3 tips for fixing student loan repayment challenges
Updated on November 30, 2020
Currently, the complexity of the student loan repayment process is piling more pressure on federal government programs for student loans, even as more borrowers struggle to repay. It is a fact that not all borrowers are at the same risk of defaulting on student loans.
For instance, individuals who owe less in student loans and are yet to complete their programs of study are more likely to default than those with larger balances.
On the other hand, cases of student loan defaults among borrowers in for-profit, and in some cases, public two-year schools are relatively high, which is not the case for those attending other institutions.
Additionally, most borrowers exit default at some point but may default again within the next five years after restoring their student loan to good standing. Some of the people who owe student loans make payments on time. Unfortunately, they may suffer such adverse financial outcomes like growing loan balances.
That happens when payments are not at par with the interest that accrues on your student loan and at particular points in the payment process, including the commencement period when interest capitalizes. That implies that the interest on your student loan becomes part of your principal amount, thereby increasing the figure that is subject to interest charges.
As a result, most borrowers suffer the brunt of such financial burden even when they can avoid default. Here are some possible solutions to these student loan repayment issues.
Eliminating unnecessary barriers
Program complexity is an unnecessary barrier to enrollment in affordable repayment plans. The reason is that program complexity prevents at-risk borrowers from making payments in line with their incomes. Eliminating such complexities can reduce cases of student loan repayment defaults.
Prioritizing identification of at-risk borrowers
Some of the risk indicators among borrowers of student loans include churning in and out of school, missing payments early, a record of previous defaults, and repeated suspension of payments.
These telltale signs can help lenders identify at-risk borrowers before they drown in distress. By doing so, they can lower the high risk of default.
Focusing on comprehensive training of lenders
Engagement and close interaction with high-risk borrowers is paramount because it can avert plans to default. That is only possible when lenders have the necessary training to prioritize high-risk borrowers while handling such individuals in the best way possible.
The surge in cases of student loan default confirms the fact that this is an issue that demands the attention of the relevant authorities. Implementing the tips above can be the starting point in tackling the complexities of the student loan repayment process.