The amount of higher education debt in the U.S. is scary: More than 43 million Americans owe $1.3 trillion in student loans. Even scarier: Many of them don't understand how their loans work before they decide to get one.

While tens of thousands of students will become borrowers or add to their debt load as they head to college this fall, one in five don't know the terms of their student loans, according to the annual National Financial Capability Study, which for the first time included questions about student loans. And more than half didn’t know what their monthly payments would be when they took out a loan.

At first, this may seem surprising—if you take out federal loans, you must complete a mandatory student loan counseling session online or in-person (depending on the school). You'll also need to go through exit counseling upon graduation.

Only a handful of schools require borrower-education courses for private student loans.

But financial aid and college financing experts say the problem is that the information sessions are inadequate. “The counseling prospective students get is not even close to sufficient,” says Heather Jarvis, a lawyer who specializes in student loan issues. She says the "counseling" sessions aren't so much about making sure students understand their responsibilities and how they'll pay it back as it is about informing them about terms and disclosures. "Counseling is not personalized in a way that makes sense or is useful,” says Jarvis.

Many schools use the Department of Education’s online entrance student loan counseling tool, which takes less than 30 minutes to complete and walks students through an ambitious agenda that includes defining terms such as capitalized interest and a worksheet to estimate your annual school expenses. 

Yet many borrowers who do the mandatory counseling don’t even remember taking it. A survey of high-debt borrowers found that 40 percent had no memory of receiving any student loan counseling, according to a January 2016 report by nonprofit TG Research.

Changes Coming for Federal Loan Counseling

It’s not that the federal government or colleges don’t want students to understand what they are getting into, says Betsy Mayotte, director of consumer outreach and compliance American Student Assistance, a nonprofit focused on helping students finance college responsibly. The federal government, which issues the loans, wants to reduce student loan default rates, which are higher than any other consumer debt. Colleges also have incentive to provide student loan counseling. Last fall, the Department of Education began requiring schools to publish loan default rates and colleges can be sanctioned for high default rates.

The issue is that federal student aid is similar to an entitlement program, like Medicare or Social Security. Federal regulations limit what colleges can say to students about their loans and can’t restrict students from getting aid they are entitled to receive. “The government and universities aren’t allowed to say you can’t borrow the money because they think it’s too much,” says Mayotte.

The Department of Education has stepped up efforts to make counseling more robust. In 2012, it created a financial awareness counseling tool to walk students through the basics of loans, advice on managing debt and repayment options. It’s voluntary but is prominently displayed on the same site as the entrance counseling.

In mid-July, the undersecretary of the Department of Education Ted Mitchell announced plans to launch a pilot program to let some colleges and universities require additional loan counseling beyond what's already mandated by federal law.

Financial Literacy Needs to Start Earlier

Part of the reason that mandatory counseling falls short is because it comes too late in the process of figuring out how to pay for college. “It’s a lot of complex information to take in at one time and the timing is lousy,” says Mayotte. The student does the counseling just a few weeks before school starts. At that point, the decision has likely already been made to take the loan out.

Understanding the consequences of student loans should come well before a tuition bill is due, says Mayotte. But students say they get little guidance on how to pay for college when they are young. A Consumer Reports nationally representative survey of 1,500 Americans earlier this year found that borrowers report getting little information in high school about how loans work or the dangers of taking on a lot of debt when researching schools.

Half of Americans with student loan debt say they didn’t attend any financial aid information sessions in high school before enrolling in college, according to the Consumer Reports survey. And those who did said that the information was about process, such as how to fill out the financial aid paperwork and deadlines for filing. Less than half said terms and conditions of loans were explained or that different payment options were discussed.

Before You Take Out a Student Loan

If you’re planning to take student loans to pay for college, answer these questions before you sign on the dotted line.

How much debt can I afford? Don’t borrow more than you expect to earn annually in the early years of your career or roughly 10 percent to 15 percent of your expected gross income. If more than 15 percent of your earnings goes to student loan payments, you’ll struggle to pay and need to cut spending in other areas of your life.
What’s the difference between federal and private loans? You may be tempted to take out lower-rate private loans over federal loans. But a private loan rate is likely to be variable and can rise over time, so you may owe a lot more in interest in total. Federal loans have fixed rates and come with more consumer protections and flexible payment plans than private loans. 
How will I repay the money? One in five people with student loans don’t know what repayment plan they are enrolled in, according to the NFCS survey. Though borrowers get a standard 10-year repayment plan by default, you have many repayment options that can help you manage payments if you fall behind or want to retire your loan early.

For more help on managing your student loans, check out the American Student Assistance’s SALT program, which provides courses, individual counseling and online tools.