Education Department Clarifies Loan Counseling Flexibility

April 8, 2015

The U.S. Department of Education on Monday clarified that colleges are able to take some active steps to help students avoid excessive loan amounts.

Federal law requires that colleges in most cases disburse to students any amount of federal loan they request so long as they are eligible for it.

Colleges have pushed for legislation that would give them the ability to limit the borrowing of some students who they are concerned might be taking on more loans than they would be able to repay. The federal government penalizes colleges when large numbers of their former students who took out federal loans default on that debt. The department wrote in the new guidance that colleges, as part of their loan entrance counseling program, may require students to take a test of the material presented, complete a budget or other exercises designed to improve the student’s understanding of the implications of borrowing.

However, those measures may not “unreasonably” impede students’ access to a loan. Colleges, for instance, can’t set a minimum required score on a financial literacy test or force students to justify their need for a loan. 

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