Loan Counseling for Graduate and Professional Students

With soaring student loan debt and worrisome loan default rates, higher education stakeholders are eager to strengthen existing loan counseling practices and to create more comprehensive approaches to financial education. This report was commissioned to serve that purpose.

With soaring student loan debt and worrisome loan default rates in the United States, higher education stakeholders are eager to strengthen existing loan counseling practices and create more comprehensive approaches to financial education. While most of the research and media attention on student debt has focused on undergraduates, the graduate and professional student population has remained under-researched, despite the fact that their debt makes up 40 percent of the $1.2 trillion national student loan debt (Delisle, 2014). With potential federal legislation on the horizon that may increase colleges’ accountability and universities’ accountability for cohort default rates (Protect Student Borrowers Act, 2015; Student Protection and Success Act, 2015) and other metrics related to successful repayment of student loans, it is increasingly important that institutions of higher education engage more deeply in building students’ financial understanding and abilities. In light of this situation, AccessLex Institute, Inc. requested that Higher Ed Insight, a research consulting firm, review the existing literature on graduate student loan counseling and financial education in hopes of finding promising practices, new approaches, and actionable recommendations to support graduate and professional students in making optimal financial decisions about their loans and other aspects of their personal finances.

This report surveys the landscape of student debt, loan counseling, and financial education, with a focus on graduate and professional students1 . We found that graduate students, while a diverse population, often are at points in their lives—such as parenthood or paying off undergraduate loans—that, when coupled with additional student debt, make for challenging paths forward (Belasco et al., 2014; Kantrowitz, 2014). Additionally, millennials—the generation to which the majority of the nation’s current graduate students belong—have been found to be overly confident in their financial knowledge and capability despite showing low financial literacy (Scheresberg et al., 2014). Furthermore, populations historically underserved by higher education—including people of color, lowincome students, women, and single mothers—are most at risk of financial pitfalls associated with high student debt (Belasco et al., 2014; Kim & Otts, 2010; Scheresberg et al., 2015). This latter finding builds a compelling charge to higher education institutions and loan counselors to take on broader financial literacy education as an equity and student success issue. 

A focus on graduate students is also important because graduate students, unlike undergraduates who face annual and cumulative limits, can readily borrow up to the cost of attendance, minus other aid, through the federal student loan programs. This can lead these students to borrow at high volume without being fully aware of the implications, or otherwise restrained through the underwriting criteria that is applied by private sector lenders. Of course, the nuances of student loan borrowing are also important, and the significant differences between master’s and doctoral student debt as well as the differences between debt taken on by graduate students in various disciplines demonstrate that a one-size-fits-all approach to loan counseling may not be effective in equipping students with the knowledge and support they need to achieve financial stability.

Moreover, the loan counseling resources offered by the federal government are almost exclusively geared toward undergraduates, their families, and their counselors. Researchers have also found these counseling modules to be ill-timed, overly long and complicated by jargon, and weighed down with poorly designed calculators and tools [Fernandez 2015a; 2015b). At the same time, thirdparty vendors who offer loan counseling have not been extensively examined in empirical studies, and those programs that have been assessed do not demonstrate clear results supporting their effectiveness (U.S. Financial Literacy and Education Commission, 2015).

While this report advocates for colleges and universities expanding their focus beyond student loans and debt to support their students’ financial health, we realize that, for many institutions, loan counseling is a key starting point for any student financial literacy program. Thus, the following recommendations emphasize loan counseling as a point of access to students. In addition to our own observations, we draw from a series of reports from TG Research and Analytical Services that provide an in-depth, qualitative look at the U.S. Department of Education (ED) entrance and exit counseling modules used for three-fourths of all students. We also pull from findings of a project by the Council of Graduate Schools (funded by TIAA-CREF) entitled Enhancing Student Financial Education.

Recommendations for Colleges and Universities

• Create supplementary resources to help students understand loans and loan counseling before they use the ED modules.
• Offer an in-person loan counseling option.
• Engage students often and meaningfully about their loans and their financial literacy generally, across multiple milestones and in settings students already frequent.
• Individualize, diversify, and simplify methods for students to monitor their loan(s) and repayment, such as annual debt reviews, online monitoring tools, and scheduled, gradual fund dispersals.
• Find ways to assess the financial needs and knowledge of your students.
• Target interventions toward students most at risk of loan default or financial mismanagement, which may include individuals from historically underserved backgrounds.
• Create incentives for responsible financial management and loan borrowing.
• Use innovative marketing designed just for graduate students (or other targeted groups) that will capture their attention around loan repayment options at different points throughout the year.
• Consider ways to cross-train campus staff so that all staff and faculty interacting with graduate students have the same information and resources available to support students.
• Create a holistic approach to improving students’ financial literacy, incorporating financial education widely across the curriculum and co-curriculum.

Recommendations for Loan Counselors

• Personalize information to make it relevant to the individual.
• Offer annual reviews of student loan indebtedness and other methods for students to monitor their accrued debt.
• Communicate with borrowers often and in many different forms.
• Identify and reach out to at-risk borrowers by providing additional services, information, and outreach.
• Gather and assess data to evaluate the impact of the different services you provide by tracking the decisions of borrowers.
• Provide borrowers with other trusted resources for debt counseling since some borrowers are facing financial difficulties beyond just student loan repayment.