Financial aid professionals worry that oftentimes students are not prepared to manage their finances and plan for loan repayment, and say that although many schools already exceed federal requirements for loan counseling, more can be done to improve the process, according to a new survey from Trellis Company (formerly TG).
The survey – which was a collaboration between Trellis, NASFAA, and the Board of Governors of the Federal Reserve System (Board of Governors) – examined financial aid administrators' experience with student loan counseling. The survey was sent to 916 financial aid administrators, and received 180 responses. Overall, financial aid administrators perceived low levels of financial literacy among students, despite the fact that many offer other types of voluntary counseling and outreach.
"Student loans can be confusing, especially for first-generation college-going students. The professionals who work with students daily have an indispensable perspective on loan counseling," said Jeff Webster, director of research for Trellis Company, in a statement. "The stakes are high when borrowing for college. We need loan counseling that is as robust as the dangers are serious."
Additionally, many respondents said they would like to see additional financial counseling take place, such as a mandatory annual course, or more face-to-face resources.
"A strong federal commitment to getting student loan borrowers the information they need to make smart borrowing decisions begins by giving schools additional flexibility to offer and require loan counseling at the times students need it the most," said NASFAA President Justin Draeger.
Overall, most financial aid administrators (75 percent) rated students' financial literacy as "poor" or "fair." But that low rating increased for certain groups of students, such as those with low test scores (94 percent "fair" or "poor"), first generation students (94 percent "fair" or "poor"), and lower-income students (91 percent "fair" or "poor"). Fewer than 10 percent rated students' financial literacy as "good" or "excellent" in any of these groups.
Financial aid administrators also said they heavily rely on the Department of Education's (ED) online loan counseling tools. Ninety-five percent said they used ED's entrance counseling, and 89 percent said they used its exit counseling. Just 5 percent said they used entrance counseling developed by their own institution, and 10 percent said they used exit counseling developed by their institution.
"Financial aid officers were asked to rank the top reasons for using ED's tools for entrance and exit counseling, and their responses suggest that their pervasive use is due primarily to concerns of regulatory compliance and resource scarcity," the survey said. "Though not a statistically significant difference, it appears that respondents who believed most strongly that the tool effectively conveys important information were less likely to perceive poor financial literacy among their students than their colleagues who chose ED's tool for compliance or financial reasons."
More than one-quarter of the respondents said they would like to see a longer, required financial literacy course. Another 19 percent said they would like to see more face-to-face counseling.
"Student financial aid administrators appear more aware of the dangers students face than the students themselves, though administrators are struggling against significant impediments to close that gap," the survey said. "Their non-compensated financial counseling programs must compete for institutional resources and the limited attention of their students, who may be juggling school, work, and other immediate life issues, making them less receptive to appeals to long-term financial consequences. In this competition, schools often lack both the resources and specialized skills to make a lasting impression on students. With or without the ability to mandate student participation, developing more effective ways to communicate with and counsel students will remain critical to their success."
Publication Date: 11/15/2017