Direct Loan Counseling

First-time student borrowers must complete entrance counseling before they can receive the first disbursement of a Direct Loan, and all student Direct Loan borrowers must complete exit counseling shortly before they cease to be enrolled on at least a half-time basis. There is a special counseling requirement for student and parent Direct PLUS Loan borrowers who meet the requirements to receive a Direct PLUS Loan after having been determined to have an adverse credit history. This chapter discusses the counseling requirements for Direct Loan borrowers and associated school responsibilities.

Entrance counseling is required for all first-time student Direct Subsidized Loan, Direct Unsubsidized Loan, and Direct PLUS Loan borrowers. Entrance counseling is not required for parent Direct PLUS Loan borrowers. For this purpose, a first-time Direct Subsidized Loan or Direct Unsubsidized Loan borrower is someone who has not received a prior Direct Subsidized Loan, Direct Unsubsidized Loan, Subsidized Federal Stafford Loan, Unsubsidized Federal Stafford Loan, or Federal Supplemental Loans for Students (SLS) Loan. In the case of a graduate or professional student who requests a Direct PLUS Loan, a first-time Direct PLUS Loan borrower is someone who has not received a prior student Direct PLUS Loan or student Federal PLUS Loan. Subsidized and Unsubsidized Federal Stafford Loans, Federal SLS Loans, and Federal PLUS Loans are loan types that were made under the Federal Family Education Loan (FFEL) Program. Before making the first disbursement of a Direct Subsidized Loan, Direct Unsubsidized Loan, or student Direct PLUS Loan to a first-time borrower, you must ensure that the student receives entrance counseling. Entrance counseling provides borrowers with comprehensive information on the terms and conditions of the loan they are about to receive, and their responsibility for repaying the loan. This information may be provided during an in-person counseling session, on a separate written form that the borrower signs and returns to the school, or online or by interactive electronic means, with the borrower acknowledging receipt of the information. If entrance counseling is conducted online or through interactive electronic means, your school must take reasonable steps to ensure that students finish the counseling, which may include completing a test of their understanding of the terms and conditions of the loan. If a standardized, interactive electronic tool is used for counseling, you must give the borrower any required information that is not addressed in the tool either in person or in a separate written or electronic document. Your school must have someone with expertise in the Title IV programs reasonably available shortly after the counseling to answer students’ questions. As an alternative, if students are enrolled in an approved correspondence, distance education, or study-abroad program, they may be provided with written counseling materials before the loan is disbursed. You may not require students to complete additional counseling beyond entrance counseling. However, your entrance counseling policy can require more than the minimum specified by the regulations as long as the additional requirements are reasonable as to time, effort, and relevance to the students’ borrowing and are not administered in a way that unreasonably impedes students’ ability to receive Direct Loans in a timely manner. For example, your entrance counseling can include one or more of the following:

Also, although you cannot mandate it, you can encourage borrowers to participate in counseling beyond entrance counseling to be better informed about borrowing, the terms of their Direct Loans, their repayment responsibilities and options, and the consequences of default. Your school can also offer financial literacy classes, on a credit or non-credit basis, that include information on budgeting, debt management, anticipated earnings by profession, elements of loan counseling, etc., though eligibility for a Direct Loan cannot be contingent on completion of such a class.

Below we provide a summary of the information that must be covered in entrance counseling for Direct Subsidized Loan and Direct Unsubsidized Loan borrowers. For more detailed information, refer to the regulations cited at the end of this section. Entrance counseling for Direct Subsidized and Unsubsidized loan borrowers must:

The information that must be covered in entrance counseling for graduate and professional student Direct PLUS Loan borrowers is summarized below. For more detailed information, refer to the regulations cited at the end of this section. Entrance counseling for graduate or professional student Direct PLUS Loan borrowers must:

A Direct Subsidized Loan, Direct Unsubsidized Loan, or student Direct PLUS Loan borrower who is graduating, leaving school, or dropping below half-time enrollment is required to complete exit counseling. If the student withdraws without notifying your school, you must confirm that they have completed online counseling or mail exit counseling material to the student at their last known address. You may also email the information to the student’s home (not school) email address if you have it. The PDF version of the Direct Loan Exit Counseling Guide satisfies this requirement. You may also send the student a direct link to the exit counseling materials online. Whatever method you choose must be used within 30 days of learning that the borrower has withdrawn or failed to participate in an exit counseling session. to the exit counseling materials online. Whatever method you choose must be used within 30 days of learning that the borrower has withdrawn or failed to participate in an exit counseling session. When mailing exit materials to students who have left school, you’re not required to use certified mail with a return receipt requested, but you must document in their file that the materials were sent. If they don’t provide updated contact information, you don’t need to take further action. The required content of exit counseling is summarized in the section that follows. For more detailed information, refer to the regulations cited at the end of the section.

