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Education Department Experiments With Student Loan Counseling

The Department of Education announced Friday it is launching a pilot program to test the effectiveness of more flexible loan counseling policies on federal student loan borrowers.

The experiment will allow colleges to require, as a condition of receiving federal student loans, loan counseling to students beyond the statutorily required one-time entrance and one-time exit counseling. Department officials hope to test whether requiring additional loan counseling is effective in boosting academic outcomes and helping students manage their debt.

“School-based loan counseling creates an important opportunity to help borrowers make more informed decisions about their postsecondary education,” Undersecretary of Education Ted Mitchell said in a statement. “Selected institutions will help us identify the most effective loan counseling practices and provide invaluable insights about how to prepare borrowers to manage and repay their student loans successfully.”

Currently, there is limited research on how to make loan counseling more effective, Education Department officials noted, including which types of content and delivery methods work best in helping students understand and manage their debt, as well as when – and how often – counseling should occur to have the greatest positive impact.

A report published earlier this year by the National Association of Student Financial Aid Administrators similarly draws attention to the lack of existing research on the topic of student loan counseling, despite increased attention to student loans, student debt and the cost of college that have headlined policy conversation.
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Among other things, the NASFAA report showed that borrowers found online counseling tedious and generally unhelpful.

The Education Department announcement is just the latest in a long trail of higher education experiments the Obama administration has announced over the last year aimed at making college more affordable and accessible, including the release of the College Scorecard, the increased recruitment for income-based repayment programs and new ways for students to tap and use federal Pell grants.

To apply for the loan counseling experiment, colleges and universities must ensure that the additional loan counseling does not discourage future borrowing needed to complete college and that it’s reasonable in terms of time and relevance to the student’s borrowing decisions.