Student Loan Counseling

Student loan debt at graduation continues to increase, year after year. The monthly loan payments also increase, forcing some borrowers to choose longer repayment terms to reduce the burden on their budgets. Borrowers are also not always familiar with their rights and responsibilities or with the terms of their loans.

To address these problems, borrowers are required to participate in two types of student loan counseling: entrance counseling and exit counseling. Entrance counseling occurs when a student borrows federal student loans for the first time, typically at the start of the school year. Exit counseling occurs after the borrower graduates, withdraws or otherwise "exits" from the school.

Entrance and exit counseling are often provided through in-person sessions on campus or through interactive web sites. The online counseling tools guide students through a series of informational pages, provide worksheets and other interactive tools, and sometimes have a question & answer component. When the student completes the loan counseling, a record of the student's participation in the loan counseling session is forwarded to the school.

Both entrance and exit counseling review the terms of the loans. Exit counseling is focused more on loan repayment options. Schools are also required to collect borrower address and reference information during exit counseling.

Good Credit and Debt Management

Establishing and maintaining good credit is an important part of a student's financial education. Because many students have thin or nonexistent credit histories, student loan repayment can have a big impact on the student's credit scores. Responsibly repaying all debts (not just student loans) on time, as per the agreement, can lead to good credit scores. Being late with a single payment, even by just a few days, can ruin an otherwise good credit history. Borrowers who have good credit scores are more likely to qualify for new credit cards, auto loans and mortgages, and often get lower interest rates than borrowers with bad credit.

Future Developments

Undergraduate students who drop out of college are four times more likely to default on their student loans than students who graduate, accounting for about two thirds of new defaulted student loan volume. Offering more frequent counseling, whenever borrowers receive a new loan, might reduce the default rate by familiarizing borrowers with repayment options and options for financial relief when they experience financial difficulty.