Starting your college career as an incoming freshman is full of excitement and first experiences: new classes, new campus, new friends, and new goals. Along with all these firsts may be your first “master promissory note” detailing all of the terms and conditions of your federal student loans. Before signing this document and receiving your funding, each student must complete a 30-minute entrance counseling session. It’s easy for the details of this counseling to be forgotten, since you’ll have so many other things going on at this hectic time, and the counseling is only required once, rather than annually. It’s imperative to understand how your loans work, especially when it comes time to repay your debt, and to help students, schools and the federal government are exploring options to make this counseling more impactful.
During this entrance counseling, several topics will be covered, including all the terms, conditions, and benefits of your federal student loans, budgeting and managing your spending, avoiding default, the variety of payment plans that are available, and how to make your finances a priority when you make future plans. Having all this information packed into 30 minutes when you’re also just taking on all of your college responsibilities can make it just another box to check on your “to do” list, rather than an effective tool.
To help students prepare for paying back their loans, they must also complete mandatory exit counseling. This will tell you exactly how much you owe and what your monthly payments will be, options for payment plans beyond the traditional 10-year fixed terms, and basic financial literacy tools. While this is necessary and helpful information, it doesn’t help students to make wise decisions related to how much debt they take on throughout their education, which can quickly grow to unmanageable levels.
A New Experiment
Some colleges and universities have attempted to mandate additional financial and student loan education, which is often motivated by the fact that schools can be sanctioned for high default and low repayment rates of their students. However, for better or worse, current law prohibits schools from mandating additional counseling. Federal student aid is an entitlement, and schools may not add barriers to students getting the funding they need to pursue their education.
In August, 2016, the Department of Education launched a pilot program that would allow participating schools to require additional financial counseling for a percentage of their students, while keeping the rest under the current requirements. The additional counseling must be reasonable and not discourage students from continuing their education. At the end of the experimental period, the Department of Education will gather and analyze the data to ascertain if the counseling sessions have an effect on borrowing habits. They’ll explore which types of counseling are most effective and the effects that they have, such as students only borrowing what they absolutely need and if they take advantage of alternative repayment options. Based on the results of this trial group, student loan counseling requirements could be revised for future borrowers.
It’s a huge commitment to take on student loan debt, but one that most students find necessary. With careful borrowing and planning, loans can be an effective tool for pursuing an education and career, and payments can be kept manageable.