| AwardYear: 1995-1996 EnterChapterNo: 10 EnterChapterTitle: Federal Family Education Loan Programs SectionNumber: 10 SectionTitle: Counseling Students PageNumbers: 119-128 The financial aid administrator's role as loan counselor has increased in importance with the shift in emphasis from grants to loans, and the increased concern about student loan defaults. This section provides information on new counseling requirements, and suggestions as to how loan information might be presented. Schools must keep documentation in each student's file showing that both entrance and exit counseling have been provided to the borrower. Both entrance and exit counseling are requirements under the default reduction regulations. However, effective loan counseling is an ongoing process, and reinforcement of points made during the entrance interview is advisable whenever aid administrators meet with students concerning their loans. For example, the 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, etc. If loan counseling is an ongoing process, the exit interview becomes a review of information conveyed during the course of the student's program of study, and the presentation of additional material to prepare the student for loan repayment. Dynamic presentation of material at both entrance and exit interviews using charts, handouts, audio-visual materials, and question-and-answer sessions can convey your message with greatest effect. You may wish to contact guaranty agencies, lenders, and other organizations associated with postsecondary education to see what videos, pamphlets, and other materials may be available to you. The illustration on the next page is a summary of 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 and exit counseling are covered in Section 682.604 of the FFEL regulations, and in Appendix D of the General Provisions regulations, Part 668. [[The chart on page 10-121 is currently unavailable for viewing. Please reference your paper document for additional information.]] ENTRANCE COUNSELING Entrance counseling must be conducted before release of the first disbursement of the first Federal Stafford Loan made to the borrower at your school. The counseling must be conducted in person, or by videotape presentation, and a person knowledgeable about SFA programs must be available for questions after the counseling session. A school's junior year abroad program or other off-campus program must provide the entrance counseling information by mail before release of the loan proceeds. A correspondence school must also provide the information by mail before releasing loan proceeds. Schools using Appendix D default reduction measures must administer a written test covering the terms and conditions of Stafford Loans as part of the entrance counseling process. Additional counseling must be given to students who fail the written test. Recognizing that each school and each student's situation is different, here are some suggestions for presentation of the information covered in the illustration. The emphasis may be shifted, but all the points made below should be covered during entrance counseling. [[WORK IN PROGRESS]] In addition, please note that the Secretary shall consider the ways in which performance standards can be used for alternative counseling, as well as how alternative counseling might be implemented as part of the Institutional Quality Assurance Program. - 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. Your Program Participation Agreement requires you 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, counselors should explain terms such as deferment, forbearance, and cancellation. This is one place where available repayment options, such as loan consolidation and refinancing, might be covered (see Section Five 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 basic loan terminology should be clearly explained, to ensure that borrowers are aware of their obligations. Terms such as "loan servicer" should be defined, and the process of selling loans to other lenders or to "secondary markets" should be explained. Lenders and guaranty agencies provide explanations of 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 holder of the loan. A SECONDARY MARKET is a lender or a private or public agency that specializes in buying student loans.) THE OBLIGATIONS WITH REGARD TO REPAYMENT SHOULD BE THOROUGHLY COVERED, and you should explain that the exact repayment schedule will not be provided until loan repayment begins. While 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. You should remind the student that certain fees will be subtracted from the loan amount BEFORE the loan is disbursed, but repayment of the FULL loan amount is required. You should emphasize that loan repayment is required even if the program is not completed or 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 students know that if they leave school, for whatever reason, a portion of their 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. Here is another point at which the school's refund policy could be explained. IT IS THE STUDENT'S OBLIGATION TO MAINTAIN SATISFACTORY ACADEMIC PROGRESS according to the standards described in Chapter Two of this Handbook. - PERSONAL FINANCIAL PLANNING SHOULD BE EMPHASIZED. Students should ask themselves questions like "Can I handle Work-Study and still keep my grades up?" "Can I Stafford 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 burden of a loan or loans. If not presented previously, charts should be shown illustrating the monthly repayment for various loan amounts. The consequences of multiple borrowing should be explained to the student, 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. This