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Q&A with an expert: how to help clients cope with student-loan debt

Pam Bailey, NeighborWorks America blogger | 11/29/2018 3:47:57 PM

Photo credit: Olivia Plihal
The sixth annual NeighborWorks America at Home survey, released this fall, found that people saddled with student loan debt are delaying purchasing a home, with many worrying about their college debt most or all of the time. Nationally, student loan debt now surpasses $1.5 trillion—making up 42 percent of all consumer debt. Millennials are shouldering most of this ballooning debt, which has risen 130 percent since 2008. Women carry nearly two-thirds of the total. 

To help financial-capability coaches and counselors working with network members and other nonprofits, NeighborWorks America offers two courses specifically dealing with student loan debt: “Student Loan Basics” is a self-guided, online course that serves as a fundamental precursor to the more advanced “Effective Approaches to Student Loan Counseling,” a two-day in-person class.

One of the expert instructors, who also helped develop the curriculum, is Debie Baranchulk. Below, Baranchulk answers questions on the emerging field, NeighborWorks’ courses and what nonprofits need to know.

How did you first start developing an interest and expertise in student loan debt?

I've been in lending since the mid-'70s and got involved in nonprofit work, working with housing counselors and clients, since about 1991. My involvement with student loans started when I partnered with John Bonin to develop a curriculum on the subject for NeighborWorks. In the midst of that, my son got married and his wife handed me her credit report. She had $65,000 worth of defaulted student loans! That kicked me into high gear.

What happened with her was that while she was still attending university, one of her [federal loan] servicers demanded that she start making payments. That was not a correct practice and, naturally, she couldn't make them. So, she went into default. All of these years later, her loan ended up with a collection agency. When the agency didn’t reflect the terms quoted for a repayment plan in the written agreement, she refused to sign and ended up back with the Department of Education.

I gave her a list of questions to ask and she was finally put on an income-based plan that requires her to make 10 payments under specific terms; if met, the department will take the loan out of default. Today, she’s made two payments and has seven more to go to change her status. She’s set up for automatic payments so she’s never late.

What would have happened, do you think, if she had not had an expert like you to consult?

She probably wouldn't have done anything; she would not have known what to do. That much debt is so overwhelming and it’s so humiliating to deal with collection agencies. They really try to back you into a corner to get you to do something that is probably not best for you.

When do you think parents and their kids should first seek counseling related to student loans?

Our recommendation in the course is that conversations start when kids are freshmen in high school, with financial capability professionals having the conversation with kids and their families then about what they're going to do to finance university. If they wait until they're a junior or senior, it's almost too late. There's so much that has to be done ahead of time.

I worked with a high school here in the Sacramento [California] area that has two moms who run a program, starting with the freshman year. And they put together a binder of all the things they need: how to apply for scholarships, community-service requirements, recommendation letters, testing dates. It's very complicated and if kids’ parents didn’t go to college, they have no clue how to help them.

The other thing to think about then is whether starting at a community college is a good idea. That way they can make sure they know what they want to study or do, before they take out expensive loans that will have to be paid back whether they finish or not.

"That much debt is so overwhelming and it’s so humiliating to deal with collection agencies."

The key is for students to avoid problems before they sign on that dotted line. My advice: Don't wait until you're in default; instead, contact the servicer immediately when you can’t make a payment. There's things that can be done when you're in default, but if you start early, they'll work with you. There's so many rescue programs out there that will help.

What do parents and students most need to understand early on?

The first thing is that student loans are not free money. That's what schools and others can make it sound like. You know, "We're gonna help you to get into school, and then you're going to get these awards of money." And an award sounds like ' free' and it's not. It all has to be paid back, unless it's a scholarship or a grant. That discussion has to happen between kids and their parents up front.

The other thing for them to keep in mind is that a lot of times, students don't end up earning what they thought they would right out of college. But they are still stuck with all that debt. You have to prepare for the worst-case scenario.

You have to prepare for the worst-case scenario.

If parents co-sign a private loan, they need to remember that it will show on both credit reports—theirs and the student’s. If their child goes south on the payments, it impacts everybody. There's also some federal loans that can be taken out in the name of the parents and they will show up on their credit report as their debt.

Parents also need to be clear with their kids if they will be expected to pay off those loans. Tell them now instead of in four or five years, when they're out of college and facing reality.

What advice do you have for nonprofits that already are offering financial capability services and are considering offering student-loan-debt help?

Look at what your current customer base is and how many people you are seeing who are impacted in some way.  When I ask the counselors who take my class, all of them raise their hands and say, "Yep. This is a major barrier."

They usually have a built-in audience already, because they've got people coming in who can't qualify for home loans or whatever they are trying to acquire because of their student loan debt. So they can get them on the path to loan consolidation, income-based repayment or other strategies to bring their obligations down. And these nonprofits need to know who in their customer base has kids, what their ages are, etc. Then they can start having the conversation.

Typically, nonprofits intersect with individuals needing help when the loan holder wants to purchase a large item like a car or a house. And [these clients] think, "It should have fallen off my credit because it's so old." But as we all know, federal debt doesn't go away. They also typically find out their payments are so high they can't qualify to purchase a home. These are challenges with which nonprofit counselors can help.

Is it important for interested nonprofits to enroll in training—for example, the courses offered by NeighborWorks America?

Yes. You know, most of this is brand new information. You sort of have to start from ground zero. For example, you need to change your intake form to ask the right questions: Do you have student loan debt? Is it current? Are you having payment difficulties?

For the NeighborWorks classes, we've rewritten the book I can't tell you how many times, because we keep identifying more information. We've added pro tips we've learned from our students, from the Department of Education and other counselors who already are doing the work. There are a lot of resources that are available, but you won't find them on websites. So, the course manual is a great resource for information not found online.

What can help nonprofits market their services in this arena?

We talk about that in the course. One strategy is to go to schools and distribute flyers—saying, "Are you struggling with your student loan debt? Will you be able to afford your payments? Contact us now." Parents must be a part of it too, so attending college-information nights is a good idea.

"When I ask the counselors who take my class, all of them raise their hands and say, 'Yep. This is a major barrier.'"

It also can be effective to contact local employers, because the studies show that people with a lot of student loan debt can barely concentrate on their jobs, because it is such a burden. But when you take out the loans, they don't make your alternatives real obvious.

And don't just think about one age group. For example, [baby] boomers like me have a lot of college debt too, because so many had to return to school after the recession. Student loan debt hits every age group. If you don't make your payments, even your social security benefits will be garnished. They also can take your tax refund, order bank-account withdrawals and garnish wages.
It’s true a college education is the ticket to most professional jobs these days. But it also can restrict young people’s options in many unforeseen ways. Financial capability counselors and coaches are becoming essential partners.

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