This is the eighth in a series of 10 blog posts related to the Top 10 Audit Findings of the U.S. Department of Education.

One of the top 10 audit findings, according to the U.S. Department of Education, includes student entrance and exit deficiencies. Indicated deficiencies include:

• - Entrance counseling not conducted/documented for first-time borrowers.
• - Exit counseling not conducted/documented for withdrawn students or graduates.
• - Exit counseling materials not mailed to students who failed to complete counseling.

Whether first-time borrowers, withdrawn students or graduating students, follow through on required entrance and exit counseling can be challenging. Exit counseling, however, becomes a little more challenging considering the circumstances and variables involved with the ways students exit. This doesn’t come as a surprise to most but it only takes one or two off situations to catch the eye of a program reviewer. Let’s consider a short list of the compliance requirements mentioned in the FSA Handbook.

- Entrance Counseling is required before a student borrower can receive their first Direct Subsidized Loan or Direct Unsubsidized Loan as an undergraduate, or their first Direct PLUS Loan as a graduate/professional student.

- You may not require that students complete additional counseling (except for exit counseling). You may provide more information, resources, and advisement, but you cannot require them to justify the need for a loan.

- Since TEACH Grants convert to loans if the service requirement is not completed, all grant recipients must receive entrance counseling and subsequent counseling on the TEACH website before receiving their grant.

- If a student has enrolled in a study-abroad program or a correspondence or distance learning program and has not previously received an FFEL or Direct Loan at that school, the school must document that the student has completed online entrance counseling that meets FSA requirements or provide entrance counseling information by mail before releasing loan money.

Exit Counseling:

- Exit counseling is required when a student graduates, leaves school, or drops below half-time enrollment.

- If a student borrower drops out without notifying your school, you must confirm that the student has completed online counseling or mail exit counseling material to the student at her/his last known address. It is also acceptable to email the information to the student’s home (not school) email address if you have it. Whatever material you use, you must mail or email it within 30 days of learning that the borrower has withdrawn or failed to participate in an exit counseling session.

- All TEACH Grant recipients must receive exit counseling, which is on the NSLDS Student Access site (nslds.ed.gov/nslds_SA). If they don’t complete exit counseling on the NSLDS website, you must ensure that the counseling is provided either in person, through interactive electronic means, or by mailing written counseling materials to their last known address. With an unannounced withdrawal of a grant recipient from school (or from a TEACH Grant-eligible program), you must provide this counseling within 30 days of learning of the withdrawal

- In the case of exit counseling for correspondence programs or study abroad programs, the school may mail or email the borrower written counseling materials within 30 days after the borrower completes the program, with a request that he provide the contact and personal information that would ordinarily have been collected through the counseling process

Interestingly enough, student loan debt seems to be a prevailing subject in the media in recent months, especially since we are in an election year.  Some of the media suggests that student borrowing and debt levels are out of control.  I think we all can agree, however, that the cost of education has been on the rise and amounts that students justify and need to borrow to fund their education has also risen considerably. According to the U.S. Department of Education, as of the third quarter of 2016, there are approximately 41.5 million Americans carrying $1.26 trillion in student loan debt. So, it goes without saying, student debt is nothing to joke about. Pointed advice is critical for students in the beginning, during the interim, and at the conclusion of their educational endeavors. It’s not safe to assume they completely understand the burdens of incurring and maintaining high levels of student debt, or any debt for that matter, whether acquired for their own education or the education of loved ones. Let’s consider a few examples from an article I read recently about a few students and their unfortunate circumstances related to student debt.

First, there is Jake. Jake is an energetic 28-year-old who wanted a career in law enforcement. He enrolled in a reputable university near the east coast and found it necessary to borrow approximately $70,000 in student loans. Jake did well in school, but his dream job fell through. By graduation time, he had a large loan balance and no career prospects. Subsequently, Jake struggles to keep current on his loans working 16 hours a day holding low paying jobs. His finances became overwhelming and he found it difficult to get ahead of his loans. Ultimately, his student debt balance reached a daunting amount that seemed impossible to pay back.

Next, is Earl. Earl borrowed $80,000 to study electronics at a reputable university near the west coast. However, the west coast campus closed three years after Earl began attending and before he graduated. Earl wanted to work in the high tech industry when he enrolled. Unfortunately, he had no idea that the school was suffering from various problems, including fraud. Shortly after Earl’s enrollment and attending classes, the university’s accrediting agency put the school on probation. Subsequently, the school announced that it would close their west coast campus. By that time, Earl had taken out the federal and private loans. He tried to transfer, but other colleges refused to accept his credits as a result of the school’s accreditation problems. With no degree, he worked at low-paying jobs as interest on his student loans compounded and his student debt balance grew to what seemed an unreasonable amount.

Finally, we have John. John and his wife had good jobs in the IT industry. He took out $50,000 in loans for his daughter because he didn’t want her to go into debt; at the time could afford to help her. But, then the recession hit. John lost his job a couple of years later and in his 50’s couldn’t find another. Not too long after that, his wife lost her job when her company was acquired by a competitor. Their debts mounted, and as time passed, the student loans, because of compounding interest and penalties, had risen to a very high balance. The couple filed for bankruptcy, but the student loans weren’t eligible. After that, he and his wife lost their apartment. They eventually had to move in with their daughter.

These borrowers’ experiences are very unfortunate and clearly involve circumstances beyond the scope of what entrance/exit counseling is designed to do. Still, the message is clear – student debt is nothing to joke about and deserves serious attention. Borrowers should think very carefully about the amount of student debt actually needed (or not) and amounts that can be handled considering future career prospects and unforeseen circumstances. 

Colleges need to do the best they can to inform students of their responsibilities with respect to student debt and paying it back. This is best accomplished through a shared responsibility of the borrower and financial aid professionals.

Through federal regulatory guidance, and perhaps enhanced school policies and procedures, a school may offer a considerable amount of financial aid information during entrance and exit counseling – not only the basics about financial aid, but about general financial literacy, financial planning, budgeting, household finances and economics. The Department of Education regulations don’t prohibit providing additional information beyond entrance and exit counseling; it just can’t be restrictive in manner.

In conclusion, we can all agree the necessity of loan counseling is a given.  But, considering those challenging moments, we can consider the following ideas in an effort to improve processes of advising student borrowers of the realities of using financial aid:

- Focused training for financial aid professionals and students.
- Additional financial literacy training for students and your financial aid professionals.
- Staying up to date on entrance/exit counseling requirements specified in FSA Handbook.
- Applying principles from the FSA financial aid toolkit at financialaidtoolkit.ed.gov.
- Consider information available in the Financial Awareness Counseling at studentloans.gov.

If you need assistance with managing your entrance and exit counseling processes or other accounting, auditing or consulting issues related to your institution of higher learning contact me at sbastardi@frazerllp.com or call 714.990.1040.