Empowering Debt-Burdened Members
How Credit Unions Can Support and Assist with Student Loan Repayment
The recent Supreme Court ruling has brought an end to the more than three-year pause on student loan payments, leaving over 43 million Americans obligated to resume making payments.
Most borrowers were hopeful about some form of student debt relief, according to a recent survey. Consequently, more than a third of them say have already spent the money they believed would be forgiven.
Regardless of whether credit unions offer or service student loans, this presents a challenge for financial institutions nationwide. Payment notices are being sent out and borrowers are seeking guidance on how to navigate the transition back into loan repayment.
The potential financial strain on borrowers, particularly those living paycheck-to-paycheck, could lead to delinquencies and negatively impact credit unions' loan portfolios and deposit growth strategies – a priority for financial institutions, according to a new report.
In fact, more than 60% of American households are currently one missed payment away from a disaster. Even for borrowers that do not become delinquent, this may limit credit unions’ abilities to grow deposits and acquire new members.
Credit unions, however, are uniquely positioned to provide the needed support of debt-burdened members. Here’s how:
Education is Key
One crucial aspect of helping borrowers is providing them with education and resources to navigate their student loan repayment journey. By summarizing and disseminating relevant information, credit unions can help borrowers make informed decisions about their loans.
As examples, credit unions should advise borrowers to know who their loan servicer is and ensure their servicer has their updated contact information. This is especially critical as scams arise from fraudsters claiming to be legitimate servicers.
Credit unions can also provide helpful resources for comparing repayment plans or information on loan forgiveness programs like Public Service Loan Forgiveness, Teacher Loan Forgiveness, as well as options for healthcare professionals, military service members and volunteers.
Members may also benefit from loan consolidation but should be made aware that this doesn’t lower interest rates. Refinancing may also be an option for both federal and private loans, potentially lowering interest rates and allowing for a new repayment term. However, refinancing federal loans will make them private, forfeiting federal benefits.
For borrowers with loans in default before the emergency forbearance. Programs like the Education Department's Fresh Start Program can restore them to good standing. This program removes the default from a borrower’s credit report and restores access to federal financial aid.
Automating Payments for Efficient Loan Repayment
While advice is helpful, borrowers also need a concrete plan of action. Automating payments can be an effective strategy to streamline the repayment process.
Credit unions can gui...