is another point at which information on loan consolidation and refinancing--as considerations for long-range financial planning--might be covered. - STUDENTS SHOULD KEEP A COPY OF ALL DOCUMENTS CONCERNING EDUCATION LOANS, AND ANY OTHER STUDENT AID RECEIVED. This would be a good time, if you have the resources, to provide students with a folder or other aids to encourage them 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 and loan servicer. - BORROWER RIGHTS AND RESPONSIBILITIES SHOULD BE EXPLAINED. This could be a part of the discussion on obligations of loan repayment, or 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 refinancing, 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 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; * 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). As noted in Section Nine under "Consumer Disclosure Requirements," beginning July 1, 1993, you 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 -- stress that once they are in default, there is little that can be negotiated with regard to repayment. For example, a defaulter is no longer eligible for any deferment revisions, 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. Please note that, under the default reduction regulations, a person or persons knowledgeable of SFA programs must be available to answer students' questions, either in person or on the telephone, immediately or shortly after the entrance counseling session is over. EXIT COUNSELING Exit counseling must be conducted shortly before the borrower ceases at least half-time study. As noted above, students are reminded that one of their obligations as borrowers is to attend an exit counseling session. If the borrower drops out without notifying the school, you must mail exit counseling material to the borrower at his or her last known address within 30 days after you learn that the borrower has left school or failed to attend an exit counseling session. For correspondence programs, you must send the borrower written counseling materials within 30 days after the borrower completes the program. You must request the return to your school of information required under the Higher Education Amendments of 1992 (noted in the following paragraph). However, if the borrower fails to provide the information, the school is not required to take any further action. As with entrance counseling, if your school is complying with the required default reduction measures, testing of information presented must be part of the exit counseling process. During exit counseling you 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. The Higher Education Amendments of 1992 require schools to correct their records to reflect any changes in the borrower's name, address, Social Security Number, or references, and to obtain the borrower's current driver's license number. Within 60 days after the exit interview, you must provide any updated information you receive from the borrower to the guaranty agency indicated in the borrower's student aid records. As the entrance/exit counseling illustration indicates, much of the material presented at the entrance counseling session will again be presented during exit counseling. The emphasis 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. Stress the importance of developing a realistic budget based on the student's minimum salary requirements. 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. Stress the importance of communicating with the lender in writing, and of keeping copies of all communication to and from the lender. Remind borrowers that they must make payments on their loans even if they don't receive a payment booklet or a billing notice. Payment coupons or billing statements are sent as a convenience for the borrower; failure to receive them does NOT mean the borrower is not required to make payments. - LOAN REFINANCING AND LOAN CONSOLIDATION SHOULD BE EXPLAINED again, and students should be referred to their lenders for more detailed information about these options. Section Five provides basic information on refinancing and loan consolidation. - REVIEW DEFERMENT, FORBEARANCE, AND CANCELLATION PROVISIONS of Stafford and PLUS programs. Remind students that these provisions require action on their part-- borrowers must apply to the lender for deferment, forbearance, or loan cancellation, using appropriate forms provided by the lender. Emphasize that while waiting for approval of the request for any of these conditions, students should continue to make payments on the loan, to avoid the possibility of delinquency and default. - EMPHASIZE THE CONSEQUENCE OF DELINQUENCY AND DEFAULT, AND THE IMPORTANCE OF KEEPING THE LENDER INFORMED changes in status, in address, or if the borrower is having difficulty making loan payments. NOTE: It would be helpful at this point to remind the borrower that the LENDER (or holder of the borrower's loan) is now required to keep the BORROWER informed of address changes. As mentioned previously under borrower rights, the borrower must be notified no later than 45 days after a lender assigns, sells, or transfers his or her Stafford, SLS, or 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: * notice of the loan assignment; * the identity of the purchasing lender, and the name and address of the new lender or servicer; 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 both purchasing and selling lenders. - 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 the exit interview your school must provide the guaranty agency indicated in the borrower's student aid records with the name, latest known address, employer, and employer address of a borrower who has attended your school. |