Graduation is an incredible, busy time. In addition to taking their last set of tests, wrapping up final projects, and spending time with friends, college students will probably be applying to jobs and generally preparing for the next phase of life.
Students might even be moving cities and furnishing new apartments. (Or, like many graduates, they’ll just use camping chairs for another two years until they can afford to buy a real couch.) Another item that’ll show up on a student’s end-of-school year checklist is student loan exit counseling . Students with most federal student loan types must find some time to complete exit counseling.
When a student graduates from college, the government wants to arm them with the basics of managing their student loans. That’s because student loans can be tricky to understand; student loan repayment and general financial knowledge are not necessarily intuitive. In fact, the government requires, by law, that students go through student loan exit counseling when they leave college for any reason, including transferring schools or dropping below half-time enrollment.
Here’s what a student borrower should know about federal student loan exit counseling, why it’s important, and where to get student loan exit counseling. Additionally, we’ll discuss what’s not covered in federal student loan exit counseling but could be important for student loan borrowers nevertheless.
What to Expect with Student Loan Exit Counseling
Depending on your school, students typically complete their exit counseling online or through an in-person meeting with a counselor at the school’s financial aid office. Schools may also offer online counseling
programs to review all of the important information regarding paying back student loans. Each student should check in with their school’s website to find out their options.
Generally, student loan exit counseling takes about 30 minutes if completed online. If the student meets with a counselor or has specific questions, it might take longer. Although no one usually loves sitting through a presentation about financial planning, it’s a great idea to take advantage of the learning and soak up as much knowledge as possible.
Before student loan counseling, the student must prepare some information. First, they should know the outstanding balances on their current federal student loans. You can find that here at the Federal Student Aid website .
Also, the student should gather the names, addresses, email addresses, and phone numbers for a close relative, two references that live in the United States, and their employer, if they have one. The Department of Education requires this information in the event that a borrower defaults on their loans and cannot be contacted.
During the online student loan exit counseling the student will also spend some time mapping out their potential salary and living expenses such as rent and utilities, so that they can create an expected budget.
Major Topics Covered in Student Loan Exit Counseling
Here are some of the topics you’ll encounter in student loan exit counseling:
Understanding Your Loans
During this portion of student loan exit counseling, the student receives a summary of their student loans, including total balance, terms and conditions, and the date that the first payment is due.
Next, they’ll cover the interest rates on student loans. Each loan has a set interest rate that depends on the loan type (subsidized, unsubsidized, PLUS, etc.) and the year they’re dispersed; students may want to write these interest rates down so that they can calculate their monthly payments in a later section.
Plans to Repay
This is a very important section. Here, student borrowers will learn all about the rules of student loan repayment. Borrowers typically have control over the repayment plan that they choose, so it is wise to understand the pros and cons of all options. For example, income-driven repayment plans may lower the borrower’s monthly bill (in accordance with their income) but could cost a borrower more over time in interest. Keep an eye out for the major trade-offs between plans.
In this section of student loan exit counseling, borrowers are provided with a number of helpful student loan repayment calculations . Most students going through student loan exit counseling will see calculations that show how expensive it can be to utilize a grace period, because as the interest accrues on a student loan, it is capitalized, which means it is added to the balance of the loan. Yet another calculator shows the borrower how much can be saved by making additional payments.
Here, student borrowers are also provided with logistical repayment information, like who to contact and in what scenarios you should contact your loan service provider.
Not paying loans on time and allowing student loans to fall into delinquency could have consequences in many areas of a borrower’s life. Therefore, during student loan exit counseling, there is a large focus on borrowers avoiding default on their student loans. This section will discuss the consequences for both a borrower’s federal loans (such as loss of deferment options) and for career and future income (such as wage garnishment and impact to credit scores).
It will also cover options in the event that a borrower cannot make payments, such as deferment and forbearance, and the pros and cons of each of these options.
This section will also explain federal loan consolidation, student loan forgiveness programs, loan discharge for the permanently disabled, and how to settle student loan disputes.
Prioritizing Financial Planning
The next section is dedicated to financial planning. Here, a borrower’s counselor or online program should discuss budgeting, credit management, identity theft, and other basics of money management. Borrowers are encouraged to consider their short-term and long-term financial goals.
Though very important, the advice and education in this section are typically somewhat light. It might be a good idea for students to make note of the concepts they don’t understand and do some additional work outside of student loan exit counseling.
Last, a borrower would choose a repayment plan, enter in their new contact information, employer or future employer’s information, and provide the names and contact information of references. The borrower’s loan servicer then reviews the information and provides the borrower with a repayment plan.
According to Federal Student Aid , the borrower is told to list their preferred repayment options, at which point their loan service will make a final decision and assign the borrower a repayment plan.
What Your Exit Counselor Doesn’t Tell You
Student loan exit counseling is necessary and important. It is required of all students with federal student loans. But overall, the program to be pretty light and quick.
Think about it: Some borrowers could have tens of thousands or even hundreds of thousands of dollars to pay back and get just 20 minutes of guidance as they click through some online slides. This information very easily could be part of a full multi-credit course at a university.
Also, there is some important information that a borrower just won’t receive in exit counseling, and that’s information on how to handle their private student loans. While there are some similarities, private student loans will have many of their own nuances that are imperative to understand.
For example, private loans determine their own repayment plans and generally don’t offer deferment or forbearance options, and they may or may not allow for advance prepayment on a loan.
Federal student loan exit counselors and programs generally do not cover student loan refinancing. Refinancing is the process of paying off student loans—both federal and private—with a new loan, ideally at a lower rate of interest.
Refinancing could help potentially lower borrowers’ interest rates and consolidate multiple loan payments into one. Compare this to federal loan consolidation, a program offered through the government that simply takes a weighted average of the existing loans’ interest rates.
With refinancing, the borrower pays off your government loans with a private loan, so refinanced loans are not eligible for federal repayment programs such as income-driven repayment, deferment, and public service loan forgiveness.
For borrowers who have no plans to use these programs, it may be worth considering refinancing. You may qualify for a better interest rate through refinancing if your credit score or financial situation has improved since you initially took out your loans as a student.
Regardless, it is a great idea to go into student loans exit counseling with a clear head, ready to lap up as much information as possible. Paying back your loans is no small feat, so it will be so worth it to do some hard work up-front to make the rest of the process as smooth as possible.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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