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How To Account for Growing Student Loan Delinquencies

Jan 25, 2024 MicroBilt News

How To Account for Growing Student Loan Delinquencies

In the current high-risk economy, where student loans constitute a significant portion of many individuals' debt, lenders increasingly recognize the need for a more nuanced approach to customer relations and debt management. With the total U.S. student loan debt exceeding $1.7 trillion and affecting over 44 million borrowers, it's a market that cannot be overlooked. 

The core of the issue lies in the unique nature of student loans compared to other types of consumer debt. Economic shifts, job market fluctuations, and individual life circumstances can all affect a borrower's repayability. Lenders, therefore, face a delicate balancing act: ensuring they recover the amounts owed while measuring how much support to give to their customers.

However, the balancing act becomes significantly more complex when considering the current economic environment: The Federal Reserve's plan to keep rates high for an extended period. The end of the student loan forgiveness pause in October of this year. And recent data showing the unemployment rate rising to 3.9%, up a half-point since April. 

Already, the CFPB has determined that delinquency rates have risen even further for borrowers with defaulted student loans, increasing from 9.8 percent at the start of the pandemic to 12.5 percent. Knowing this information, lenders must take steps to protect themselves from risk and remain apprised of the state of the loans already disbursed. 

This article delves into the strategies that lenders can employ to navigate this challenging terrain. We'll explore how a combination of personalized service, flexible repayment plans, and an understanding of the broader economic context can not only help lenders secure their returns but also foster goodwill and financial stability among borrowers. 

5 Strategies to Elevate Account Management for Your Student Loans

The credit landscape is evolving rapidly to compensate for the adjusted economic environment, and lenders are adopting advanced tools and strategies to manage their loan accounts. To navigate the market, lenders must take a proactive and data-driven approach to safeguard their interests while providing optimal customer service. Let's take a closer look at some of the innovative practices that are transforming how lenders review and manage loan accounts.

Leveraging Real-Time Notifications on Credit Activity:

Stay ahead of the curve by setting up alerts for changes in customers' credit reports. Timely information on new inquiries opened accounts, or missed payments allows lenders to react quickly to potential risks or opportunities.

Taking Action on Credit Behavior Changes:

Acting on the notifications requires a strategic approach. Whether it's reaching out to a customer who might need a new repayment plan or adjusting credit limits to prevent overextension, lenders must be nimble and responsive to fluctuations in credit behavior.

Incorporating Alternative Consumer Financial Data:

Traditional credit reports don't tell the whole story. By exploring alternative data sources such as rent payments, utility bills, and even consistent savings deposits, lenders can gain a more comprehensive view of a customer's financial behavior and stability. Check out some useful alternative scoring solutions here

Assessing Account Health with Financial Durability Insights:

Financial durability goes beyond credit scores and repayment history. It encompasses income stability, savings levels, and expense patterns. Tools that provide these insights give lenders a deeper understanding of a consumer's ability to withstand financial stress.

Strengthening Defenses Against Fraud:

In an era where digital fraud tactics evolve constantly, lenders must fortify their portfolios with robust fraud detection mechanisms. This involves leveraging advanced analytics, AI, and machine learning to identify and prevent fraudulent activities before they impact the financial health of the portfolio.

MicroBilt Can Help

While these strategies will reduce risk and speed up how quickly lenders can work with customers, implementing them can take time. Without fast-paced options, many financial institutions may already run into more issues with their customers. With over 40 years of experience, we at MicroBilt understand that time is of the essence. That's why we offer a one-stop shop for solutions that can help you gain new, reliable customers and collect from the ones you already have. 

Learn more about our full line of products today and contact one of our helpful representatives. Let's work on helping your organization achieve a risk-free future today.