Exit counseling must:

As stated above, Direct Loan exit counseling must provide borrowers with the information the Department makes available in accordance with section 485(d) of the HEA. This section of the law requires the Department to make available to postsecondary schools and other entities a wide variety of information about federal student assistance programs, including information to help students assess the debt burden and repayment obligations that will be incurred as a result of receiving Title IV loans. As noted below under “Counseling Methods,” documentation that a borrower has completed the Department’s online exit counseling fully satisfies all Direct Loan exit counseling requirements. Schools that choose to conduct their own exit counseling can meet the requirement to provide borrowers with the information made available by the Department in accordance with section 485(d) of the HEA by providing borrowers with a copy of the Department’s Direct Loan Exit Counseling Guide.

Schools that conduct their own exit counseling must provide the current personal information collected from the student (name, address, references, etc.) to students’ loan servicers within 60 days. Students authorize their school to release information to servicers in the loan promissory note they signed. No further permission is needed. Students who complete online exit counseling on the Department’s StudentAid.gov website fulfill this requirement as part of the counseling session; NSLDS provides the information to the loan holders.

The Department offers Direct Loan Program online entrance and exit counseling for students on the StudentAid.gov website. Your school will receive notification through the Student Aid Internet Gateway (SAIG; see “Required Electronic Processes” in Volume 2 for more information) of online loan counseling completed by borrowers, and completion information can also be viewed on the COD System website. If your school documents that borrowers have completed the Department’s online counseling, it has satisfied its counseling responsibility. Documentation that a borrower has completed the Department’s online entrance or exit counseling fully satisfies all Direct Loan entrance or exit counseling requirements. Your school may also choose to provide entrance or exit counseling through an in-person session or (for entrance counseling) by providing a separate written form to the student that the student signs and returns to the school. If your school conducts in-person counseling sessions, charts, handouts, audiovisual materials, and question-and-answer sessions can help convey the information in a more dynamic manner. We also recommend the use of written tests or interactive programs to ensure that students understand the terms and conditions of their loans. Counseling materials, such as the entrance and exit counseling guides, are available in the Financial Aid Toolkit. A school may adopt an alternative approach for entrance counseling as a part of its quality assurance plan. For more information, see the regulation cited below. Regardless of the counseling methods your school uses, it must document that the student received entrance and exit counseling, and it must ensure that an individual with expertise in the Title IV programs is reasonably available shortly after the counseling to answer the student’s questions.

If a first-time student borrower has enrolled in a study-abroad program (approved by a U.S. school for credit) or a correspondence or distance learning program, the school must document that the student has completed online entrance counseling that meets the regulatory Direct Loan entrance counseling requirements or provide written entrance counseling information by mail or email before making the first disbursement of a Direct Loan to the student. In the case of exit counseling for correspondence programs or study abroad programs, the school may mail or email the borrower written counseling materials within 30 days after the borrower completes the program, with a request that they provide the contact and personal information that would ordinarily have been collected through the counseling process.

Your school can take additional steps to counsel students, such as assisting them with developing a budget, estimating need for loans, and planning for repayment. You can also reinforce messages to borrowers. For example, with each disbursement you can remind them about the importance of maintaining satisfactory academic progress (SAP; see Volume 1 for details on SAP requirements), planning for future employment, and staying in touch with the loan servicer. More ideas for loan counseling are given in the “Sample Default Prevention Plan” that can be found in the regulations cited below.

Special loan counseling is required for any student or parent Direct PLUS Loan applicant who has been determined to have an adverse credit history, but who qualifies for a Direct PLUS Loan either by getting a loan endorser or by documenting to the satisfaction of the Department that there are extenuating circumstances related to the adverse credit. While the special PLUS Credit Counseling is mandatory only for these borrowers, any PLUS borrower can voluntarily complete this counseling. See Chapter 1 of this volume for more information about adverse credit. Note that the special counseling described above is separate from the entrance counseling that all first-time graduate and professional student Direct PLUS Loan borrowers must complete, as described earlier in this chapter.

In a Nov. 21, 2019 Electronic Announcement, the Department announced its intent to make a change to the approved MPN confirmation processes by requiring student and parent borrowers to view how much they currently owe in federal student loans, and to acknowledge that they have seen this amount before a school can make the first disbursement of the first Direct Loan that a student or parent borrower receives for each new award year. This process is known as the “Annual Student Loan Acknowledgment.” In a subsequent Electronic Announcement posted on Jan. 21, 2022, the Department announced that the Annual Student Loan Acknowledgment would not be required for the 2022-23 award year and beyond. The Department continues to recommend that borrowers complete an Annual Student Loan Acknowledgment each year they accept a new Direct Loan to help them understand their loans and how those loans will affect their financial future. Although it is not required, the Annual Student Loan Acknowledgement process remains available on StudentAid.gov, and schools will continue to receive information through the COD System about a borrower’s optional completion of the Annual Student Loan Acknowledgment process. However, the COD System will not reject disbursement records submitted for a borrower who has not completed the Annual Student Loan Acknowledgment.