Navigating the Thickets of Student Loan Counseling

As a former student loan borrower himself, has more than a passing familiarity with the complexities of higher education finance. But in a little-noticed bit of comment last year in an interview with , the founder of Tumblr, he issued some pointed criticism of the advice that students get on the way into college.

“Frankly, universities don’t always counsel young people well when they first come in,” he said. “They say ‘Don’t worry about it, you can pay for it,’ not realizing that you’re paying for it through borrowing.”

Indeed, all students with must complete counseling sessions before they borrow their first dollar and are supposed to do it again once they finish their degree. Most colleges use online modules that the federal supplies.

And over the last two years, the nonprofit group , which collects payments on older federal loans and tries to keep borrowers out of trouble, has done its own examination of the government-supplied counseling lessons. It, too, had some tough-love analysis after it watched students put themselves through the process. Its reports note that students find much of the material “irrelevant” and that the government “assumes users know things they do not (and often cannot) know.”

Raul H. Lerma, executive director of the financial aid office at El Paso Community College in Texas, has used experienced borrowers to help the others. Credit Ivan Pierre Aguirre for The New York Times

TG’s critique goes on: Each module “imagines borrowers are tireless text processors,” while delivering a “bulky and ultimately ineffective user experience” that was often “generic to the point of uselessness.”

In short, this may be the only dose of financial education that teenage borrowers get when making one of the most important financial decisions of their lives. But the counseling offers a dizzying amount of facts and not all that much advice about how much to borrow, in what way and when. “It’s a life-altering decision being made with minimal information at a time of maximum distraction,” said Jeff Webster, the TG executive who led its research.

Yet each student’s choice is just a little bit different from everyone else’s, which makes this a hard problem to solve. Counseling has been required since the 1980s, and universities have a long list of things they must teach, by law. When the federal government offered its own set of courses, colleges knew that if they simply adopted them they wouldn’t have to worry about running afoul of regulations. So the majority did.

Mr. Webster began asking about the federal counseling modules roughly two years ago, and he said he was disturbed by what he heard back from college financial aid officers. “They said that they send students to the modules but don’t have any illusions that they are actually learning anything,” he said. “Well heck, if this is the opportunity to allow them to make informed decisions yet they lack faith in its efficacy, then what’s going on here?”

To find out, a team of researchers embedded with students at a handful of colleges and universities and quizzed them as they completed their counseling requirements. They found problems in at least four major areas.

Ideally, parents would be spending all of their children’s high school years introducing them to the idea of debt, generally, and then work with them to decipher the different student loans that a college suggests. Since those conversations don’t occur often enough, the universities end up having to educate the students.

Incoming freshmen should be completing the entrance counseling over the summer. (TG researchers heard many reports of parents doing it for them, which is also far from ideal.) If they don’t get it done, they have to complete it when they arrive on campus (or else they cannot get their loan funds). But at that point — when they don’t even know where their classes are or how to get to the dining hall — they’re inclined to rush through the counseling as quickly as possible.

Ideally, students, as a condition of getting federal loans each year, would have to do an annual checkup on their total debt and a reminder of how many loans they’ve taken out. Colleges can encourage this but may not require it. , a deputy undersecretary at the Education Department, said the department might support a yearly check-in if Congress required one, though he expressed concern about universities assuming additional underwriter-like gatekeeper responsibilities.

Parents who are writing checks for part of tuition can certainly mandate regular updates on a family debt spreadsheet that they look over with their college-age children.

ASSUMED KNOWLEDGE The federal government can’t very well give college freshmen an instant education in all things financial. So it has to assume some baseline knowledge and then move on after an initial definition of certain terms. Still, the modules are filled with phrases like this one: “Graduation before exceeding your maximum eligibility period protects received from interest subsidy loss.” Ugh.

TG, in its analysis, also focused on the entrance counseling calculators, which tell new students to enter the amount they plan to borrow, the and what they think they’ll earn once they graduate. Students that TG observed were dumbfounded by this requirement. “If they knew what Treasury bills would look like in five or six years, they could probably be employed doing other things,” Mr. Webster said. A 2014 study in the Journal of Student Financial Aid showed just how little students at knew about their debt. About 13 percent of them had outstanding loans but didn’t know it. Another 9 percent underestimated their debt by more than $10,000.

The large blocks of text came in for particular criticism by the students TG studied. Many of them did not see the handful of videos that are part of the modules but found them helpful when researchers pointed them out.

Indeed, some of the videos are quite good. The budgeting video included one of the most succinct cases for budgeting I’d ever heard: It’s all about you deciding where your money goes instead of wondering where it all went. The entire set of lessons could use a lot more of this kind of conversational communication.

LACK OF HUMAN CONTACT Not every college uses the modules that the Education Department supplies. Many of those that do not instead try to put more people in front of groups of students to make sure they understand their debt. This isn’t easy for institutions that are strapped for cash themselves, but many find a way to do it anyway.

Raul H. Lerma, executive director of the financial aid office at El Paso Community College in Texas, has used experienced borrowers to help the new ones. He also runs sessions and makes himself available as much as he can to students new to the process. “I’ll go over it in Spanish, or have students make appointments to come in,” he said. Parents are welcome at the counseling sessions, too.

While there are not yet any studies comparing different forms of counseling, Mr. Lerma knows from his encounters in the community that he’s had a lasting impact. A former borrower stopped him in the funnel cake line at a baseball game recently to chat about loans. A father who came in with his college-age daughter also recognized Mr. Lerma from his own loan counseling in the 1990s.

Nothing is stopping any student at any college from making a friend in the financial aid office. The people who work there crave human contact, too, and stretched as they may be at certain times of the year, they take great joy in helping straighten out students. Encourage your children to knock on some doors there if they are confused about their loans.

In an educational universe of ever-rising tuition and perpetually constrained budgets at the colleges themselves, the challenge of offering and getting good counseling is not a problem that anyone will solve quickly. The Education Department pledges to keep trying and is working on many improvements. “We welcome the recommendations and the findings from TG’s research,” Mr. Appel said. “It’s useful.”

It all starts, however, with an awareness of our own collective ignorance. The financial aid system is more complicated than it ought to be, and even adults have trouble making sense of it. How on earth can we expect a bunch of teenagers to sort it out?

This is by no means a rhetorical question. Next week, I’ll publish the best advice you have to offer to students who are just about to take out their first student loans or who are about to begin the process of repaying their debt. What was the one thing you wish you had known? Please post it as a comment on the column (and check the comment thread in a few days to see if I’m trying to reach you). I’ll publish as many of the most useful replies as I can in the Your Money column next week.

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