School is officially back in session. If this is your first year of college, one item on your likely very long to-do list was to sign your federal student loan master promissory note. Being a good consumer, you read every word of that promissory note before signing, right?
If not, that’s not ideal — but the good news is that before you can receive that first federal student loan, you’re required to complete entrance counseling, which will give you a good overview of the terms of your federal student loans. Still, you should go back and read that promissory note.
[Learn more about how to pay for a college education.]
Your entrance counseling is a valuable tool. The half-hour session covers the terms, conditions and benefits of your federal student loans; ways to stay out of default; repayment options; and even personal money management. That’s a lot of important information in a short amount of time.
You are also required to complete this counseling at the start of college, when you may be most distracted between enrolling in classes, finding your way around campus, buying books, moving into the dorm and making new friends.
Expecting first-year students to focus on something like entrance counseling enough to retain the information may be too tall of an order. In fact, one survey shows that up to 43 percent of student loan borrowers report they received no education on student loan repayment, despite the fact that entrance and exit counseling is mandatory.
[Discover 10 student loan facts college graduates need to know.]
Although it’s possible that some schools missed the requirement on occasion, it’s much more likely that students were so distracted with starting college that they simply forgot that they actually completed the counseling.
While students will receive exit counseling and can access all the information online and from their loan holder anytime, that doesn’t help students understand student loans and the implications of taking on too much debt.
In an attempt to help educate students, many schools over the years have looked into requiring additional counseling for student loan borrowers before they are allowed to borrow. This makes sense if you consider that schools can receive sanctions for high default rates or low repayment rate of their alumni’s loans.
The problem is that current student loan law and regulations prohibit schools from requiring this extra counseling. The idea is that federal student aid programs are considered entitlement programs, which means that schools are not allowed to put any additional barriers in place to students receiving that aid. It’s a frustrating Catch-22, especially for schools with many low-income, first-generation or other vulnerable student populations.
[See how to avoid turning into a scary student loan statistic.]
However, the Department of Education recently announced an experimental initiative to examine the benefits of additional mandatory counseling. This initiative allows the Department of Education to experiment with changes to regulations before actually making the changes. This particular experiment will allow participating schools to require additional loan counseling to some of their students — a test group — while keeping the other students under current counseling rules.
The Department of Education will collect information about both of these groups and, presumably, analyze the outcomes to determine whether additional counseling — and which type — improves consumers’ education debt habits, such that they borrow only what they need and manage repayment successfully. This initiative, which is expected to take at least several years, could result in a permanent change to existing counseling regulations.
What does this mean for you? If you’re attending a school that is participating in this experiment, you may be required to complete mandatory financial literacy or student loan counseling every year, rather than just your first year. Don’t worry — the terms of the experiment prohibit the counseling from being overly onerous, so it shouldn’t take you too much additional time to complete it.
If you are in one of these test groups, consider yourself fortunate. You’ll very likely be on much better footing once you leave college than many of your peers.
The Student Loan Ranger feels strongly that targeted, robust counseling is invaluable in creating educated consumers who make wise borrowing decisions. Consumers need the right information at the right time.
A high-level overview of pages and pages of terms and conditions right as students are starting their college experience may be the right information — but that’s almost never the right time. We look forward to seeing the results of this initiative.
More from U.S. News
A Cautionary Tale of Student Debt Regret
How I Repay My Student Loans: Real Borrowers Share Stories
4 Incorrect Reasons Students Don’t Apply for Financial Aid
Students May See Changes to Loan Counseling originally appeared on usnews.com
