The freeze on student loan payments has been a hot topic since the start of the pandemic—not just for borrowers, but for debt collection departments outside of the student loan debt sector. Although student loan borrowers get a reprieve for another few months, repaying other debts can still be a tricky issue for consumers to budget for today. Debt collectors need to find ways to start engaging with borrowers now before student loans get added back on to the balance.
The Freeze Continues Through the Summer
On April 6, 2022, only weeks before collections were set to resume in May 2022, the Biden administration announced another four-month extension on the freeze for federal student loan payments, interest, and collections. After granting several extensions due to the ongoing Covid-19 pandemic, the decision to further extend the pause reflects the challenging economic landscape and unmanageable financial burden faced by many Americans.
While this is another round of relief for the approximate 42.9 million Americans with student loan debt, the proverbial can is just getting kicked farther down the road as the relief is only temporary. Additionally, uncertainty leading up to the announcement left many in what has become a familiar anxious limbo of whether or not they would be expected to restart their payments; and that uncertainty can have a broader impact for debt collections beyond student loans.
Don’t Forget the Debts that Don’t Have an Indefinite Moratorium
Student loan debt collection may be dominating the headlines, but it is often not the only financial burden borrowers are carrying. Out of the number of adults with student loans, about 23 million (69%) have at least one additional type of debt, according to the U.S. Census Bureau. Looking at it even closer, surveys found that among those with student loans, consumers also had:
- Credit card debt (52%)
- Vehicle loans (33%)
- Medical debt (18%)
The newscycle focus and the ongoing uncertainty of student loan repayments can be confusing to borrowers with multiple debts who are prioritizing based on their cash flow, putting them at an increased risk for delinquency. As noted in our Q1 Industry Insights, February marked the 9th month in a row with increasing 30+ delinquency rates on a unit basis across debt types, notably delinquency increases in first mortgages, second mortgage, auto leases and unsecured personal loans.
And with student loans once again receiving temporary relief, these consumers will likely focus on repaying their other debts. The key for collectors is to understand how to engage with consumers that have limited budgets through a variety of affordable repayment options.
Engaging Consumers Digitally with Repayment Options
The first step is to actually connect with consumers to stay top of mind. While phone calls can go unanswered and canned emails go ignored, reaching customers through customized, digital-first communications can help businesses recover more by reaching those that are ready to repay debts. Consumers already use these types of platforms to interact—surveys found that 46% of people exclusively use digital channels for their financial needs, including banking and bill paying.
The second step is to offer consumers repayment options and flexibility knowing they may be balancing multiple bills. With so many financial options at their disposal, consumers have to monitor an increasing number of accounts for banking, credit cards, autopay, recurring payments, installment plans and more. The ability to choose a payment date that aligns with paydays or to push back a payment when something unexpected comes up are invaluable for consumers and will actually lead to brand affinity and better customer experiences.
With so much uncertainty already swirling around student loans, businesses have a better chance of successfully reaching and recovering other debt payments if they do so in a way that is familiar to the borrower and provides flexible ways to manage repayment. TrueAccord helps reach consumers where they are when they need to be engaged with through a digital-first approach that cuts through the clutter of other communication channels.
Discover how to expand and customize your communication channels for each individual consumer and engage faster with better results. Schedule a consultation today»