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Top Hardship Policy Options for Customers in Financial Distress

As student loan forgiveness programs shift, the debt collections industry anticipates a surge in financially distressed consumers. This blog explores adaptable hardship policy options.

As student loan forgiveness programs phase out some consumers will experience financial distress and the number of accounts being worked in the debt collections industry will increase. And, given all the other macroeconomic triggers being tripped, solutions for consumers in financial distress must be in your lineup to help consumers in hardship cases.

Battle tested  hardship policy to offer for the customer in financial distress

Financial Distress Due to Student Loans:

  • Grace Period Extensions: Extend grace periods for borrowers who need more time to secure stable employment after graduation.
  • Financial Counseling and Education: Provide resources and counseling to help borrowers manage their finances more effectively and avoid future financial hardship.
  • Customized Solutions: Offer tailored solutions based on individual borrower circumstances and re-stabilize their finances, considering factors like unemployment, medical expenses, or other unexpected financial challenges.
“Winning organizations have flexible hardship programs built on parameters such as understanding the customer's affordability, what they can do consistently and how long they'll need it.”— Andrew Domino

General Financial Distress:

  • Income-Driven Repayment Plans: Design/Offer flexible repayment plans based on the borrower’s income, such as Income-Based Repayment (IBR) or Pay As You Earn (PAYE).
  • Temporary Payment Suspensions: Allow borrowers to temporarily suspend payments (deferment or forbearance) during times of financial hardship.
  • Extended Repayment Terms: Extend the loan term to reduce monthly payments while increasing the overall interest paid over time.
  • Interest Rate Reduction: Consider reducing the interest rate on the loan to make payments more affordable for struggling borrowers.
  • Loan Rehabilitation Programs: Establish rehabilitation programs that help borrowers get their loans back in good standing after a period of delinquency or default.
  • Flexible Communication Options: Allow borrowers to communicate and negotiate repayment terms through all available channels, including online portals, email, phone, and mail.
  • Debt Settlement Programs: Explore options for settling the debt for a reduced amount in cases of extreme financial hardship.

It’s crucial for collections operations to adopt policies that prioritize helping customers navigate financial difficulties while ensuring compliance with relevant regulations and guidelines. Additionally, transparent and empathetic communication will help establish trust and find mutually beneficial solutions.

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