Family Finances

Five Solutions to Some of America’s Biggest Consumer Debt Problems

March 11, 2019  • Ida Rademacher

What comes next? That’s the question we’ve fielded from countless readers of the Expanding Prosperity Impact Collaborative’s (EPIC) solutions framework on consumer debt, which was released in November.

After much deliberation and planning with a range of external stakeholders, we’re now ready with our answer: Aspen FSP will be launching its EPIC Acceleration Phase to pursue solution goals across three distinct consumer debt categories.

First, when it comes to student loans, people with unaffordable student loan debt should have reduced financial burden and increased well-being.

Second, in the area of delinquency, default, and collection practices, people who lose access to affordable credit due to past problems should have effective opportunities to rebuild their credit profiles and regain access to affordable credit. People who become delinquent or default on debt payments should be offered feasible opportunities to cure, and people who have debt in collections should also have enhanced legal rights in dealing with debt collectors, debt buyers, and court systems — and should not be arrested or jailed for an inability to pay.

Finally, in government fines and fees, fewer people should be fined or charged fees (and those that are should pay lower amounts) by government agencies and court systems. Those who have debt from fines and fees should not be punished in a manner that reduces their ability to pay or impedes their livelihood.

Millions of Americans who become delinquent on debt payments find little support as they try to get back on track.

Landing on these goals was very difficult, given the immensity of the consumer debt problem facing American households and the broader set of possible responses identified in the solutions framework. We whittled the full 14 solution goals documented in the framework down to these six by scrutinizing the results of our Delphi expert surveys and via an internal analysis of the viability and potential impact of each solution.

The two goals around fines and fees scored particularly high on our internal assessment, largely because we see mounting interest in this area from many disparate actors, which signals a high probability of achieving significant progress in the next five years (the viability metric). Given the vast – and rapidly growing – amount of outstanding student loan debt, we also recognized that reducing that burden would have a widespread positive impact, both in terms of the number of lives improved and the degree of improvement (the impact metric). The experts we polled as part of our EPIC Delphi Survey largely corroborated this internal analysis, with 30 percent or more of experts picking student loan burdens (46 percent); delinquency, default, and collections practices (35 percent); and government fines and fees (30 percent) as among the debt-related problems most in need of solutions.

To identify the specific solutions that we wanted to prioritize to help achieve these goals, we held a host of conversations with leaders in the field, from whom we tried to gauge the unique value-add Aspen FSP could provide to those already playing the role of change agent. Here’s where we landed:

  1. Improving tracks for curing delinquent debts. Millions of Americans who become delinquent on debt payments find little in the way of support as they try to get back on track. Data and computing advancements are enabling technology companies to read and assess trends in users’ transactional data that can better inform debt repayment processes, leading to earlier interventions to avoid default and produce healthier outcomes for consumers. Aspen FSP is uniquely positioned to identify shared value between large financial institutions, personal finance gurus, credit counselors, and tech innovators who can work together to improve the delinquency and repayment process.
  2. Rebalance the power dynamic between creditors and debtors in court. Recent studies show how debt collection lawsuits are clogging courts across the country, with outcomes overwhelmingly in favor of creditor claimants over debtor defendants. To counteract this predatory system, a new field of legal design is inventing interdisciplinary solutions at top academic institutions across the country. From lending algorithmic technology to courts to verify the veracity of debt collection claims, to building tech-enhanced self-help tools that guide defendants through court proceedings, ongoing developments in this nascent field hold the potential to rebalance the power dynamic between creditors and debtors in court. Aspen FSP can socialize this new industry and enable greater scale for the new tools being developed by identifying distribution partnerships in private meetings.
  3. Streamline and expand income-driven repayment and loan forgiveness plans for student loans. The burden of student loan debt is undermining millions of households’ financial security. Some have proposed student debt cancellation that would provide penalty-free elimination of some portion of current borrowers’ existing federal student loan debt. Others have discussed automatic enrollment into streamlined income-driven repayment plans. We believe these proposals deserve serious consideration – and objective analysis. By examining the strategies under discussion, we hope to increase the ability of leaders – particularly policymakers – to understand the costs, benefits, and impacts of the different approaches. 
  4. Expand access to employer-sponsored student loan repayment benefits. With the help of benefit providers, many employers are now offering student loan repayment benefits to their employees. But little research exists to understand the scale and scope of this trending practice, and how the programs might be designed to maximize positive impact on the lives of financially stressed workers. We intend to fill that research gap, and to build programming that helps employers – and the policymakers interested in updating employee benefit law around this issue – understand the pros and cons of offering the benefit (perhaps as part of a larger bundle of financial wellness benefits).
  5. Reform state and municipal laws and regulations that enable frivolous or unfair civil fines and fees, and ensure fines and fees are at levels proportional to the seriousness of the offense and the payor’s ability to repay. State and local government fines and fees have been rising in both frequency and amount and have disproportionately affected people of color. Fines and fees that go unpaid become debt to a government that has broad powers to enforce collection. We aim to attack this problem by working with our Senior Fellow Anne Stuhldreher to engage stakeholders across the political spectrum and tackle silos that exist at the municipal level.

Our ultimate decision to select these five specific solutions is not a rejection of the holistic approach laid out in the framework, but rather an admission that our small but mighty team has limited resources with which to maximize impact. Exposure to harmful loan terms and features and medical debt burdens remain incredibly thorny problems. Aspen FSP will continue to track these issues, and spotlight the many strong partners and organizations who are undertaking critical work to address them. While lack of savings or financial cushion is not a part of the EPIC acceleration process, it is one of the core aspects of Aspen FSP’s programming and will be the subject of special focus at our upcoming Aspen Leadership Forum on Retirement Savings, and of a highly anticipated paper from our Consumer Insights Collaborative we’ll be releasing in April.

When it comes to what we are prioritizing – and what activities we are undertaking – we couldn’t be more excited about our workplan, which will include private and public meetings, including some located in local jurisdictions; issue briefs and op-eds; and video and other multimedia resources. Stay tuned.

Family Finances
A Hybrid Approach to Financial Security
March 12, 2018 • Jeremy Smith