Student Loans Not Always A Good Deal

The collection of delinquent student loans is covered by regulations which have been in effect since 1987.

The procedure divides the collection procedure into thirty day increments over a six-month period.

You must first notify the borrower through the mail that the loan is delinquent. You then follow up with a combination of further mailings and telephone calls.

Document each contact!

You will need proof that all steps were taken in an attempt to collect the funds, so each step needs to be documented along the way.

After the final demand for payment has been made (between day 151 and day 180 from the first letter), you may file a claim for losses with the state guarantor. Your documentation of contacts must accompany your claim.

Quick "cure"?
Or you may choose to "cure" the loan.

If you can get the borrower to re-sign the agreement and make an initial payment, the loan is reinstated, with no delinquency.

In March, 1988, the Department of Education introduced the "cure" option. If you can get the borrower to re-sign the agreement and make an initial payment, the loan is reinstated, with no delinquency. This helps both you and the state guarantor. You receive payments and the guarantor is relieved of the complicated process of filing with the government.

Defaults high?

Default rates run as high as 30 percent on two-year vocational/technical/trade school loans to 10 percent for four-year universities loan, according to national statistics. Because of the default rates, some small banks are getting out of the student loan business altogether. Larger institutions, with the staff to handle collection on an automated basis, can more easily maintain high dollar volume in this area.

Compared to home loans, bankers say student loans are a poor credit risk. There is no collateral involved in most cases, and usually the borrower has no prior credit history.

Collecting on delinquent student loans is a long drawn out procedure. In order to be successful, the collection must be done correctly.

Copyright © 1991 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 2, No. 6, 7/91