Skip to content

How to Select a Default Prevention Servicer

February 23, 2015
Photo credit: Carsten Tolkmit, flickr

Photo credit: Carsten Tolkmit, flickr

Outsourcing delinquent borrower outreach to a default prevention servicer can have a real impact on your cohort default rates (CDRs). Third-party servicers do not actually collect money from student borrowers but work to get them into the right repayment plan, forbearance, or deferment with their current federal loan servicer. Since default prevention takes a tremendous amount of time and effort, you need to decide if outsourcing is the right decision for your school.

In order to make an informed decision on whether to perform default management in-house or to outsource you need to weigh competence, quality, and cost.

It comes down to the question of core competency.

Default prevention companies:

  • Call students on weekends and evenings using dedicated staff
  • Locate borrowers through skip tracing
  • Provide real-time reports of current trending CDR rates for a given fiscal year
  • Transfer borrowers to loan servicers and stay on the line to provide support
  • Perform data analysis to identify at-risk borrowers

If you do not have resources to dedicate the effort needed to effectively reduce and manage default for your borrower portfolio, outsourcing may be the answer for your school. You must also consider that if you support the effort in-house, you will need to continue to provide training and career opportunities for people who want to work in default management positions. In many organizations, there is a mix of outsourced and in-house staff. Ultimately, you must decide where the greater competency is achieved and select a third-party servicer that offers all necessary capabilities.

Take into account the quality and level of customer service your borrowers will receive.

Some schools believe that that in-house staff provides better service to their students at lower cost. You know your student population best and it may be that your default population is small enough that your office can effectively allocate the time and resources necessary to find and contact students. Whether you use internal staff or outsource, confirm that you have the ability to monitor and measure performance expectations. Work with a third-party servicer that clearly spells out the activities they will perform to secure borrowers into successful repayment and lower your CDR.

Cost – don’t just weigh the financial outlay, but also the financial risk your school should face if sanctioned by the U.S. Department of Education.

Often, default prevention companies are cheaper than hiring an in-house calling team. Spend some time analyzing the fee structure and your return on investment. If you are paying for activities with no incentive for performance (curing delinquent loans), you may be wasting your money.

Changes in the calculation of CDRs, along with other economic factors, are resulting in a greater challenge for schools in managing their default prevention activities. Schools must maintain CDRs below U.S. Department of Education-established thresholds or face serious sanctions, including loss of Title IV funding eligibility (student loans and Pell Grants).

Consider the following when you are selecting a default prevention servicer:

  • Years of experience in student loans and default prevention
  • Calling and collection strategy
  • Financial strength and stability
  • Past results
  • Cost and resolution pricing
  • Customer service and activity approach that aligns with your institution’s goals


Teena Cooper

Teena Cooper



Driving college loan defaults down Published by University Business: 8/14/2014



No comments yet

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: