Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Federal Family Education Loan Program - Counseling Students

AwardYear: 1997-1998
EnterChapterNo: 10
EnterChapterTitle: Federal Family Education Loan Program
SectionNumber: 9
SectionTitle: Counseling Students
PageNumbers: 85-94


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.

The illustration on page 10-93 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 request a
return receipt. 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 10-93
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.

[[The illustration on page 10-93, which summarizes information to
be covered during the entrance and exit interviews or counseling
sessions, is currently unavailable for viewing on the SFA BBS.
Please reference your paper document or download the pdf files for
additional information.]]

Last Modified: 12/02/1999