NEW YORK (MainStreet) — Access to free student loan counseling would have alleviated some of Alton Strange’s turmoil in 2008 when he was laid off during the financial crisis and sought a temporary reprieve on his student loan payments.

Strange, who now works at a Madison, Wis. education outreach nonprofit, would have taken advantage of free counseling as he sought to find an amenable solution to one of his graduate student loans that could not be deferred.

Although he received an extensive exit interview with a counselor from the bursar’s office at his East Coast private university discussing details such as the types and amounts of the loans, the amount of monthly payments and the serious consequences of defaulting, Strange said after borrowing $100,000 to pay for his doctorate in education, graduates need more advice when they are faced with a change in income.

“Although I paid attention during the exit interview, the interview cannot cover all of the unforeseen circumstances that may occur,” he said. “The loan companies were not understanding of the circumstance a majority of Americans living in economically distressed communities were going through.”

Consumers saddled with large amounts of debt are able to receive free or inexpensive counseling to deal with their credit card bills or mortgage payments, because grants are provided by the U.S. Department of Urban Housing and Development (HUD) and the federal government while other guidance is financially supported by mortgage lenders and credit card issuers, said Jim Triggs, a senior vice president of counseling and support of Money Management International, a Sugar Land, Texas-based non-profit debt counseling organization. Student loan borrowers have limited resources to seek help and must pay fees for counseling because a lack of funding from the government and private sector.

Objective Counseling Options...


Despite the innumerable websites which can help graduates decide which payment options to seek such as consolidation or forbearance and range from ones designed by the Department of Education, startups and even banks themselves, basic online counseling is not for everyone.

The free counseling offered by servicers, guaranty agencies and collection agencies are indeed “taking steps to be more consumer friendly in their interactions, but they are still measured by their ability to administer loans and collect payments,” Triggs said. The drawback is that they are focused on their profit margin and not the consumers themselves.

“They do not provide the in-depth person to person budget review that is a critical component of effective credit counseling,” Triggs said. “For a growing segment of the population, a more thorough, intensive person to person counseling session is needed to uncover the best options for the consumer.”

Without federal funding and only a limited amount of private funding from grants and other sources, nonprofit organizations are forced to charge consumers, though the fee is usually based on their current income and often waived. Counselors discuss feasible options with consumers so they learn which options ruin their credit score and how to navigate the murky waters of aggressive lenders.

After working with an MMI counselor for nearly three hours over a two-day period in May, Sydney Harris, who is now a paralegal at a Houston education law firm, developed the courage to call her loan providers to negotiate a payment plan. Her MMI counselor told her what to say to the loan provider and in what order, so she could lower her payments and attempt to get one of the loans out of default.

“The counselor gave me the knowledge, so I was equipped with the right language to deal with it,” she said. “They told me when I should hang up and call again.”

Harris, who amassed 15 loans totaling $237,000 for her undergraduate degree and law degree, said the counseling helped her beat the intimidating, antagonistic comments made by the loan providers who did not want to work with her on finding a reasonable solution and instead insisted that she provide payment information when she asked to speak with a supervisor. The counseling fee is typically $159, but was waived because of her low salary from waiting tables.

“I felt like I was speaking with somebody who understood and cared at the nonprofit,” she said. “After speaking with the counselor, I felt like the debt was manageable.”

The amount of student loans borrowed is reaching cataclysmic levels with many graduates who have amassed loans equal to a mortgage. The typical graduate now faces student loans in addition to their credit card and mortgage debt. A more comprehensive session would help a consumer “understand the repayment options with options in light of other debts, Triggs said.

“In the meantime, MMI can make certain that consumers are aware of all the free services available to assist with student loan repayment,” he said. “If they can work through the options on their own, that’s great. If they need further assistance, we can help them through the process for a minimal fee.”

Discussing Options With the Lenders...


Graduates who are faced with high monthly payments exceeding their budget should start by calling their lender first to discuss their options, said Bruce McClary, spokesman for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization.

“Consumers should expect that they may have to speak with several people to find the solution you are looking for,” he said. “It may not come from the front line of customer service and may not be a quick phone call with the press of button.”

Lenders provide free counseling to their borrowers, and some, like Wells Fargo, give graduates the benefit of speaking to the same customer service representative so they don’t have to repeat their payment history each time.

“It saves our customers time from explaining their situation again,” said Jason Vasquez, a spokesman for Wells Fargo, the San Francisco-based financial institution. “The representative has a good understanding of the graduate’s financial picture.”

Since each bank has different options or requirements, borrowers should call and explain their situation. At Wells Fargo, consumers facing financial hardship could qualify to bring interest rates down to 1% or lower or extend the grace period after graduation.

Half of the graduates who have loans with PNC figure out their options either by using the bank’s website or calling to speak to a customer service representative. The program was started four years ago, so the bank could “actively take a role” and reduce the delinquency rate, said Tom Lustig, president of the educational loan center at PNC Bank, the Pittsburg-based financial institution.

“We should do what we can,” he said. “Most banks have some version of a counseling tool, but it isn’t a uniform approach.”

Other Counseling Options...


Universities such as Indiana University in Bloomington created volunteer peer groups to help other students “set up a budget for repayment,” said Phil Schuman, director of financial literacy for Indiana University in Bloomington, Ind.

“We also make sure to contact students during their grace period to explain repayment options to help students get their repayment set up and make sure they are doing what’s best for their situation,” he said.

Since 93% of student loans are issued by the Department of Education, the private market has been reduced to seven major lenders, said Lustig. He believes there is both room for more counseling by the banks and the lack of free student loan counseling exists, because “there is no real national conversation or source to go to.”