Student loan exit counseling offers basic lessons about how federal student loans work and is required for most borrowers by the federal government. Exit counseling must be completed when you graduate, leave school, or drop below part-time status. Borrowers can access exit counseling from studentaid.gov, and only borrowers with subsidized, unsubsidized, or PLUS loans under the Federal Direct Loan Program need to complete exit counseling.
When transitioning to your new post-grad job, exit counseling may seem like the last thing you need to do. But the process can help you understand how the various repayment plans work, what options are available to you and how to change your payment plan. Read below to learn more about how exit counseling works.
Why is Student Loan Exit Counseling Important?
Student loan exit counseling provides a basic crash course about your federal student loans. The whole process only takes between 20 and 30 minutes. And while you could simply click through all the modules, you should take the time to read through the information carefully. Completing exit counseling can help you understand the difference between subsidized and unsubsidized loans and other types of student loans. It can also help you decide what kind of repayment option is best for your financial situation. For example, if you already have a job lined up, then the standard repayment plan may be best. But if you’re still searching for a full-time position, then switching to an income-driven repayment plan may be better.
What Happens if You Don’t Complete Exit Counseling?
Federal law requires exit counseling for borrowers with federal student loans. If you don’t complete exit counseling, your school may withhold your official transcript and diploma. You will still be able to walk at graduation, but you won’t be able to receive a copy of your diploma. And if you’re applying to grad school, you won’t be able to get a copy of your undergraduate transcript, which could hinder your grad school application.
Student Loan Counseling by Student Type
The specific type of exit counseling depends on whether you’re an undergraduate or graduate student. In general, exit counseling is required for anyone who is going to become legally responsible for making student loan payments. This includes students who are graduating, leaving school, or dropping below part-time enrollment. Parent PLUS borrowers are not legally required to go through student loan exit counseling. However, they may learn more about the various repayment plans and loan forgiveness options available to them if they do complete exit counseling.
How to Complete Student Loan Exit Counseling
Student loan counseling is a process that helps borrowers understand their repayment options. After you finish exit counseling, you’ll be more prepared to start repaying loans. To begin exit counseling, you’ll have to log onto your Federal Student Aid (FSA) account. Before you begin exit counseling, you should have the following information:
- FSA ID and password
- Current income and expenses
- Your current contact information
Review Your Student Loans
Exit counseling will help you figure out how much you owe in student loans and what your student loan repayment terms are. Knowing your total balance can help you figure out your overall repayment strategy. For example, if you have a high debt total and low salary, you can opt for an income-driven repayment plan to reduce your monthly payments. On the other hand, if you have a low balance and a sizable income, you can opt for the standard repayment plan to pay off your debt sooner.
Repayment Options
Borrowers with federal student loans can choose from several different repayment plans, each with its own pros and cons. Exit counseling will explain the following repayment options that are available to you:
- Standard repayment
- Graduated repayment
- Extended repayment
- Pay As You Earn (PAYE) repayment
- Revised Pay As You Earn (REPAYE) repayment
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
- Income-Sensitive Repayment (ISR)
Exit counseling will also provide several calculators that will show how paying more than the minimum every month can help you pay less interest over the life of the loan. There will be a calculator where you can input loan payments and compare them to your current income. This will show if you can afford the current payment or if you need to change your repayment plan. You will also be able to use the calculator to see how paying more than the minimum every month can help you pay off your loans faster and pay less in total interest.
Avoid Defaulting on Loans
One of the most important aspects of exit counseling is understanding what happens if you don’t pay student loans or if you default on student loans. If you make late payments, they will appear on your credit report and can cause a huge drop in your credit score. You’ll also have to pay late fees. If you don’t make payments for 270 days, the loan will end up in default. After your loans are in default, the federal government can garnish your wages and seize your tax refund. Getting out of default can take several months, but it is possible. The federal government even provides an option where you can have the default removed from your credit report. However, the late payments will stay on your credit report for seven years. If you can’t pay the minimum amount, you can apply for deferment, which means you will not have to make payments for 12 months. If you have subsidized federal loans, interest will not accrue during this time. But if you have unsubsidized loans, interest will continue to accrue. Depending on the type of student loans you have, student loan consolidation may be able to help you qualify for more income-driven repayment plans, which can reduce your monthly payment. Consolidating will reduce the number of monthly payments, so they will be easier to manage.
