A Financial Wellness Benefit for Student Loan Default
Student loans are the most likely form of household debt to be in delinquency. Student loan default rates are on average 3 times higher than mortgage, auto, and credit card default. Over 1 million people default on their student loans each year. 40% of borrowers are expected to default on their student loans within the next 4 years. Since necessities such as shelter and transportation take priority, student loans are understandably the first form of debt to go unpaid.
Student Loan Default Has Consequences
Federal student loan debt, which makes up 92% of all student loans, the Department of Education has the power to garnish up to 15% of an employee’s take home wages and can offset tax return refunds to pay down the outstanding student loan balance. In Federal Fiscal Year (FFY) 2018, over $1 billion in administrative wage garnishment (AWG) was collected and $2.5 billion in offsets, account for 25% of all payments on defaulted student debt.
In addition to unpaid interest and late fees, defaulting on your student loans will cost you more in the long run. Once sent to collections, up to 18% in collection costs are added to the loan balance, increasing total repayment significantly. The borrower may also temporarily lose eligibility for additional federal student aid.
IonTuition is the Only Benefit to Help with Student Loan Default
IonTuition is the nation’s first financial wellness benefit dedicated solely to student loan repayment management. IonTuition includes a robust online platform that includes concierge loan advisors, refinancing, employer contributions, aggregate loan dashboards, custom alerts, and student loan repayment planning calculators. IonTuition launched its default resolution product, IonCure, earlier this year. IonCure is best described through the following process:
01 Survey: Employees are asked if they would like help with their loan repayment. Employees that have uploaded defaulted student loans into their IonTuition accounts will be contacted by an IonCure Advisor.
02 Consult: Each option for recovery is discussed with the employee. IonCure Advisors are trained by certified financial education instructors.
03 Connect: A 3-way call is made with the employee and collection agency or loan servicer. The IonCure Advisor oversees the application process and manages all paperwork.
04 Resolve: The Advisor works with the employee until the negative loan status is removed. It can take up to 10 months of payments for a default status to be removed.
05 Manage: The Advisor will help the employee into a sustainable repayment plan to avoid re-default. All IonCure participants have access to IonTuition accounts to manage their repayment moving forward.
Complementing the IonCure service are a number of features unique to the IonTuition platform:
- The platform detects loans that are in default, alerting Advisors and the user of the default
- Default status is displayed prominently on the user’s dashboard along with a call to action to resolve the issue. Postponement statuses receive similar treatment as they are often indicators of a user’s inability to afford future payment.
- Content on the methods available to resolve default is seeded within a financial literacy library and points to on-site calls to action and surrounding engagement communications.
IonCure Puts Employees Back on Track
IonTuition has partnered with several large employers to help their employees avoid or recover from wage garnishment/tax refund offset. Employees often don’t know what to do if they can’t repay their student loan debt, so they do nothing. This is unfortunate considering federal student loan programs have numerous protections in place to help borrowers during times of financial hardship. Most of the people IonTuition helps with default would have qualified for lower monthly payments through an income-driven plan or, at the very least, temporary payment suspension through deferment or forbearance.
Below are several success stories of employees who have used IonCure. Names have been changed for anonymity.
Success Story #1:
Student Loan Balance: $13,822
Trent received a letter in the mail from a private collection agency alerting him that 15% of his wages (~$160, according to Trent’s income) were going to be garnished to pay his defaulted student loan debt. Trent was aware of IonCure through his employer and immediately signed up, speaking with an IonCure Advisor the same day. The Advisor learned that Trent fell behind on his student loan payments shortly after his wife lost her job. He ignored his student debt because he wasn’t sure what could be done since he couldn’t afford the payments.
The IonCure Advisor set up a conference call with Trent and the collection agency and enrolled him into a Loan Rehabilitation plan with payments of $89 until his default status is cured. After that, based on his current income and the fact that he is the sole earner in his household, Trent will qualify for income-driven repayment with $0 monthly payments.
Success Story #2:
Student Loan Balance: $15,133
Shauna was already having $112 of her wages garnished when her employer implemented IonCure through IonTuition. Shauna responded to an automated IonCure outreach email that identified her defaulted student loan balance from IonTuition. The IonCure Advisor reached out to Shauna and learned that she supports a family of 8 and couldn’t keep up with her student loan payments.
Within one day, the Advisor helped Shauna register for IonCure, assisted with the paperwork for Shauna’s private collection agency, and enrolled her into the Loan Rehabilitation program. Shauna’s payment plan under the Rehab program is $5 per month for 9 months. After that her repayment status will change from “default” to “current.”
Following the cure, the Advisor will help Shauna apply for an income-driven repayment plan with estimated payments of $50/month.
Success Story #3:
Student Loan Balance: $20,793
Tanya connected with student loan advisor through the IonTuition online chat feature. Tanya recently received a letter of intent to garnish up to 15% of her wages (~$444 of her take home pay based on her income). She had 30 days to enroll into a rehabilitation program to avoid wage garnishment, but the due date was closely approaching.
Tanya registered for IonCure and informed the Advisor that she recently went through a messy divorce and was trying to get all of her finances in order. She actually had student loans in multiple statuses including delinquency and default. Tanya wasn’t sure how to best manage her repayment.
The Advisor helped her enroll into the Rehabilitation Loan program and set up payments of $5 per month for 9 months. By making her first payment right away and working with IonCure to get all of her required documentation to the Collection Agency, Tanya was able to avoid wage garnishment. Tanya would also qualify for a $0 monthly payment under a federal income-driven repayment plan, and the Advisor will help her enroll once her default status is cured.
Each of the employees that were helped by IonCure will also receive other benefits by getting out of the default status – In addition to being garnished, the employees Federal and State income tax refunds can be taken and applied to the amounts owed. Negative credit bureau reports from Department of Education can also be updated to reflect a paying status versus a default.
It Pays to Address Employee Financial Stress
Employees struggling with their finances are more likely to be distracted at work and less productive. Avoiding employee wage garnishment can also have direct savings from payroll processing efforts.
Student loan debt is a necessity for 44 million Americans who wanted to better themselves through a higher education. Employers who help workers manage student loan repayment show that they are a progressive company who care about their people. If you’re interested in offering IonTuition at your company, visit www.iontuition.com to learn more.