Legitimate Debt relief services are often boiled down to 3 categories, which include nonprofit credit counseling agencies, debt negotiators, and bankruptcy attorneys. I want to focus on the role of today’s credit counselors, and how they can fill a larger pair of shoes this year and beyond, with a keen focus on student debt.
Student loan debt has rightly been recognized as not just a burden on the person owing the money. More people are recognizing the drag that student debts have on the economy as a whole, and thereby those of us that are not carrying student debt.
Ways student debt can drag you down.
Young people finishing college can be a dependable source of household and family formation. But when leaving college with huge debts, and fewer job prospects in what is being dubbed as “the new normal”, taking on mortgage debt, or even renting a place, is being put off.
Larger student loan servicing costs will drag down discretionary spending. The costs of a college education being so high, combined with the lower wage jobs (or stagnant wage jobs that are available), will rightfully weigh down spending on gee-gawgs and doo-dads of any nature. Less spending means less production, means less jobs, means less money, equals reduced household formation….
Why is someone’s job at a production facility holding them back, even without college loans to pay off? Perhaps the lack of spending means lower production numbers, which means fewer jobs and shifts at the plant, which can hold down upward mobility.
I could be a bit morbid and point out that even divorce lawyers are paying the price. With fewer families being formed in the US, which can be directly related to student debts, and with 50-ish percent of marriages ending in divorce, there are likely many divorce attorneys that will choose to stay a renter, or in that 3 bedroom rambler. I am being a bit glib with this one, but the divorce attorney who relates to this one would not think so.
Student loan collection and servicing.
What does any of this have to do with credit counselors, or student loan servicing and collections? Plenty, as I will point out below, and in some follow up discussions in later articles. I simply wanted to get some context of how the student debt problems, that exist in the size they do today, are not just a concern for the borrowers and student loan co-signers on the hook for them. Student loan debt issues have reached a stage where it is everyone’s problem, and that becomes clearer once you take a moment to extend the issue beyond many borrowers’ inability to pay.
Credit counseling agencies, whether serving local and regional communities, or that assist people at a national level, are an untapped resource. When times are good for our nation’s economy, the average credit counselor is there for a smaller percentage of us if we hit a financial bump, like a brief stint of unemployment, a short term medical issue, or perhaps just being inattentive to the impacts of our decisions about money. And of course there are always instances for some of us that cause us to hit an obstacle at full speed, derailing our finances completely.
The counselor is there to speak to, and to help us out of jam directly, or by referring us to other useful and helpful resources.
But in the new normal, and when faced with student borrowers in crisis at the level we see today, the counselor can be tapped to do more, much more. In fact, I see no reason why bona fide nonprofit credit counseling agencies could not act as servicers for student loans. Here are some ways I see that could happen:
- Agencies band together, if even a few better adapted to the task at first, in order to come up with a government contractor bid/proposal that embraces them as part of the national loan servicing process.
- Student loan repayment counseling becomes part of the resolution process to bring loans out of default.
- Defaulted loans require not just counseling, but agencies can proactively take on a servicer designation for borrowers they attract with proactive messaging. This could be applied to a special qualifying tier of federally backed student loans.
- Existing student loan servicers or government contracted student loan debt collectors who have that privilege yanked, for whatever reason, could have that portfolio of loans placed with credit counseling agencies using a state by state formula, or some other flexible format. I really like this as a carrot stick performance measurement the DOE could use to get debt collectors and servicers to meet standards and goals. Credit counselors can be tapped as a resource to smooth out any portfolio transition that may result from an enforcement action.
How can debt relief agencies put themselves in a better position to be part of the defaulted student debt solution?
- The type of debt relief agencies I am talking about here already receive and transmit payments on behalf of their customers to many other financial institutions. With the existing money transmitter infrastructure, these agencies could engage in student loan repayments that meet federal and state regulations, with scale and efficiency, and quickly.
