ED Announces New Experimental Site on Loan Counseling

By Erin Timmons, Communications Staff, and Megan McClean Coval, Policy & Federal Relations Staff

Last month at the 2016 NASFAA National Conference, the Department of Education (ED) shared with attendees that its next experimental site initiative would allow participating schools to require additional loan counseling for student borrowers. NASFAA is pleased to announce that in a press release issued Friday, ED said it will be looking for schools to take part in the initiative, noting that participating schools would be given the authority to require loan counseling beyond the currently required one-time entrance and exit counseling. “Selected institutions will help us identify the most effective loan counseling practices and provide invaluable insights about how to prepare borrowers to manage and repay their student loans successfully,” Education Under Secretary Ted Mitchell said in the release.

Currently, because loan funds are considered entitlement dollars, institutions are prohibited from adding any additional eligibility requirements, including adding additional counseling or documentation from students before disbursement. Under this new experiment, in addition to entrance and exit counseling, a school could, for example, opt to require annual loan counseling as a requirement for students to receive a loan disbursement. NASFAA has long advocated for this type of authority and flexibility with regard to borrowing and loan counseling.

Using experimental sites authority granted by section 487A(b) of the Higher Education Act, ED will use this pilot program to gauge whether the increased loan counseling flexibility:

  • Empowers students to make more informed borrowing decisions;
  • Reduces delinquency and default rates during repayment;
  • Boosts academic performance, as shown by better grades and higher completion rates.

The allowable approaches for this initiative will be threefold:

  1. The Financial Awareness Counseling Tool (FACT), on StudentLoans.gov. (The allowed use of the FACT tool for this initiative aligns closely with the recommendation NASFAA’s Task Force on Student Loan Indebtedness put forth in its February 2013 report: that ED transition FACT into an entrance and exit counseling module that would satisfy legislative loan-counseling requirements);
  2. Third-party servicer counseling services or tools; or
  3. Institutionally developed counseling that meets minimum content requirements.

Schools that volunteer and are then chosen to participate in the experiment will be responsible for randomly selecting a certain number of their Direct Loan borrowers and mandating this cohort complete additional loan counseling once per academic year. The content of the extra counseling will be left to the sole discretion of each institution and may be tailored to a particular borrower’s needs.

“[C]olleges are encouraged to include information that may assist students in making more informed borrowing decisions, such as the terms and conditions of federal student loans, data showing how college completion can increase students’ ability to repay their loans successfully, earnings information, and details on income-driven repayment plans like PAYE,” ED’s press release said. To determine the impact of the additional counseling, this group will be compared to a “control group” of borrowers who will only receive the standard entrance and exit loan counseling.

“Giving schools additional flexibility and tools to help educate and inform borrowers is imperative,” said NASFAA President Justin Draeger. “Any effort we can make to discourage over-borrowing in school will benefit students in the long run. With so much focus on student and borrower outcomes, giving schools additional authority to proactively address borrowing is very welcome, since today too many open-access schools are faced with the unenviable position of having to decide between participating or dropping out of the federal student loan programs entirely due to having many borrowers in default.”

“We applaud the Department for exploring ways to give schools some additional tools to help students better understand their borrowing and set themselves up for success in repayment. We are optimistic that this experiment will be a launching off point for giving schools more authority and flexibility to proactively address borrowing on campus.”

To be considered for participation in this experiment, interested schools must submit a letter of interest to ED, following the candidate requirement and procedures outlined in the Fact Sheet and the Federal Register notice. Importantly, as with NASFAA’s proposal, the additional requirement cannot bias or restrict based on students’ religion, national origin, race, color, sex, socioeconomic status, place of residence, sexual orientation, gender identity, physical enrollment location, or educational program.


Publication Date: 8/15/2016

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