Do Default Aversion Activities Translate Into Long-Term Borrower Success?

I was reading through the news of the day and came across this press release from USA Funds with the headline "USA Funds Prevents $23.7 Billion in Defaults."  Here was the lead paragraph:

"USA Funds®, the nation's leading education loan guarantor, reports that it prevented $23.7 billion in defaults on more than 1.5 million past-due federal student loan accounts during the fiscal year ending Sept. 30. USA Funds' default prevention efforts were successful in averting default on more than 93 percent of loan accounts on which payments were reported by the lender as being 60 days or more past due."

I certainly applaud USA Funds efforts at contacting delinquent students to help them think through their options in these difficult economic times.  Unfortunately, without two key questions answered, it is hard to discern whether this $23.7 billion in defaults represents just a "temporary" default aversion or a more permanent one.  This unfortunately gets back to the cohort default calculation, which as readers know includes borrowers in the denominator who are not repaying on their loans (forbearance and deferment situations) which keeps default figures artificially low. 

The release describes the various options that USA Funds employees utilize to assist delinquent borrowers: 

"Those options include scheduling a payment; flexible repayment plans, including income-based repayment options; and deferment and forbearance to temporarily postpone or reduce a borrower's monthly payments." 

So, the two questions I would ask all participants in the federal student loan program to provide when they report on the success of their default aversion efforts would be:

• What is the percentage breakdown of the options selected by the 1.5 million delinquent borrowers that USA Funds counseled in the past year?    In other words, how many borrowers are put on a payment plan compared to the number who go into deferment or forbearance status.   
  
  • It would be interesting, for example, to know what percentage of borrowers since July 1st have selected the new income-based repayment (IBR) option. 

• What is the default rate for borrowers 24/36/48/60 months after enter repayment following an economic hardship deferment or a forbearance (excluding those who go revert back to a deferment or forbearance situation? 
  
  • The underlying question here is "To what extent do forbearance and economic hardship deferments work at providing borrowers with the breathing room to get back on track with their payments?"

Without these questions answered, it is difficult to know how much of the value of these short-term default aversion efforts lead to long-term taxpayer savings. 

Comments

[Eddie Meboy]

This type of “fluff” press release really irritates me. Not so much because they are obvious commercials for USA funds but because they are iceberg press releases, only showing a part of the whole. The number represents their entire portfolio not just those that recently entered repayment and fails to acknowledge the elephant in the room, the fact that 1.5 million USA Funds borrowers are having repayment problems. I agree that data showing how many made payments to get up to date vs. how many used alternative methods would shed some light on the issue but I doubt you will see that information in the fluff that USA provides. Another piece of information easily discernable but not reported is the fact that, using USA Funds numbers, over 110000 accounts defaulted in the last year. A deplorable statistic evidencing the struggle that student loan borrower’s are facing. I’m still waiting on the press release for that one.