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Board of Governors of the Federal Reserve System
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Student Loan Counseling Challenges and Opportunities

Findings by Topic

Counseling Tools and Strategies

Institutions use a variety of approaches to provide information about financial aid to their students.20 Some programs are aimed at the entire student body, such as the Department of Education's entrance and exit counseling for Direct Loans, and others target specific groups of students, such as individuals from low-income households.

Institution-Wide Approaches

Colleges whose students receive Federal Direct Loans rely heavily on the online counseling models provided by the Department of Education for entrance and exit counseling. The programs are free and allow institutions to easily comply with the statutes and regulations governing participation in the Direct Loan program. However, participants noted that the online counseling programs are not highly effective since there is an overwhelming amount of information presented, which is often irrelevant for a student at that time.

Most participants stated that their institutions do offer either required or optional counseling beyond the standard online entrance and exit counseling programs. Several institutions require first-year students to participate in general financial education sessions, while others offer optional programs to students throughout the year along with special programs on loan repayment at the end of the year. Financial aid offices also typically offer sessions as part of the new student orientation agenda.

"They go through the motions, may or may not retain a lot of what they heard and, under the current requirements, the next time they might hear something about their loans ... may be in exit counseling."

- Counselor at a public, four-year institution

Participants indicated that in-person supplemental sessions are typically offered in group settings and, in some cases, are streamed online or recorded for later viewing. Individual counseling is also available upon request, but counselors noted that only smaller schools can feasibly provide individual counseling to all students.21 Institutions also post information to students' online learning management systems, such as Blackboard or Canvas.

In some cases, special counseling programs were established as part of a plan to reduce an institution's high default rate. A participant from an open-admission, two-year school noted that they began conducting in-person counseling in an attempt to reduce defaults. Because the counseling was too resource intensive, however, it was later converted to an online program. Another open-admission two-year school noted that it requires a 20-minute financial literacy session during a student's first year.22 The institution also requires students who are withdrawing from school to get "sign-off" from the financial aid office. This requirement ensures that

  • the school has the student's latest contact information,
  • the student completes exit counseling, and
  • counselors have a final opportunity to explain the benefits of finishing a degree, as well as the costs of withdrawing.

According to the counselor at the institution with this policy, about 30 percent of students who initially attempt to withdraw from school decide to stay enrolled.

Several counselors noted that students often do not understand how much they have already borrowed and do not consider their total debt burden when pursuing new loans. Participants described several attempts to better inform students of their debt burdens:

  • Some schools have built online systems to incorporate data from the Department of Education's National Student Loan Data System into their student information systems so that students can easily see how much they have already borrowed when accepting new loans.23
  • A counselor for graduate students at a highly selective public institution noted that it removed the cost of attendance adjustment application form from its website and now requires students to contact their office to receive it.24
Targeted Programs

In addition to financial counseling programs aimed at all students with loans, many counselors described programs that target specific students whom they believe may struggle with financial management or who are at elevated risk of default. These students include those who

  • are from low-income households;
  • did not reenroll at the start of the semester;
  • are in their first year of school;
  • are supporting families while attending school;
  • have very large debts;
  • are in delinquency but not yet in default; or
  • are taking out private loans without first maximizing federal loans.

They are the support of the family, and they have been doing so with a part-time job. ... They don't actually need it for themselves, but their family needs it. They get in two semesters ... and realize, I can't let my family down.' They stop [attending college]."

- Counselor at a public, four-year institution

The specific channels for these efforts vary, but participants noted that they partner with student organizations on campus or with outside organizations to reach particular groups of students. Though participants conduct outreach to these groups, they did not describe the programs as being customized to the unique needs of these students.

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Challenges to Effective Counseling


Counselors must be able to effectively communicate with students to provide them with information and help them to make the financial decisions that are best for them. While counselors generally use e-mail to communicate with students, several participants noted that it was not an effective way to reach them. Other counselors described paper-based communications, including letters, postcards, and newsletters, that they believe are more often read than e-mail.

Counselors have experimented with communications channels that they thought would be more likely to reach students, including text messaging and social media. Regarding text messaging, the two counselors that had experience with this method noted that students found the messages to be intrusive and not appropriate for communications from the university. Counselors also noted that they often do not have the most current phone numbers for students, and federal law establishes significant financial penalties for improper contact made using automatic telephone dialing systems.25

Some counselors using social media reported having success reaching students; however, they have since moved away from social media because of the university's concerns about confidentiality, as students began sharing information about their personal financial situations. Notably, one participant from a rural institution observed that attempts to emphasize electronic forms of communication did not succeed at that school because the students had limited access to technology. Though not highlighted by participants in this focus group, similar concerns may be raised about communication with other groups, such as older adults, who have limited access to or comfort with electronic communication.

