AwardYear: 1998-1999 EnterChapterNo: 10 EnterChapterTitle: Federal Family Education Loan Program SectionNumber: 9 SectionTitle: Counseling Students PageNumbers: 83-92 hb10-91.pdf Both entrance and exit counseling are requirements of the Federal Family Education Loan (FFEL) Program. Exit counseling is also authorized under the law and is required to be in-person counseling. A school must keep documentation in each student borrower's file showing that both entrance and exit counseling were provided to him or her. Effective loan counseling is an ongoing process, and reinforcement of points made during the entrance interview is advisable whenever a financial aid administrator meets with a student to discuss his or her loans. For example, the financial aid administrator has an opportunity during each delivery of loan proceeds to counsel students concerning satisfactory academic progress, constraints on aid, the obligation to notify his or her lender about a change in address, and so on. If loan counseling is ongoing, the exit interview is simply a review of information conveyed during the course of the student's program of study and a means of presenting additional material to prepare the student for repaying loans. Dynamic presentation of material at both entrance and exit interviews--using charts, handouts, audiovisual materials, and question-and-answer sessions--can convey the financial aid administrator's message with greatest effect. The financial aid administrator may wish to contact guaranty agencies, lenders, and other organizations associated with postsecondary education to see what videos, pamphlets, and other materials are available to supplement the school's counseling. The illustration on page 10-91 summarizes information to be covered during the entrance and exit interviews or counseling sessions. The core items should be covered as part of both entrance and exit counseling. ENTRANCE COUNSELING ---------------------- A school must conduct entrance counseling before releasing the first disbursement of the first Federal Stafford Loan made to a borrower at the school. The counseling must be conducted in person, by audiovisual presentation, or by computer-assisted technology, and a person knowledgeable about Student Financial Assistance (SFA) Programs must be available for questions shortly after the counseling session. For a borrower who is receiving his or her first loan at a school and who is involved in the school's junior-year-abroad program or other off-campus program, the school must provide entrance counseling information by mail before releasing loan proceeds. A correspondence school must also provide the information by mail before releasing loan proceeds. Recognizing that each school and each student's situation is different, the Department provides the following suggestions for presentation of the required information. The emphasis may be shifted, but all the points made below should be covered during entrance counseling: - An overview of all possible sources of aid is important, with an emphasis on the constraints on student aid and a discussion of "reasonable expenses" in the context of grants and loans. A school's Program Participation Agreement (PPA) requires it to provide, in addition to state grant assistance information, a source of information for programs in the student's home state. Information on other loan sources, such as health professions loans, also should be provided. - Terms and conditions of various loan programs should be reviewed. In addition to providing basic information on loan limits, loan fees, and interest rates, a counselor should explain terms such as deferment, forbearance, and cancellation. The counselor might also cover available repayment options, such as loan consolidation and refinancing, at this point. (See Section 8 of this chapter for a brief discussion of loan consolidation and refinancing.) - The obligations of loan repayment should be emphasized. You should advise the student to read carefully the loan application, the disclosure statement, and the promissory note with the borrower's rights and responsibilities before signing any of those documents. Often a student loan is the borrower's first experience in obtaining a loan of any kind, and a counselor should clearly explain basic loan terminology to ensure that a borrower is aware of his or her obligations. The counselor should define terms such as "loan servicer" and should explain the process of selling loans to other lenders or to "secondary markets." Lenders and guaranty agencies provide explanations about these and other terms in the material they make available to students and schools. (A loan servicer is a corporation that administers and collects loan payments for the loan holder. A secondary market is a lender or a private or public agency that specializes in buying student loans.) - The obligations regarding repayment should be thoroughly covered, and a counselor should explain that the exact repayment schedule will not be provided until loan repayment begins. Although the disclosure statement and the promissory note contain the total dollar amount of the loan, including interest and fees, they do not necessarily specify the amount of each payment or the frequency with which payments will be made. The counselor should remind the student that certain fees will be subtracted from the loan amount before the loan is disbursed but that repayment of the full loan amount is required. The counselor should emphasize that the borrower is required to repay the full loan even if he or she does