FRB: Student Loan Counseling Challenges and Opportunities: Executive Summary

Student Loan Counseling Challenges and Opportunities

Executive Summary

Key Findings

The college financial aid process is complicated, confusing, and financially risky for many individuals and families. Effective financial counseling can help students make the financial and educational choices that are best for them, but schools face financial and legal constraints on their ability to provide highly effective counseling.

As part of its community development function, the Federal Reserve "promotes fair and informed access to financial markets for communities and individuals."¹ The Federal Reserve also advances supervision, community reinvestment, and research to increase understanding of the impacts of financial services policies and practices on consumers, communities, and the broader economy.

To better understand how students make decisions about paying for their education, especially with student loans--which for many students represent the first large financial investment they make--the Board, in conjunction with the National Association of Student Financial Aid Administrators (NASFAA), held two focus groups with financial aid administrators from around the country that explored the counseling techniques they use and the challenges they encounter in helping students navigate their financial decisions. This report presents the finding from those focus groups, and explores

the tools and strategies that financial aid administrators use to provide counseling to students, beyond the Department of Education's online program;
the resource, administrative, regulatory, and legal challenges that counselors believe inhibit their ability to provide effective counseling;
counselors' recommendations for improving systems if resource, legal, and student participation constraints were removed; and
how school administrators measure the efficacy of their counseling programs.

Key Findings

Qualitative analysis of responses from the focus group participants revealed several key points. These are summarized below and discussed more fully in the "Findings by Topic" section of this report.

Counseling Tools and Strategies

Many institutions offer counseling in addition to required entrance and exit counseling.
As a method of reducing loan default rates, special counseling programs have been set up at a number of colleges and universities.
Some counseling programs partner with on-campus student organizations to work with students who may be at higher risk of default.

Challenges to Effective Counseling

Counselors have attempted various communication methods to reach students, such as e-mails, text messages, and social media, often with limited success.
Several counselors have included financial aid counseling in student orientations but noted some conflicts with university administrators.
Optional counseling programs oftentimes have poor attendance because of disinterest from students or competing demands for their time.
Because universities cannot require more than entrance and exit counseling, many counselors feel inhibited and find it to be a significant barrier to helping students with their financial decisions.

Administrator Recommendations

Counselors desire the ability to require additional financial aid counseling.
Counselors suggest providing earlier general financial education to students in primary and secondary school.
Counselors advise simplifying and modernizing the online counseling modules provided by the Department of Education.

Policy Matters

It is difficult to define success regarding financial aid counseling since optimal financial choices are highly dependent on the student's particular financial situation.
Counselors noted that their institutions did not have extensive tools for measuring program impacts.
The counseling that most students receive is not optimally designed for learning and decisionmaking.
Students supporting families may feel financial pressures to enter the workforce before completing their degrees, which could leave them in a more adverse financial situation than when they started school.

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