- Credit counseling is performed in all 50 states today. The nonprofit variety of counseling must meet a consumer education element, in order to maintain their tax exempt status with the IRS. The current consumer credit counseling industry in America (virtually all are nonprofit), exists to meet this purpose.
- Form a more cohesive voice about your ability to step up and fill the legislative void that finds your brand of debt relief missing from the national discussion, on the student debt issues generally, and on servicing and default specifically. The 2005 bankruptcy legislative changes were handed to you, at least comparatively. Servicing, or a new variation/designation of collection revenue from turning around defaulted student debt, is no small matter. Get in there and figure out where you fit in with legislation.
I know there are some nonprofit agencies making efforts in the student loan space. But until you see main stream media referring borrowers to the likes of AICCCA, NFCC, ACCPRO, or to agencies directly, in order to get answers and help with their student debts, I personally think you can do more… much more.
Troubled mortgage loan servicing.
I do not want to put out a piece about an initiative for credit counseling without pointing out a few other ways to raise the profile of counselors. The concept of nonprofit agencies, which already provide HUD approved housing counseling, wading into loan serving for select troubled mortgage pools, is something I brought up in an article on this site a few years ago. I will not make much more of it than I did then, except to say that agencies should find legislative ways, if only at a state level, or letting regulators at the CFPB from an enforcement angle know that, there are creative ways you can serve hard hit communities that still struggle from the housing downturn.
Just yesterday I read about Ocwen getting hammered by regulators in California. If their license is suspended in California, what could that mean to that portfolio of loans? What about troubled loans only? What is it that credit counseling can achieve as a ready solution provider to not only California consumers and regulators, but to Ocwen itself? It is not like you don’t know each other. I was in the audience at the NFCC conference a few months back, where Ocwen’s CEO spoke to the room about troubled mortgages and modifications.
Ocwen too big a bite to take (please realize I am only talking about solutions for Ocwen’s troubled loans in California)? Try the next organization that finds itself similarly situated. There will be more.
Credit counseling agencies ability to generate servicing revenue from turning around troubled mortgages should not be an abstract concept left to an online discussion. The discussion and potential to fill a huge void is real.
This effort would create jobs.
Negotiating and Settling collection accounts as a nonprofit agency.
This is a drum I will continue to bang until I see progress. Nonprofit agencies should be doing the bulk of the heavy debt negotiation and settlement lifting across the country. Here is the gist:
- Keep your negotiations limited to post charge off debts.
- Limit your fees to DMP-esque revenue, or no advance fees for full service negotiations, that you further limit to fall under any state law cap.
- Start off in states like where you keep your offices only, or UDMSA states, or cherry pick a few others for a variety of reasons.
Get a clue and actually talk to Venable, or your state regulators, the FTC and CFPB, after reading this. Get informed about how you can actually generate strong revenue doing debt settlement as a nonprofit, and starting somewhere around yesterday.
Counselors work with people struggling with bills. There is no larger segment of people that need affordable and fair assistance than people dealing with debt collectors. There is sustainable revenue when doing so, yet counseling, or even solid coaching, is not in the counselors tool box.
Why do I know you can help people by negotiating and settling debts for them, or by educating them how to themselves? That’s what I have done. And I did it in a way that may closer resemble your education mission that you meet right now when providing DMP’s. There are reasons for staff attorneys at NCLC and the FTC, and many others, to assume I worked at a nonprofit when I explained the business model my company used for debt settlement.
I would be more than happy to help you understand how you can fulfill your nonprofit educational mandate while offering and generating revenue when providing debt negotiation services. I am happy to cover all of the details publicly or privately.
Debt relief providers look for ways to scale their operations. Credit counselors would not have much difficulty scaling into any of the above areas.
Can we have a discussion about the above initiatives openly? I sure would like to. Please share what you think about the above topics, and the perspective you are coming from. What other ideas are there for agencies to get involved in the national student loan solution? What about counselors taking on balance reduction negotiations, or servicing troubled mortgages?
If you are reluctant to share in the comments below, drop me a note via email – debtbytes at gmail.com.