Like many of you, we here at RSI have been keeping close tabs on what’s going on with student debt in this country. Perhaps it’s our proximity to the mortgage foreclosure crisis and the improving yet ongoing fallout, but the similarities are a little too close for our comfort. Just as homeowners overleveraged themselves on the road to the foreclosure crisis, so too Americans now stand on the precipice of what could be an equally destabilizing student debt problem. As an organization that has made empirical research its bread and butter for over two decades, we are interested in pulling together all the relevant data we can to see if there is an escape valve for this high-pressure bubble.
What’s a little different from our previous research is our timing. Whether it’s been a response to an explosive crisis like the bursting of the housing bubble, or to more subtle issues, like the gradual erosion of access to courts for low-income litigants which has made ADR such an attractive alternative, we’ve come to study dispute system design as a solution to problems well underway. For the first time, RSI hopes to leverage its skills in designing, managing and evaluating ADR programs to provide insight into a situation that has yet to reach its tipping point.
We think America’s student debt industry could be a prime candidate for action sooner rather than later. For instance, we know that the majority of defaulting borrowers owe less than $10,000. Could courts adapt existing small claims mediation programs or create new, student debt-dedicated programs based on those models? A recent CFPB report highlighted a number of issues around borrowers’ access to information, including payment plan options and how to resolve servicing errors. Would providing borrowers counseling, or bringing borrowers and lenders together in a mediation to discuss their options, lead to better outcomes for all parties involved? These are just a couple examples of questions we hope to answer in exploring an educational lending economy that seems to offer lots of fruitful territory for ADR to have an impact. At this juncture, we want to figure out if there is an opportunity to develop these options before problems spiral out of control.
It is important to remember that ADR does not happen in a vacuum. As our Director of Research Jennifer Shack recently argued, ADR requires appropriate policies and procedures to truly offer access to justice. Part of the challenge in using ADR to address a relatively nascent issue such as student debt is one of reverse engineering: rather than designing programs to fit within a well-defined system of policies and processes, we are seeking to figure out how laws, regulations and policies can be framed to make ADR an effective tool in mitigating the potential fallout of a student debt collapse.
In the above CFPB report, mediation is mentioned a few times in passing as one potential tool. We suspect that ADR is still undervalued in this context, especially given the impact it has made in mortgage foreclosure cases, an area the CFPB knows all too well. As we continue to delve into this arena, we hope that our research will yield policy recommendations for legislators, regulators and court administrators, among others.
Tags: CFPB, debt, education, student debt, student loans
Good thoughts, well put. Question: is anyone listening?
Thanks, Kent. That’s always the $64,000 question (or in this case, it’s currently estimated to be a $1.2 trillion question). This issue is starting to get the traction in the public eye it should have been getting years ago, with regular features in major media outlets and attention from presidential candidates along their campaign trails. That’s not enough to solve this tremendous problem in and of itself, but hopefully sets the stage for detailed recommendations, backed by sound research and presented in a compelling way, to make an impact on the necessary stakeholders.
Yes! I think the student debt bubble is about to burst. So where should RSI design systems? State level? Federal? School? Courts?
Thank you Heather — that’s the enthusiastic support we’re looking for!
As you might expect, we’re going to let the research answer that question, but my initial instinct is that the issue needs to be addressed in part on all levels. Here’s a couple additional pieces of food for thought:
1. The University of Missouri’s Center for Excellence in Financial Counseling has a program which offers counseling for at-risk student borrowers. Given that the research suggests borrowers generally have low literacy about repayment terms and options, programs like these could have a tremendous impact on delinquency.
2. A coalition of student debt research organizations recently released this map, which shows debt information by zip code. Among its findings, it shows that, “[t]he geography of student loan balances [higher-income areas] is starkly different from that of loan delinquency [lower-income areas].” While that conclusion is something we’ve had an idea about for a while, seeing how the debt crisis is operating at a neighborhood level hints that there may be opportunity for local courts to be effectively involved, not unlike with the foreclosure crisis.