Last week, the Department of Education announced a new experiment to test the effectiveness of additional loan counseling programs for college students.

The issue of student debt is a particularly pervasive issue among students who do not graduate, taking on the same educational debt as their peers but for whatever reason, not receiving a degree.  The default rate is three times higher for students who leave college without a degree.

This experiment is designed to avoid this disaster scenario and help the millions of students who enter college and leave saddled with debt each year. A lack of proper knowledge and understanding can increase the chances of crippling debt and the risk of default, especially when students have trouble navigating their borrowing and repayment options.

There are tons of different financial aid options from the federal government. Through the FAFSA, a student can find they are eligible for Stafford Loans, Perkins Loans, or Grad PLUS Loans. After college, they may find there are multiple options to repay debt such as a consolidation loan, the standard repayment plan, or an income-driven repayment program.

While these loans and repayment options create a great opportunities, they also open the door to confusion, thus establishing the need for the federal counseling experiment.

In the current system, there exists a one-time entrance and one-time exit loan counseling approach, with resources available for students to use voluntarily in addition to the mandatory services.  The experimental program announced last week would raise the loan counseling requirement for student borrowers, in an effort to test the effectiveness of programs like this and ensure a more informed approach to student debt.  The Department of Education expects the experiment to last for several years in order to fully assess its effectiveness.

The experiment is designed to test the outcomes of requiring additional loan counseling, including successful repayment of student loans and reduced defaults.  It is also designed to test whether additional counseling helps students better understand and optimize how much they actually need to borrow.  Finally, the hope is that additional loan counseling will help students stay on track to graduate, leaving fewer students without a degree at a high risk for default.

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Ted Mitchell, the U.S. Under Secretary of Education, commented on the experiment, “It’s important for students to make good decisions about their student loan borrowing.  Students at these institutions will receive proactive and ongoing counseling and they will gain tools to better understand and manage their own finances.”  He continued, “This experiment will yield important information about whether additional counseling improves student outcomes, including program completion and loan repayment.”

The Department of Education invited 51 colleges and universities in the United States to participate in this experiment.  There is a diverse mix of institutions participating: thirty five of the schools are public two-year institutions, fourteen are public four-year programs, one is a private nonprofit four-year program, and one is proprietary institution.  About 100,000 students will participate in total.  The Department of Education has published a full list of participating programs on its website.

The participating schools have the option to offer one of the following three programs to their students: 1) FACT, the federal government’ own loan counseling service, 2) third-party counseling tools, or 3) their own counseling services.  The hope is that this will not only allow the Department of Education to test the overall effectiveness of loan counseling, but also to determine which types of counseling are most effective.

Students at schools participating in the experiment will be split into two groups.  One half will act as a “treatment group,” receiving the additional loan counseling in order to test its effects on repayment ability and overall debt management.  The other half will act as a “control group,” receiving only the mandatory entrance and exit counseling.

In a press release, the U.S. Department of Education indicated that this experimental program is designed to “[build] upon the Obama Administration’s historic investments and major progress to make college more affordable and accessible for American families.”