Financial Planning
Being prepared to start making payments means that you should have a holistic look at your finances and build some good financial habits. This includes:
- Building up a three-to-six month emergency fund
- Creating a monthly spending plan
- Paying off your full credit card balance every month
- Establishing and building up your credit score
Having a monthly budget in place before your student loans begin means you’ll know how much you can afford to pay each month. You can also determine how to start saving for short-term and long-term goals, like buying a house or investing for retirement. Before your first payment is due, you should build an emergency fund with between three to six months of expenses. An emergency fund will help you cover any unexpected costs that can arise, like having to take your dog to the vet, paying for surprise car expenses, or flying to an out-of-town funeral. If you lose your job, an emergency fund will cover your bills until you can find a new gig. If you didn’t get the chance to build credit in college, now’s the perfect time to start. You can build your credit by making your student loan payments and any other loan payment on time every month. If you have a credit card, you should also work on maintaining a credit utilization ratio below 30%. You can find the utilization percentage by dividing the current credit balance by the credit limit. If you exceed that limit, your credit score will suffer.
Update Contact Information
Once you’ve finished student loan exit counseling, you’re ready to choose a repayment plan. At this point, you should be able to understand the various options and which plan is right for you. You should also be able to determine if working toward loan forgiveness fits your goals. After completing exit counseling, you should update your contact information on your FSA account. If you have your student email address or campus address listed on there, you may not receive payment notifications or reminders. Make sure to update your email address with an email not tied to an employer or your former school. Also, if you’re not sure where you’ll be living, use your parent’s address as your permanent address. If you do end up moving to your own place, you can then update your address.
What to Do If Repayment Options Are Too Expensive?
If you can’t afford the monthly payment on your federal student loans, you can switch to a different repayment plan. Income-driven repayment plans will calculate your payment as a percentage of your income. If you’re not working full-time or are unemployed, your monthly payment may be $0. Student loan refinancing can also reduce the monthly payment if you’re struggling. Refinancing to a lower interest rate, longer repayment term, or both can result in lower monthly payments. Here’s how refinancing works. Let’s say you owe $50,000 with an 11% interest rate and a 10-year term. Your monthly payment is $688.75. If you refinance to a 5% interest rate and a 10-year term, your new monthly payment will be $505.75. However, if you refinance to a 20-year term and a 5% interest rate, your new monthly payment will be $329.75. Refinancing to a longer-term loan can increase the total interest paid over the life of the loan, so you should only do this if you can’t afford a higher payment. The process of refinancing student loans is similar to taking out a student loan. You’ll have to complete an application and provide your contact, employment, and financial information. Depending on your credit score and income, you may or may not be able to refinance without a cosigner. Even if you can refinance without a cosigner, you may qualify for a lower interest rate with one. A cosigner can be any adult you know, like a parent, other relatives, or close friend. They just need to have a good credit score, a stable source of income, and be a US citizen or permanent resident.
Tips for Student Loan Repayment
When it comes to paying off your student loans, the main considerations should be how long it takes to become debt free and how much you’re paying in total interest. Here are some basic strategies you can use to pay off your student loans quickly:
- Make extra payments when possible
- Start paying before the grace period is over
- Refinance to a lower interest rate
- Sign up for automatic payments to avoid late fees
- Choose the repayment plan with the shortest term
- Add windfalls toward your student loans.
To minimize the amount of interest paid, put extra money toward the loan with the highest interest rate. Some employers offer student loan repayment assistance programs, where they will contribute money toward your student loans. You may also be able to find scholarships for student loan debt. Try to avoid common student loan debt mistakes like missing payments and incurring late fees.
Stay Up To Date on Repayment
After exit counseling is complete, make sure to stay aware of your student loans. You should know when the due date is, what repayment plan you’re on, and if you’re eligible for any loan forgiveness programs. If you run into trouble, contact the loan servicer as soon as possible. They can help switch repayment plans or apply for deferment or forbearance.
