New Research Points to Gaps in Student-Loan Counseling

Nashville — Each year a larger share of new graduates leave four-year colleges with student-loan debt, and the average balance of those who borrowed is higher, too. Student-loan default rates are on the rise. With those trends in motion, questions of how well students understand their debt have taken on new urgency.

Students who borrow through the federal loan programs are required to go through entrance and exit loan counseling. But there hasn’t been much evidence on how well that system works.

To help fill that hole, TG, a nonprofit organization that guaranteed loans in the discontinued federal bank-based program, has undertaken a four-part research study in consultation with the National Association of Student Financial Aid Administrators. Two researchers at TG discussed the project at a session during the association’s annual conference here on Sunday.

TG hopes to find out if students learn from the required counseling, and how it could be improved, said Jeff Webster, the organization’s assistant vice president for research and analytical services.

The project includes 70 to 80 user-experience tests, in which researchers study actual borrowers going through the government’s online counseling tool, which a majority of colleges use to meet the requirement. The study uses surveys to test borrowers’ knowledge and gauge their satisfaction with the counseling, and also captures their feedback as they work through it.

The researchers won’t examine entrance counseling until the fall, but they have already tested exit counseling. Chris Fernandez, a research specialist at TG, shared some of the group’s early findings on how borrowers respond to exit counseling:

  • The presentation is text-heavy, and treats all the information as if it is equally important. That approach leads most students to skim. “In general, block text is the enemy,” Mr. Fernandez said.
  • Most of the information presented is general, but borrowers want something personalized to their own situation.
  • The counseling tool includes questions borrowers must answer before they can move on, but most of the answers can be found, verbatim, on the same screen.
  • The counseling includes a YouTube video, which provides a helpful overview. But it’s buried midway through the process, and it’s not clear to users that clicking on it will give them big-picture context.
  • Borrowers typically assume that if they do run into trouble with their loans, their servicer will let them know, and that if they become confused, they can figure things out for themselves using Google.
  • The way income-based repayment plans are presented leads borrowers to believe they are complicated, and the fact that the standard 10-year repayment plan is called “standard” deters them from considering other options.

Based on those findings, Mr. Fernandez said he sees some ways that financial-aid offices can help improve borrowers’ understanding. They can email students an explanation of why the counseling matters, include a link directly to the YouTube video, and suggest they watch it first. They can include contact information for borrowers’ servicers in the message. And, he said, they can help frame different repayment options.

Colleges may not be comfortable telling borrowers which plan they should be in, Mr. Fernandez acknowledged, but “students don’t want neutral information.”

Mr. Fernandez read a quotation from one borrower that he said summed up what many of them think about exit counseling: “There’s so much information, but there’s almost no counseling.” Reviews like that suggest there’s room for improvement.

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