The following is the Executive Summary of a white paper issued by American Student Assistance®. To read the paper in its entirety, please visit www.asa.org.

Our nation’s student loan system is approaching a tipping point from a social, economic, and public policy perspective. Rising college costs, a sluggish job market that has driven a record number of Americans to seek out higher education, and a constraint on federal and state budget dollars afforded to grants, have all combined to produce an explosion in student loan borrowing. Simultaneously, dwindling job opportunities and stagnant wages are putting increasing pressure on student loan borrowers staring down the barrel of repayment. Some student loan borrowers are finding themselves in no better – or even worse – financial position after attending college. For the first time in the history of federal student loans, students and parents who have borrowed for college are asking “Was it worth it?”

Each year millions of students enter college to better themselves academically and secure a stronger financial future. However, the reality is that to achieve this goal, a majority of students must take on debt that has the potential to ruin their financial future before they even get started. While grants at one time accounted for the majority of student aid, over the last 30 years there has been a massive shift toward student loans to cover the costs of financing higher education. Federal student-loan borrowing in the 2008-09 academic year grew 25% over the previous year. This growth in education debt outpaces the growth in both college and health care costs, and for the first time in history, outstanding student loan debt now exceeds credit card debt.

Most borrowers make a good faith effort to repay their loans, but for many, these loans become unmanageable at some point in the repayment process and borrowers fall behind on payments or stop paying altogether. Unfortunately, missteps with education debt can have a devastating effect on a borrower’s financial future. Delinquency and default on education debt affects generations of borrowers and their ability to take on additional consumer debt, secure better housing, choose a public service career, save for retirement and their own children’s education, return to school themselves, or even retire and live on social security.

The Chronicle of Higher Education reports that 20% of borrowers with government –backed student loans that entered repayment in 1995 have defaulted. Our nation’s student loan problem, though, is not just about those who default. It stands to reason that, if 20% have defaulted, an even higher number of borrowers are struggling day-to-day to make loan payments—becoming seriously past due, but not actually defaulting. These borrowers still experience delinquency’s consequences, such as ruined credit, higher interest rates on other consumer credit, difficulty or inability to obtain a car loan or mortgage, and so on. If these student loan repayment issues continue unchecked, the deteriorating health of borrowers’ finances cumulatively has the potential to create another credit emergency like the recent mortgage crisis.

News accounts of student loan struggles are now commonplace. Student loan horror stories are burning up the blogosphere and grassroots advocacy groups calling for greater student loan protections are emerging like never before. The public’s faith in the student loan program—our nation’s primary form of financial aid—has been shaken. Yet there could not be a worse time for chinks to appear in the armor of our nation’s student loan program. Unmanageable student loan debt runs at odds with our national, social and economic objectives. President Obama has set the imperative of having the “highest proportion of college graduates in the world” by the year 2020.

To achieve this goal our education financing policy dictates borrowing to pay for a college education. Concurrently, the consumer-based 21st-century American economy is in dire straits. We need to stimulate the housing market, increase consumer spending and expand access to credit. Therefore, we can ill afford to have a higher education financing system that piles on additional debt without giving borrowers the tools to manage that debt. To do so risks producing a population of consumers so hampered by their education debt obligations, they are unable to fully participate in spurring our economy.

As more and more students borrow to attain a college degree, there must also be a tandem effort to help borrowers successfully complete student loan repayment. Proactive communication to student loan borrowers has been proven to protect the financial health of borrowers, lower the cost of the loan program to the federal government, and ensure return on taxpayer investment. Currently, however, there are few advocates providing proactive, impartial advice about student loan repayment. As a result, borrowers are left to navigate this complicated process without a safety net, and are expected to make decisions that will forever shape their financial future without appropriate guidance.

Congress has instituted numerous repayment options to help mitigate student loan struggles. However, with increased options comes increased borrower confusion. Even though Congress did improve repayment options for borrowers through the Student Aid and Fiscal Responsibility Act (SAFRA), this same legislation failed to include a corresponding investment to fund proactive communication of these options to borrowers in the form of education debt management. It’s not that federal student loan borrowers don’t have options; sadly, it’s that so many borrowers simply don’t know that options exist. Programs previously developed with federal funding through the Department of Education have demonstrated that students provided with proactive education debt management services in the form of targeted communication are 50% less likely to fail in loan repayment.

Existing default prevention policies, processes and incentives tend to be reactive and too late to save the borrower before their credit is impacted. Effective debt management counseling requires proactive outreach to targeted borrowers, as well as the time and individual attention required to provide personalized recommendations. To ensure the greatest borrower success, debt management programs should be delivered by those who are free of potential conflicts of interest so that counselors can operate as unfettered advocates for borrowers.

The Department of Education is currently utilizing federal loan servicers to fill this role. However, servicer-borrower interactions simply aren’t geared toward the delivery of comprehensive debt management counseling that can effectively impact borrower behavior. A two-minute phone call between a servicer and a borrower can set up a forbearance after someone has run into problems, resulting in a loan in good standing – an adequate quick-fix remedy for borrowers who sincerely face a temporary period of economic hardship, and a win for the servicer who has kept the loan in “good standing.” But forbearance may not be the solution. Education debt management is about finding the best long-term resolution to a borrower-specific problem, not just putting the problem off until another day with forbearance. In any given situation there may be four or five options that would be better for the long-term economic health of the borrower than forbearance. An education debt management counselor takes the time to explore those options.

Policymakers should reinstate and expand the federal investment in innovative and proactive education debt management programs that have proven to help student borrowers take advantage of all the available remedies put in place by Congress to avoid delinquency and default. America cannot regain its global competitiveness and bolster its economy without a functional student loan program that ensures student borrowers can survive the payback period without financial demise.