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February 23, 2010

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Paul Combe

The Education Sector Report is proof-positive that, regardless of external factors, proactive debt management works. Debt management counseling and financial literacy education, from a neutral third party, are a must and every federal student loan borrower should be entitled to these services. American Student Assistance’s own experience also shows that proactive, personalized contact with borrowers dramatically reduces repayment problems. When we successfully contacted borrowers just starting repayment in a timely manner and engaged them in interactive counseling activities, they were on average 50% less likely to become delinquent during their first year of repayment (which is when repayment risk is highest), while withdrawn students were 56% less likely to become delinquent.

At ASA, we firmly believe that debt management is a contact sport and debt management is different than default prevention. The goal of debt management is to intervene early and help the borrower stay in good standing: If they never become delinquent, they can never default. Thus, “default” or the lack of default should not be our only yardstick. SLA has reported that as many as one in three student loan borrowers struggle with loan payment without defaulting – but delinquency still negatively affects the credit score of millions of borrowers, jacking up the interest rate they’ll pay on credit cards, auto loans, and home mortgages. The big question is, will “default prevention,” encompassing the kind of proactive contact and education services that borrowers really need to keep their loans in good standing, be funded? Like anything in life, prevention costs more in the short-term but less in the long-term; as a nation, do we have the gumption to do the right thing in this case and provide education loan borrowers the quality of services they deserve?

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