not complete the program or even if the program doesn't meet the borrower's expectations. This is one point at which the school's refund policy could be explained in detail so that a student knows that if he or she leaves school (for whatever reason), a portion of the loan disbursement may be returned to the lender. - It is the student's obligation to keep the lender informed about changes in his or her status, enrollment, or financial condition. The student or parent borrower is required to inform the lender if the student - fails to enroll in school for the period for which the loan was intended, - changes schools, - changes his or her name or address (including changes in the permanent address while in school), - graduates or withdraws from school, - wishes to apply for a deferment, - wishes to request forbearance, or - is having difficulty repaying the loan. - It is the student's obligation to maintain satisfactory academic progress. See Chapter 2 for more information. - Personal financial planning should be emphasized. A student should ask himself or herself questions like "Can I handle Work-Study and still keep my grades up?" "Can I afford loan payments when I graduate if I major in _____?" Financial planning forces the student to consider whether he or she is ready to handle the loan burden. If not presented previously, charts should be shown illustrating the monthly repayment for various loan amounts. The counselor should explain the consequences of multiple borrowing, along with general information on average loan indebtedness. The student also should consider total loan indebtedness as the result of borrowing under more than one loan program over a long period of time--for example, as an undergraduate and a graduate student. At this point, information on loan consolidation--such as considerations for long-range financial planning--might be covered. - A student should keep a copy of each document concerning education loans and any other student aid received. This would be a good time, if the financial aid administrator has the resources, to provide a student with a folder or other aids to encourage him or her to keep all financial aid materials in one place. The student should keep, at a minimum, the following records: - a copy of the loan application, - a copy of the promissory note and the loan disclosure statement, - a record of any loan checks received, - the loan repayment schedule, sent to the borrower when repayment begins, - a copy of any requests for deferment or forbearance, and of any other correspondence with the lender, - a record of payments made by the borrower--including canceled checks and money order receipts--and - the most recent name and address of the lender, the loan servicer, and the guarantor of the loan. - Borrower rights and responsibilities should be explained. This could be a part of the discussion on obligations of loan repayment or could be treated separately. While many borrower rights and responsibilities will be covered in the course of the presentation, it's important to review them as a unit at some point. The borrower has a right to - written information on loan obligations, including loan consolidation and information on borrower rights and responsibilities; - an explanation of default and its consequences; - a copy of the promissory note and return of the note when the loan is paid in full; - before repayment, information on interest rates, fees, the balance owed on loans, and a loan repayment schedule; - notification, if the borrower is in the grace period or in repayment, no later than 45 days after a lender assigns, sells, or transfers his or her Stafford Loan or Federal PLUS Loan to another lender, if the result is a change in the party (new holder or servicer of the loan) to whom payments must be sent. The borrower must be provided the following information: - the identity of the purchasing lender and the name and address of the new lender or servicer, - notice of the loan assignment, and - the telephone number of both the purchasing and selling lenders and servicers. Notification of this change must be made either jointly or separately by the purchasing and selling lenders. If a borrower is in a grace period or in repayment, the last school the borrower attended may request the following from the guaranty agency before the beginning of the repayment period: notification of the sale, transfer, or assignment of the loan to another holder, and the address and telephone number of the new loan holder. - federal interest benefits, if qualified; - a grace period, if applicable, and an explanation of what that means; - prepayment of the loan without penalty; - deferment, if the borrower qualifies; and - request forbearance (but the lender may not grant it). The financial aid administrator must provide current and prospective students with the completion and graduation rates of full-time undergraduate students enrolled in certificate or degree programs at your school. The borrower is required to - repay the loan according to the repayment schedule and notify the lender of anything that affects ability to repay or eligibility for deferment or cancellation; - notify the lender if he or she graduates, withdraws from school, drops below half-time status, transfers to another school, or changes name, address, or Social Security Number; - notify the lender if he or she fails to enroll for the period covered by the loan; - notify the school of a change of address; and - attend an exit interview before leaving school. - Emphasize to students the consequences