Support from Administrators

Several counselors noted that university administrators are often reluctant to include financial aid counselors in student activities such as orientation or campus fairs because they believe financial aid discussions would detract from the tone of the events. As one financial aid counselor at a highly selective, public four-year university stated, "They don't want to give us a spotlight, because it's not as fun as all of the other activities and student clubs. It's a fight to get time in front of students." Notably, this sentiment was restated by schools of all types--highly selective and open admission, two-year and four-year, public and private.

In some cases, participants also described conflicts with staff from university admissions offices regarding the presentation of financial aid information to students. One participant who had previously worked for a for-profit institution said that, "financial aid, for all intents and purposes, was an extension of the admissions office." Another counselor at a private nonprofit institution added that, "the admissions office would be all over us . . . if our award letters had to be upfront." However, these experiences were not universal. Several participants said that they felt comfortable advising students not to attend the university if it was not in their financial best interest. A counselor from a four-year public university noted that their administration believes that, "it's not worth bringing somebody in just to get the money up-front if you can't follow through with [the academic program]."

Interest from Students

Though institutions often offer many opportunities for counseling throughout the academic year, counselors noted that optional programs are often poorly attended because of lack of interest from students. Counselors reported having trouble competing for students' time when they have more pressing or more exciting demands on their time.26 In some cases, such as at institutions with adult learners or many transfer students, the students may have received financial counseling before so will not seek it out again.

"We build workshops surrounding the results [of student surveys about financial aid], but then when we have the workshop, nobody shows up."

- Counselor at a private, for-profit, four-year institution


Participants generally agreed that in-person counseling tended to be more effective than online alternatives. However, most financial aid offices, particularly those at large universities, simply do not have the resources to meet individually with students or in small groups with students.27 One counselor at a public, open-admission college noted that their institution attempted in-person counseling to address high default rates, but converted that program to an online module because it was less resource intensive.28

"We would love to do one-on-one [counseling] because our default rate is high, and we're trying to figure out what we can do to solve it now. We've analyzed it to death. We know who they are. We can just about tell you their names before they default."

- Counselor at a public, two-year institution

Statutes and Regulations

Universities are prohibited from requiring any steps beyond entrance counseling for students to access their federal loans. Counselors reported that this constraint is a significant barrier to assisting students with their financial decisions because participation in optional programs is limited. In addition, counselors generally cannot prevent students from taking out federal loans for which they are eligible, even if the counselor does not believe the loans are in the students' best interest.

Despite this restriction, some participants noted that they have made several attempts to increase participation in counseling programs without violating regulations. In one case, the school presented students with an optional online information module with a quiz at the end. If the student scored below a certain score, the system prompted them to visit the financial aid office. However, the quiz component was removed after the school was instructed that it violated Department of Education regulations. This counselor's institution also presents additional optional information modules in an online checklist that includes some required tasks for students. The counselor noted that, "They aren't required to do it, but it kind of looks like it's a requirement because it's on the to-do list." She indicated that this approach had a substantial positive impact on participation.

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Administrator Recommendations

The facilitators asked participants to describe their ideal counseling systems if resource, legal, and student participation constraints were removed.

  • Improve communication. Institutions struggle to get students to read financial aid information delivered via e-mail, and various privacy and regulatory concerns have inhibited counselors from using more student-friendly approaches such as social media and text messaging.
  • Mandate additional counseling. Institutions cannot require counseling beyond entrance and exit counseling as a condition of receiving federal loans, but counselors report that students are unlikely to complete optional counseling.
  • Provide earlier general financial education. Counselors reported that many students lack sufficient understanding about basic personal finance and budgeting when entering college. Students often also have unrealistically high expectations about the incomes they will earn after completing their degrees. Notably, in some cases, risk-averse students are reluctant to borrow even to pursue degrees that are highly likely to yield positive returns on their investments.

"When you're talking about a younger student, can they project what it means to have a $550 a month loan payment? No. No, they can't."

- Counselor at a public, two-year institution

  • Simplify repayment. Counselors noted that students often have loans from one or more private lenders, the federal government, and, in some cases, the school itself. Each loan may have different servicers and different repayment terms, causing confusion for borrowers.
  • Provide financial aid counseling earlier in the college selection process. Schools typically do not emphasize the cost of attendance in the student recruiting process. Even if financial aid counselors have the freedom to encourage students to attend lower-cost schools, students often already have emotional attachments to the school and are unlikely to change their minds.
  • Improve financial aid information. Institutions present financial aid packages that cover the estimated cost of attendance, but students often do not realize that they could choose to borrow less if they do not need the full amount.

