There are a lot of exciting things to plan when you have a child graduating college including … mandatory student loan exit counseling? I know, it doesn’t sound too exciting. But when my son told me he received an email from his school that he needed to complete counseling before graduation day, I was curious to see what messaging the federal student loan program had in store for new grads. I am a personal finance writer, after all.
Having been a first-generation college student back in the day, I was pretty clueless as to how it all worked — and I can still remember the surprise I felt when I found out how much my monthly loan payment would be. This time around, when my son was ready to log into his student aid account, I pulled up a chair to go through the counseling session with him. Here’s what we learned.
What Is Federal Student Loan Exit Counseling?
“During exit counseling, you will review the terms and conditions that apply to your federal student loans, be introduced to various repayment options, and learn the importance of avoiding default.”
That’s how exit loan counseling is described by StudentAid.gov, the U.S. Department of Education portal where each student’s federal student aid profile lives. Unlike the torturous experience of simply reading through terms and conditions, though, the exit counseling session is interactive, broken into modules, and has a brief quiz at the end of each section to make sure you understand the information.
“Because most borrowers remain in repayment for approximately 10 to 25 years, it is important to understand the various repayment options available, the total amount borrowed, and how to identify and communicate with loan servicers,” says Dawn Januszkiewicz, assistant director of federal student aid programs at Adelphi University. She adds that the process is designed to educate borrowers on their rights and responsibilities, as well as help borrowers successfully manage their student loan debt.
[Read: Best Student Loan Refinance Lenders.]
Why Is Exit Loan Counseling Mandatory?
Federal student loan exit counseling became mandatory with a 1986 amendment to the Higher Education Act. It’s become much simpler to complete in recent years since it can be done online through your StudentAid.gov account.
“It’s mandatory to ensure every student and soon-to-be borrower understands the extent of their responsibilities as a Direct Student Loan borrower,” says Tom O’Hare, holistic college advisor at Get College Going, a college admissions and financial aid coaching and counseling service.
Although students are also required to sit through “entrance counseling” when they first borrow a federal student loan, my son was 18 at the time. Like many parents, I probably clicked through it for him while he was more concerned with getting the things he needed for school.
“Students, unfortunately, operate in a vacuum, unaware of the overall obligations and responsibilities that come with borrowing a federal student loan program,” says O’Hare. “For many, they are unaware until graduation and after that they have entered into a legally binding consumer loan obligation that must be repaid. A responsibility that, if ignored, can ruin their credit.”
Exit counseling aims to soften that blow and give students time to prepare for what will happen after the six-month grace period, while encouraging them to get a head start with payments if they can. That’s why Januszkiewicz thinks it’s an important requirement (even if it happens to fall in the midst of graduation party planning and job hunting).
“I think it’s unfair to expect a recent graduate to inherently know all the current repayment options and servicer information amidst a major change of life event, like graduating college and entering the full-time job market for the first time,” she says. “It’s our responsibility to educate our students and direct them to the resources they need.”
[Read: Best Private Student Loans.]
Key Points You Learn During Exit Counseling
Exit loan counseling session is broken into sections, and it went pretty smoothly for us. Here’s the lineup:
Contact Settings
This is where the student confirms all of their information and selects the school that needs to be notified that counseling is completed.
Why it’s important: The student needs to make sure their contact info is updated, since this is how the loan servicer will get in touch. I’ve heard stories where a student didn’t update their school email or campus address, and missed loan correspondence which caused them to fall behind on payments.
My Loans
This is the “wow” moment, where your student sees the total of how much they owe. But you’ll also learn about how interest accrues, when you need to begin paying, and other relevant loan terminology.
Why it’s important: I’ve been trying to teach my sons about how interest works for a while now, but this was a perfect example of it in action. Take a longer time to pay, and you pay more; attack your loan balances aggressively (if you can) and pay less. Getting to run his own numbers here took an abstract idea and made it very real for my son. Also eye-opening? It shows you how much interest accrues per day and per month (ouch!).
Preparing to Repay
Topics covered here include the student’s responsibility, info about the loan servicer, Federal loan benefits and why defaulting is serious business. There was also a step-by-step tutorial on how to make payments and set up autopay (which in my opinion, is the best way to ensure payments aren’t missed).
Why it’s important: I liked the reality check aspect for my son to see that this loan is his responsibility and what can happen if he doesn’t take it seriously. It showed the various consequences of defaulting beyond his personal finance writer mom droning on about credit scores. Pointing out the advantages of federal loans was also helpful (no prepayment penalty, ability to change your repayment plan, interest rate discount with autopay, student loan forgiveness if eligible, and deferment and forbearance). Now my son knows to think twice before consolidating any federal loans with a third-party student loan debt relief company (for which he’s already getting offers in the mail).
Your Repayment Strategy
This section has the student contemplate their financial picture after leaving school. What is the typical salary in their intended career field? Do they have a job lined up or strong prospects of finding a job? Are they married and do they have dependents? Then it gets into repayment goals and the different repayment options that match various financial outlooks.
Why it’s important: This was the bread and butter section of the counseling, in my opinion. It made my son think about how he will fit his loan bill into his budget based on his employment plans, and avoid repayment mistakes. Will he earn enough to stick with standard repayment (the least costly option if you can manage it)? Or should he consider the graduated plan (which starts with lower payments at first) or extended plan (a longer loan term with smaller monthly payments)?
Final Steps
This section provided a summary and some next steps for the student.
Why it’s important: One of the last pages of the exit loan counseling links out to the Loan Simulator tool, which lets you see estimated monthly loan payments using different payment strategies and scenarios. This is such a great way to demonstrate the positive impact of making payments early or making higher than minimum payments. It can also show how loan length adds to the overall amount you’ll pay, though taking a bit longer can be a lifeline in times of financial challenges.
[READ: Fastest Co-Signer Release Student Loans]
How to Approach Exit Counseling
It’s tempting to just speed through the session and hope you get the quiz questions right so you can move on, but I recommend dedicating the 15 minutes or so to work through the topics carefully.
“I would recommend students create a file and either take notes or print screens with the details they may want to reference later,” says Januszkiewicz.
The key items to capture: Total principal balance and servicer information. But how to avoid default, options like forbearance and deferment, how interest accrues, and different repayment plan options are important points, too. “It is too much to remember off the top of your head,” she says.
How to Access Student Loan Information Prior to Graduation
While the exit loan counseling is mandatory, here’s the kicker: Most of the info is available to explore at any point. I highly recommend poking around your StudentAid.gov account to get familiar with its tools and repayment options early on.
I’ve made a note to do this periodically when my younger son — now a high school junior — starts his college journey.
More from U.S. News
Why Banks Aren’t Lining Up to Give You a Student Loan
Why Student Loan Caps Could Lead to a Rise in Mid-Degree Dropouts
Is Now a Good Time to Refinance Your Student Loans?
What I Learned Watching My Son Go Through Student Loan Exit Counseling (and Why You Should Care) originally appeared on usnews.com
