When higher education students who received federal loans graduate, drop below the minimum number of required credit hours or withdraw from school, they are required to complete exit counseling. Often this entails the student reading a bunch of dry explanations online, scrolling and skimming past pages, and checking boxes at the end acknowledging they have read material they likely haven’t.
Probably not the best strategy, right? Instead, consider providing exit counseling to students that actually reaches them and gives them options for repayment and ways to modify their loans according to their financial situation. Exit counseling, done right, should serve several major goals, outlined below.
1. It Should Make Loans Feel Real
During college and even afterwards, student loans often feel like hazy obligations that don’t really impact a student’s life. Especially after the 6-month grace period, loan payments can come as a painful surprise to the ex-student. The obvious antidote to this is to make loans feel more real and more accessible.
Exit counseling takes place shortly before a student graduates or falls below the minimum number of credit hours. A good program should allow students who are lowering credit hours or considering dropping out to review their loan information before they make their final decision. Sometimes it may be smarter for students to keep going with school, and it may increase the amount who repay in a prompt fashion. A study at Texas A&M indicates that students who graduate have a 2 percent default rate, while those who do not have a 13.7 percent rate. Where possible, encouraging students to remain in school by using exit counseling to show them what they will soon owe may simultaneously increase graduation rates and decrease default rates.
2. It Should Be Personalized to Each Student
Boilerplate exit counseling information issued to relate to all students at once is confusing, doesn’t feel applicable and can even be alienating, prompting students to detach instead of pay attention and plan. Studies show that when shown a personalized estimate of student loan balance, 80 percent of students elicit a reaction, over half of them which had assumed their student loan balance would be lower.
Using exit counseling to show students what they will actually owe, as opposed to presenting various irrelevant scenarios, may help them plan more realistically. The National Student Loan Data System for Students, for instance, recommends that exit counseling programs allow students to enter their own information, calculate their payments, concoct budgets and more.
This is where a repayment calculator comes in handy. While this won’t give students an exact repayment figure unless they know their projected interest rate, they can still get a general idea for what they will owe each month. During exit counseling, require students to use the repayment calculator. Then you can present them with budgeting materials or point them to financial advice blogs. At minimum, suggest they save money every month during their 6-month grace period as if they were paying on the loan, to practice budgeting for it.
3. It Should Present Alternative Options Before Borrowers Default
Students have many options for repayment after leaving school. Unfortunately, many are unaware of those options, which can lead to trouble paying back loans, or worse, default. Part of the problem is some students see loans as all-or-nothing affairs, and when they do not have the money to make their scheduled payments, they may simply bow out, letting their loans go into default. See Reducing the Roadmap to Default for more default reduction strategies.
According to StudentLoanSherpa, only 6.3% of borrowers are repaying their loans on the Pay As You Earn or Income-Based Repayment plans, which modify payments to matching income. However, a whopping six times that many people are in default. Many of those might be in good standing had they known about the other options available to them and been able to act in time.
Your exit counseling program may not yet reach these lofty goals, and that’s okay. But if you would like to increase the number of students who are successful after leaving your institution – and more specifically, to increase graduation rates and decrease defaults – it will help to implement a timely, thorough and personalized exit counseling program.