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Policy Matters for Consideration

These focus group discussions and administrator recommendations highlight several questions and policy matters related to financial aid counseling that warrant further discussion as improvements to financial aid counseling programs are considered.

What are the desired outcomes for financial aid counseling programs?

Financial aid administrators are committed to providing students with information and advice that allow them to make decisions that are in their financial best interest. However, in the context of borrowing to pay for higher education, optimal financial decisions are highly dependent on the student's personal circumstances. While borrowing may be a poor choice for one student, it may be the right choice for another. Study participants described several programs designed to slow or discourage student borrowing, but these programs may discourage students with limited financial resources from pursuing educational opportunities that, on net, would benefit them.

Stakeholders may consider unintended consequences and the difficulty of defining counseling success when measuring the efficacy of financial aid counseling programs.

How might more-robust program evaluation mechanisms help improve financial aid counseling?

Study participants indicated that their institutions did not have robust mechanisms for measuring the impacts of their counseling programs. Counselors cited several reasons for the limited evaluation efforts:

  • Financial aid offices do not have the financial or staff resources or to evaluate programs.
  • There are structural issues that make studying these programs difficult. For example, outcomes for student loan borrowers are often not observed until years after the students graduate, at which point schools have often lost touch with the students.
  • Officials at some universities only become interested in the efficacy of financial aid counseling if the school's student loan default rate increases to a threshold that could threaten the school's access to federal student loan programs.
  • Many administrators are acutely focused on compliance with federal regulations rather than the design of their particular counseling programs.

Policymakers may consider how adjusting incentives might lead schools to more critically evaluate their counseling programs and lead to the sharing of promising practices among institutions.

How could counseling programs be redesigned to incorporate lessons from behavioral economics and psychology research?

Counselors provided several insights into how understanding human behavior influenced their approaches to financial aid counseling. These included making students more aware of what they had already borrowed to attend school, requiring more active student participation in accepting student loans, and disbursing loans in small installments over the course of an academic year rather than in two lump sums. Existing and ongoing research have also provided a greater understanding of how humans learn new information and make financial decisions.

School administrators and policymakers revising financial aid counseling programs may consider these lessons and make design changes that complement learning and decisionmaking.

How can financial aid counseling be responsive to the family circumstances that many students face?

Participants noted that many of the students they consider to be at the highest risk of default face difficult choices regarding financial support for their families when they attend school. Students who had been working may choose to use student loans to replace the lost income they need to support children, parents, or other family members. Several participants also observed that students supporting families frequently feel pressure to return to the workforce rather than complete their degrees, often leaving them in a worse financial situation than before enrolling.

School administrators and policymakers may consider what additional support could help these students balance their educational goals with the financial needs of their families.

How could statute and regulation be adjusted to create a culture of responsible innovation related to financial aid counseling?

Because federal regulations prohibit institutions from requiring any financial aid counseling in addition to entrance and exit counseling, counselors believe their ability to reach students is severely limited. In addition, institutions have little incentive to develop innovative counseling programs since compliance risk is easily mitigated using the Department of Education's online counseling tool.

Policymakers may consider what statutory and regulatory changes would foster a culture of responsible innovation related to student financial aid counseling. The Department of Education's pilot to test the effectiveness of more flexible loan counseling policies on federal student loan borrowers may meaningfully inform these considerations.

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20. Financial aid could include scholarships, grants, and loans. Because of the Federal Reserve's interest in student debt, the focus group questions paid particular attention to counseling provided to students with loans. Return to text

21. Some research has found peer-to-peer mentoring to be a promising practice that could be scaled to larger institutions. However, only one of the study's participants indicated that her institution was considering such a program. Return to text

22. Institutions are legally prohibited from requiring any additional counseling beyond entrance and exit counseling as a condition of receiving the loans, but this institution has included the financial literacy session as part of its entrance counseling. Return to text

23. This system does not track whatever private loans the student may have. Return to text

24. Financial assistance is determined, in part, on the school's calculated cost of attendance. This form allows students to appeal that calculation if they believe special circumstances (e.g., child care, medical costs) would result in their attendance costs being higher than the school's estimate. If approved, students become eligible for additional loans to cover the adjusted cost of attendance. Return to text

25. For more information about the Telephone Consumer Protection Act, see to text

26. Several counselors reported withholding services (e.g., copies of transcripts, the diploma, etc.) if a student did not complete exit counseling. However, the schools cannot compel students to complete anything not required by the federal government to access their loans. Return to text

27. The volume of students and the administrative demands placed on financial aid offices are two factors challenging counselors' resources. Return to text

28. In one example, the online module is built into the student's Blackboard account and presented as a "To-Do" item. Return to text

Last update: December 13, 2016

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