Several Brookings Institution Student Loan Recommendations Align Closely with NASFAA's
By Allie Bidwell, Communications Staff, and Mandy Sponholtz, Policy & Federal Relations Staff
In a recent blog post, Ben Castleman of The Brookings Institution puts forth several proposals about helping students make informed decisions when it comes to student loans that tie in closely with NASFAA’s own recommendations.
Castleman, for example, warns against institutions automatically including loans in financial aid packages. Instead, he suggests, the schools should make it an active choice for students.
“Instead of employing these loan packaging strategies, colleges could actively encourage students to assess whether they need a federal loan to meet the cost of attendance or to pursue their intended program of study, and if so, how much they need to borrow to do so,” Castleman writes.
Similarly, NASFAA’s task force on the reauthorization of the Higher Education Act (HEA) recommended in its report (published in July 2013) allowing schools to reduce loan amounts for specific student populations, programs, or other categories. Currently, institutions can only reduce loan amounts on a case-by-case basis, according to the report.
“With the authority to set limits by program, dependency status, living arrangement, enrollment status, or other parameters, schools could notify students earlier of the reduced loan amount and of the school’s process for exceptions, if any, to the policy,” the report said. “Many NASFAA members have requested this authority for some time as a tool to avoid incurring unnecessary debt, reaching aggregate loan limits before the program of study is completed, and losing the interest subsidy before completing the program of study.”
Castleman also suggests requiring the Department of Education (ED) to deliver consumer information about borrowing to students during the time between when they submit their FAFSA applications and when they decide if or how much to borrow.
“The Department of Education could leverage the contact information students provide on the FAFSA to send students loan-related planning prompts during this interim,” Castleman writes. “Messages could emphasize, for instance, that students get to choose how much they borrow – they do not have to simply accept the amount offered by their institution.”
NASFAA has also several times suggested using more targeted consumer information and counseling for students. In an August 2014 task force report on consumer information, for example, NASFAA recommends making both ED and student loan servicers responsible for delivering information about borrowing and better aligning the timing for which the information is distributed with student need. So-called “just in time” counseling would make support options available to students “at a time when they are meaningful to the borrower, something schools generally have no control over,” according to the report.
Finally, Castleman suggests making it easier for students to have access to individualized loan counseling. That counseling, he writes, doesn’t necessarily need to be delivered in-person, but could be done with innovative technologies in a way that can reach a larger number of borrowers.
“The student loan origination process is sufficiently complex that, for many students, the types of low-touch nudges I’ve just highlighted may not go far enough to help students make an informed borrowing decision,” Castleman writes. “Well-trained, impartial financial aid advisors or loan counselors can help students determine borrowing amounts that are well-aligned with their personal circumstances and goals.”
A report from TG Research and Analytical Services, which NASFAA contributed to, suggests allowing for more professional discretion in loan counseling, exploring incentives for supplemental or more innovative counseling methods (such as online counseling tools), and providing more resources for counseling in financial aid offices.
“Face-to-face counseling, though more effective, is untenable for many institutions because of resources; a NASFAA survey showed that it is often the first service to be cut in response to budget reductions,” the report said. “Providing additional resources for schools may lead to more effective counseling, which is one method policymakers have used to address student loan default. If these resources do help lower defaults on federal loans, it may even be a cost-saving or cost-neutral proposition.”
A separate report from TG Research and Analytic Services (with input from NASFAA) also found that while students prefer face-to-face or tailored, web-based counseling, they acknowledge that “multimedia communication is important and that interactive online tools are useful.”
Publication Date: 9/3/2015
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