Sharks Without Bites: Loan Advisers Find Cooperative Approach Keeps Default Rate Low

When most people think about the stereotypical loan collector, Chuck Lueck does not come to mind.

Lueck is not gruff, he’s not mean-looking, and he does not lurk in dark alleys with a lead pipe waiting to whack the kneecaps of someone who has fallen behind in their loan payments.

Instead, this pleasant man with graying hair and glasses works out of an office on Murray Street, just off of Library Mall, where he supervises the university’s Student Loan Servicing Department.

Lueck and his team of eight student-loan advisors work with former students and graduates who have trouble paying back the student loans they took out from UW–Madison.

Although UW–Madison has some of the lowest student-loan default rates in the nation, students continue to borrow more to pay for college, making the services that Lueck’s unit provides increasingly important.

“We are here to work through the initial bumpy years following school and provide assistance so severe consequences can be ameliorated,” says Lueck, assistant director of the Office of Student Financial Services.

Once a student graduates or quits school, they must begin repaying their loan or loans. Of the approximately 24,000 borrowers currently repaying UW–Madison loans, roughly 3 percent to 4 percent are in default, says Steve Van Ess, student financial services director. Default occurs when the borrower hasn’t made a payment in 60 days to 220 days, depending on the loan.

Some student loans, such as the Stafford Loan (formerly Guaranteed Student Loans), are collected by financial institutions, guarantee agencies and private collection services. Other loans, including the Perkins Loan, health professions loans and institutional loans, are collected by Lueck and his staff.

The bursar’s office does the billing for UW–Madison loans and forwards accounts with repayment problems to Lueck and his team. The advisers help borrowers establish financial priorities, budgeting goals and repayment plans. In some cases, payments are temporarily reduced or deferred based on economic hardship or unemployment.

The consequences of defaulting on institutional student loans can be negative — both for borrowers and UW–Madison.

For borrowers, it can affect their credit rating and their ability to secure credit cards, automobile loans and home mortgages in the future. For UW–Madison, it means having less to lend, as loan repayments finance future loans at an annual rate of $8 million. Furthermore, a high default rate could jeopardize the university’s ability to participate in federal financial-aid programs.

Since the early 1960s, UW–Madison has loaned out more than $235 million from institutionally based loan programs. Lending has accelerated in recent years, however, as more students are financing their educations with loans. The average debt for UW–Madison undergraduate borrowers who earned bachelor’s degrees in 1990 was $7,754. In 1996, that debt amount nearly doubled to $14,505.

Lueck and Van Ess stress that the most important factor for borrowers having trouble repaying their student loans is to stay in contact with their office.

“If they don’t stay in touch, we can’t work with them,” Lueck says.

For more information on the Student Loan Servicing Department, call 262-3060, fax 262-9068 or e-mail financial-aid.UW-Madison@mail.admin.wisc.edu.