debt receive; radio silence.
In the case of defaulted loans, assuming the collector that’s calling is from a legitimate company and not a scam (for argument’s sake, let’s make that assumption), this is not going to lead to the best outcome for the consumer. In fact, being unresponsive will almost certainly lead to the worst outcome.
Salerno offers several solutions to the problem, including:
- First, stop preventing servicers and default prevention providers from loading borrowers’ cell phone numbers into their autodialing technology.
- Second, collapse the three highly similar income-driven repayment options with different income caps, terms and conditions into one, single program.
- Third, simplify the process for maintaining hardship repayment eligibility.
I will offer one more, directed to the CFPB, as well as state regulators who would impose specific call frequency rules (which, by the way, many in the debt collection industry would welcome at a national level):
Please think twice about imposing a one-size-fits-all limit that seems reasonable, but ultimately serves to reduce dialogue that helps consumers take advantage of the many opportunities to reduce or even eliminate their student debt burden.
Oh, and an acceptable voicemail message that a reasonable human being would actually say (and that another human would respond to) would also be super.