Inside the exhibit hall at the conference of the National Association of Student Financial Aid Administrators here this week, companies that help colleges keep their student-loan default rates down competed for financial-aid officers’ attention.
Inceptia, a division of NSLP that offers financial-literacy and default-prevention services, had a booth where aspiring rock stars could have their picture taken with a guitar in front of a sign reading “Financial Aid Hall of Fame.”
SALT, a competitor created by American Student Assistance, offered stress balls to harried administrators, and USA Funds handed out guitar picks and playing cards. The Educational Credit Management Corporation gave out antimicrobial screen cleaners on a card that offered to “wipe out student-loan repayment confusion for your students.”
Inceptia, which had a private meeting room at the conference, also sponsored the conference breakfasts. TG picked up the lunches.
With default rates rising, a growing number of colleges are turning to default-management companies, which have proliferated since Congress ended the government’s bank-based guaranteed-loan program, commonly known by the abbreviation FFELP. Several of the companies are guarantors that provided default management under the bank-based lending program and are seeking to expand into a fee-for-service model.
Among the nonprofit organizations now selling products and services directly to colleges are American Student Assistance; the Educational Credit Management Corporation, or ECMC; the National Student Loan Program, better known as NSLP; TG, as the Texas Guaranteed Student Loan Corporation is now called; and USA Funds.
Brett Lief, an Inceptia board member and onetime head of the lobbying organization that represented lenders in the FFELP industry, said many clients were dissatisfied with the Education Department’s default-prevention efforts.
“Schools are very anxious that they’re not getting the level of support” from the department’s servicers that they once received from guarantors, he said.
Over the past two years, Inceptia’s business has grown from “a handful of clients” to 140 colleges, according to Sue Downing, its vice president for marketing. The company estimates that it averts $125-million in defaults each month.
Inceptia charges a flat fee for each delinquent loan it receives upfront, but it gets a second fee only if it cures the delinquency.
TG, whose services to colleges include counseling borrowers during their grace periods and when they become delinquent, charges a monthly per-borrower fee.
If borrowers have stopped attending or dropped out of college, the company will first encourage them to re-enroll, given the evidence that defaulting is linked to dropping out, said Kevin Struckhoff, TG’s assistant vice president for relationship management and consulting. If borrowers don’t want to re-enroll, the focus shifts to helping them select the best repayment plan.
The Cost Factor
But some colleges say they can’t afford the default-management services vendors are offering. Laurie Wolf, executive dean of student services at Des Moines Area Community College, said she had been approached by many vendors who promised to “save you for a price.”
“They’re saying they’ll do it for $60,000,” she said. “I can hire two part-time staff to work the phones for that much.”
Ms. Wolf and other aid administrators said they’re troubled by the fact that some of the Education Department’s student-loan servicers, including Great Lakes, Mohela, Navient, and Nelnet, are also selling their default-prevention services directly to institutions. Some see it as double-dipping, even if they’re not selling to colleges they service on the department’s behalf.
“If servicers have to do default management on the back end, they’re not doing something right on the front end,” argued Kay Lewis, director of financial aid at the University of Washington.
Other colleges are too overwhelmed to confront their default problem, said Kevin Jensen, dean of enrollment and student services at the College of Western Idaho.
“Default management,” he said, “is only one of the blazing forest fires we have to deal with.”
Beckie Supiano contributed to this report.