of delinquency and default. A counselor should stress that once a student is in default, there is little that can be negotiated with regard to repayment. For example, a defaulter is no longer eligible for any deferment provisions, even if he or she would otherwise qualify. Defaulters often find that repayment schedules for loans that have been accelerated are more stringent than the original repayment schedule. Again, please note that a person knowledgeable of SFA Programs must be available to answer a student's questions--either in person or on the telephone--immediately or shortly after the entrance counseling session. EXIT COUNSELING ----------------- A school must conduct exit counseling in person individually or in groups shortly before a borrower ceases at-least-half-time study. One of a borrower's obligations is to attend an exit counseling session. If the borrower drops out without notifying the school, the financial aid administrator must mail exit counseling material to the borrower at his or her last known address within 30 days after learning that the borrower has left school or failed to attend an exit counseling session. For correspondence programs, the financial aid administrator must send the borrower written counseling materials within 30 days after the borrower completes the program. The financial aid administrator must request the return to the school of information required under the Higher Education Amendments of 1992. A school mailing these exit materials is not required to use certified mail with a return receipt requested. The school must, however, maintain in each borrower's file documentation verifying the school's compliance with the counseling requirements of 34 CFR 682.604(g). If a borrower fails to provide the information, the school is not required to take any further action. As with entrance counseling, if the school is complying with the required default reduction measures, testing of information presented must be part of the exit counseling process. During exit counseling, the financial aid administrator must obtain the borrower's expected permanent address after leaving school, the name and address of the borrower's expected employer, and the address of the borrower's next of kin. A schools must correct its records to reflect any changes in a borrower's name, address, Social Security Number, or references, and it must obtain the borrower's current driver's license number. Within 60 days after the exit interview, the financial aid administrator must provide the guarantor (indicated in the borrower's student aid records) with any updated information he or she receives from the borrower. As the entrance and exit counseling illustration on page 10-91 indicates, much of the material presented at the entrance counseling session will again be presented during exit counseling. The emphasis for exit counseling shifts, however, to loan repayment obligations and debt-management strategies. At the exit counseling session, the following points should be stressed: - Financial planning for loan repayment is essential to debt management. A counselor should stress the importance of developing a realistic budget based on the student's minimum salary requirements. He or she should also emphasize that the loan payment is a fixed cost, like rent or utilities. Data on average anticipated monthly payments are useful, especially if students have not yet received loan repayment schedules. - Loan repayment obligations should be reviewed, with emphasis on keeping the lender informed if the borrower is having difficulty in making loan payments. A counselor should stress the importance of communicating with the lender in writing and of keeping copies of all communication with the lender. The counselor should remind a borrower that he or she must make payments on his or her loans even if the borrower does not receive a payment booklet or a billing notice. Lenders send payment coupons or billing statements as a convenience for the borrower. Not receiving them does NOT relieve the borrower or his or her obligation to make payments. - Loan refinancing and loan consolidation should be explained again, and a student should be referred to his or her lender for more detailed information about these options. Section 8 provides basic information on refinancing and loan consolidation. - Review deferment, forbearance, and cancellation provisions of Stafford and PLUS Programs. A counselor should remind students that these provisions require action on their part; a borrower must apply to the lender for deferment, forbearance, or loan cancellation, by using appropriate forms the lender provides. The counselor should emphasize that while waiting for approval of the request for any of these conditions, the borrower should continue to make payments on the loan to avoid delinquency and default. - Emphasize the consequences of delinquency and default, and the importance of keeping the lender informed of changes in status, in address, or of problems when the borrower is having difficulty making loan payments. - Obtain, from each borrower, a permanent address, address of the borrower's next of kin, and the name and address of the borrower's expected employer, if possible. As indicated earlier, within 60 days after an exit interview a school must provide the guaranty agency indicated in the borrower's student aid records with the borrower's name, latest known address, employer, and employer address. [[This file contains the diagram on page 10-91 in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software.]] |