If you’re one of the millions of Americans with federal student loan debt, you might remember going through loan counseling — once before you received the loans and once when you were leaving school, about to repay them. Then again, perhaps you don’t recall doing so, because an online counseling session (the most common format) isn’t the most memorable part of college.
Lackluster student loan counseling isn’t solely responsible for the high default rate among student loan borrowers (11.8% of student loan borrowers who entered repayment in 2012 have since defaulted on those loans), but improvements to it could be part of a solution to bring that default rate down.
A new report identified some practices that may improve borrowers’ financial success after graduation. The report comes from TG, a nonprofit that administers the Education Department’s Federal Family Education Loan Program (FFELP) loans made before July 1, 2010, and the National Association of Student Financial Aid Administrators (NASFAA). The groups studied default rates, surveyed financial aid professionals and called financial aid directors across the country in search of schools with lower-than-average default rates and exemplary student loan counseling procedures.
After that initial research, TG and NASFAA decided to focus on eight schools: Baldwin Wallace University, a private, four-year school in Berea, Ohio; Broward College, a public, four-year school in Fort Lauderdale, Fla.; El Paso Community College, a public, two-year school in El Paso, Texas; Northern Virginia Community College, a public, two-year school in Annandale, Va.; Ohio State University, a public, four-year school in Columbus, Ohio; SUNY College of Environmental Science and Forestry, a private, four-year school in Syracuse, N.Y.; University of South Florida, a public, four-year school in Tampa, Fla.; and Western Technical College, a private, for-profit, two-year college in El Paso, Texas.
Each school conducted student loan counseling in its own way, but they had some common practices that may indicate why the borrowers at these schools seem to have greater success repaying their loans than the average borrowers at similar institutions. Here’s what the researchers believed to have a positive impact on student loan repayment.
1. Better-Trained Staff
A lot of schools confine the student loan business to the financial aid department. At many of the eight schools the researchers visited, college staff from various departments had roles in financial education and loan default prevention. By having more people trained to deal with these matters, students get “consistent messages … about managing finances and borrowing responsibly,” the report said. That’s the idea, anyway.
2. Financial Literacy Programs
Many of these schools offer ways for students to enhance their personal finance education. For example, El Paso Community College incorporates financial literacy education into a required course for first-year students.
3. Peer-to-Peer Financial Coaching
Ohio State and the University of South Florida have programs set up so students can work with another student on their personal finances. The financial coaches in these programs are students (often majoring in finance or accounting) who receive extensive training on personal finance topics before they work with student clients.
These programs are separate from the universities’ financial aid offices, giving students a different outlet for addressing financial concerns in a setting they may find more relatable.
Sometimes, getting someone to do something undesirable (like getting loan counseling or going to the financial aid office) is best accomplished through incentives.
The University of South Florida advertises its financial aid services at the weekly “Bull Market,” where student organizations and vendors set up to get students interested in whatever they’re doing. The financial education program has games and giveaways to attract students, and any prizes must be picked up at the program office — that way, the students learn where it is and what it offers. Maybe they even sign up for a program while they’re there picking up their prizes.
The University of South Florida also promotes a $500 student loan payment drawing, which students can enter if they participate in in-person loan counseling. Ohio State University has held a “cash cab” event. Students who rode in the golf cart (called Buck$ Bus) could win a $10 gift card if they correctly answered financial literacy questions.
The other colleges put a lot of effort into marketing their financial education services as well. Baldwin Wallace University offers financial education workshops and webinars throughout the year, even on some Saturdays, to make sure students have the opportunity to learn these topics and know what resources are available to them on campus.
5. A Focus on Students Likely to Struggle
Making sure students know their options for seeking financial help is important, but some people simply aren’t going to ask, and they’re often most in need of assistance. In an effort to solve that issue, some schools target certain student populations with financial education. Baldwin Wallace University, for instance, has a program for single parents, which provides financial literacy programs and other financial assistance. At El Paso Community College, students failing to make academic requirements must take financial literacy programming as part of their appeals process.
6. Fear Tactics
To satisfy federal student loan entrance counseling requirements, Broward College makes its first-year students attend a two-hour, in-person workshop on debt management. According to the report, the course takes a strong tone, described as “scared straight”. For example, if you show up five minutes late, you’re prohibited from entering and told you have to come to another session before you can receive your loan money. This underscores the importance of the counseling and ensures everyone gets all the information presented. The idea is for students to understand the serious impact student loans can have on their futures, so they’ll make responsible choices about debt well before they have to repay it.
7. In-Person Loan Counseling
Six of the eight schools require in-person loan counseling. The minimum federal requirement is an online program through the Department of Education, but some schools try to deliver the information in person because they believe it’s more effective.
Having someone hand you paperwork with your loan information and look you in the eye as she explains default, wage garnishment, debt collection and bad credit — all consequences of not repaying your loans — can have a lasting impact. To have someone tell you how hard it would be to buy a house or a car (even rent an apartment) because you missed student loan payments is a little scary, but it’s a harsh truth all borrowers need to understand.
More on Student Loans:
- How Student Loans Can Impact Your Credit
- Can You Get Your Student Loans Forgiven?
- How to Pay for College Without Building a Mountain of Debt