The NY Times has been taking a closer look at the student loan industry for quite some time now. But a recent article on student loan counseling and advice is perhaps the most useful to date.
The meat of the article centers on the need for students to receive counseling on the loans they are taking out, something that is already required for federally-backed loans. The story also provides some great social engineering tips for getting the best information about student loans from a college's financial aid department.
Even though federal loans require an entrance and exit interview, it is essentially a bare bones counseling session often done online. From my experience, the only takeaway from the counseling is that at some point in the future you have to pay this money back. I often joked about my wish to have been the first individual to pull that scam, "What? I have to pay back a loan? I had no idea!" The NY Times article pushes for a more honest and open counseling session. One which makes the students realize what taking on copious amounts of debt can do later in life, essentially a Scared Straight for college finances.
An in-your-face introduction to student loans and the challenges attached to them is a great idea but I think a college is the wrong party to be doing it. While I believe that the majority of higher education institutions do have students' best interests in mind, requiring them to warn their charges about the financing they are using to attend the school is likely to have conflict of interest issues. This would be akin to requiring a car dealership's financier to explain all the risks and issues with getting a loan to buy a $40,000 vehicle. I'm not saying consumers as a whole don't need some counseling on finances but we shouldn't leave that piece of education up to the organizations that have a vested interest in getting a customer to take out a loan.
The really practical piece of information tucked away in the article is the idea that students should make a friend in the financial aid department. That person can be of great assistance when a student needs to understand more complex issues such as changing terms of the loan or making sense of the various repayment options. My cousin started school this fall, and my advice to him was to apply for as many scholarships as possible and to make friends with someone in each of the important departments on campus. Even though we all try to help people to the same degree you'll be hard pressed to find someone who won't go an extra mile for a student who is also a friend. The occasional coffee and donut don't hurt either!
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