Loan counseling may help to mitigate loan default. Loans usually come up as an issue at many TPSU programs. The May 10th program held at Villanova University was no exception. But a unique solution to the issue, without eliminating them totally, was discussed by the HR Director at a larger healthcare employer. The approach might help employers sponsoring a defined contribution (DC) plan enable their employees better handle loans.
The healthcare employer has almost 100,000 employees with many taking out loans, which is difficult to manage. It’s especially difficult in the healthcare industry where people’s employment status can frequently change, affecting their income and their ability to pay back their loan which can often result in a repayment default. The idea of eliminating the loans is not popular so the HR Director continues to struggle with loans while trying to promote savings.
To get a subsidized student loan, applicants must go through a series on online counseling with even greater review for those with adverse credit history. The counseling available at StudentLoans.gov includes:
- Entrance Counseling
- Financial Awareness Counseling
- Plus Counseling (those with adverse credit history)
- Exit Counseling
The idea of requiring similar counseling to employees in a DC plan that want to take out a loan resonated at a small TPSU break-out session which the HR Director is going to try to implement at her company hoping that even if the training does not discourage most of her employees, it will better inform them about how to best handle the loan and avoid penalties.
Like with the large healthcare employer attending the TPSU program, most plan sponsors cannot eliminate DC plan loans as it might inhibit participation but there are best practices including:
- One loan at a time
- Six month waiting period between loans
- Loans based only on hardship which are verified and administered by the plan’s record keeper
- Default insurance for those involuntarily separated which is why most loans default
Now we can add required online counseling thanks to the HR Director who attended her second TPSU program in as many years bringing a new hire and plans to return again next year with more from her staff.
