Why Federal Student Loan Exit Counseling Matters

When it’s time to begin repaying your federal student loans, you’ll take a short course on how to prepare for and start making monthly payments called student loan exit counseling. It’s a 20- to 30-minute online course designed to teach you the basics of repaying federal student loans and budgeting your finances.

Am I Required to Take Exit Counseling?

The U.S. Department of Education offers exit counseling, and it’s required for federal student loan borrowers when they fall below half-time status (not including summer breaks), graduate or leave school for another reason. This isn’t necessarily a one-time process either; if you drop below half-time status more than once, you’ll have to take the course again. You may be contacted by your school within 30 days of your withdrawal or graduation to remind you to complete the online session.

Exit counseling is required of all students who receive direct subsidized or unsubsidized student loans, PLUS loans or Federal Family Education Loans (FFEL). Private student loan borrowers do not have to complete the counseling session.

How to Prepare for Exit Counseling

Since exit counseling is designed to help you prepare for loan repayment, it’s helpful to gather information about post-graduation income (if known) and living expenses. The exit counseling session offers calculators to input these numbers, along with your student loan payments, to see what your overall budget will look like.

You can estimate future income and living expenses before using the tool without knowing your salary. Ask your college’s career office for average graduate salaries for your major. Also, ask the career office to help you develop a plan for getting a job in your field if you don’t already have one.

As far as living expenses, start by looking up local rent in areas you’re thinking about living in. You also can call utility companies in the cities you’re considering to find out average utility bills based on home size. If you get stuck and need help, on-campus credit unions and student budgeting offices can help you estimate living expenses and create budgets.

Make sure you have your FSA ID handy because you’ll need it to log in to your exit counseling session. If you forgot your password, the password recovery process may take a couple of days.

How Exit Counseling Works

First, you must log in to the Federal Student Aid website with your FSA ID. If you don’t, you won’t be able to prove you took the course. When you select exit counseling, you’ll start a 20- to 30-minute session. You have to complete the course in one sitting.

Information about your federal student loans is imported into the system, so you won’t have to provide those details. At the end, you can choose your repayment plan after calculating payment options during the course. Those options range from the standard 10-year repayment plan to income-driven repayment plans that offer potential loan forgiveness and factor in your discretionary income when determining monthly payments.

Note: Just because a list of your student loans is imported from the National Student Loan Data System doesn’t mean the list is complete. Double check to make sure there aren’t any missing loans.

If one of your loans isn’t on the list, call the federal financial aid number at (800) 433-3243. You don’t want to inadvertently default on a loan because you didn’t know it existed.

5 Exit Counseling Takeaways

Exit counseling covers much more than student loan basics. You’ll learn important tips about budgeting, reducing health care costs and paying off your student loans faster.

Watch Your Student Loan Balance

Federal student loan exit counseling details how much you owe in federal student loans. It doesn’t include any private student loans, so you should budget for them separately.

Beyond tallying your student loan debt, there are reminders to borrow minimally in the future. You might borrow again, for example, if you finish your degree after a break or go on to graduate school. To help you understand the federal student loans you have, the counseling session offers explanations about the types of student loans and their interest rates. You’ll also learn how interest accrues.

Calculate How Much You Can Afford to Pay

You’ll use calculators to estimate payments under different repayment plans, factoring in your after-tax income, your budget and your student loan debt burden. You’ll also receive advice on which plan you should choose based on affordability and tips on when to begin making payments.

Among the repayment tips is a helpful calculator for paying off your loans faster by making extra payments, receiving a 0.25% interest rate discount by choosing automatic payments or making a one-time payment to reduce your loan balance. When you input your choices, the calculator displays how much you’ll save in time and interest payments.

You shouldn’t pay off loans early that qualify for forgiveness through income-driven repayment plans, Public Service Loan Forgiveness (PSLF) or other loan forgiveness options. You may be unnecessarily costing yourself money.

Learn How to Avoid Default

To avoid defaulting on your student loans you’ll need to mind your overall finances and pay careful attention to your student loans.Generally, you’ll need to miss nine monthly payments on a federal student loan to default, but you also can have multiple defaults. Each loan has a separate payment record and could impact your credit report, although some of the credit consequences can be reversed through loan rehabilitation.

The counseling session offers several tips for avoiding default, including finishing your degree, paying on -time when possible, calling your servicer about deferment options and paying attention to any communication loan servicers send you.

Follow Basic Budgeting Advice

If you follow sound overall budgeting practices, you’ll probably be able to repay your student loans. The counseling session offers tips regarding short-term and long-term budget and goal setting, avoiding using credit cards for basic expenses and boosting your credit score.

Choose Your Repayment Plan Carefully

In the final section, you’ll be asked to enter personal information to help further compare and calculate repayment plan payment amounts and options. Be sure to complete this section slowly. At the end, you’ll get to choose a repayment plan best suited for you. Your answer will be evaluated by your loan servicer for approval.

Bottom Line

That moment when you see all the student loan debt you’ve accrued during your academic career can be a bit scary, especially if you haven’t started your first post-graduation job. The mandatory federal student loan exit counseling makes the introduction to loan repayment easier with a full range of budgeting and loan calculators.

Since this online session only lasts about 30 minutes, take some time separately to browse StudentLoans.gov to learn as much as you can about loan repayment. Also, consider booking an appointment with your school financial aid office to get additional guidance.

You can change your repayment plan you select at a later time, but preparation now could make your repayment process easier for years to come.