| AwardYear: 1995-1996 ChapterNumber: 3 ChapterTitle: Information to Borrowers PageNumbers: 1-11 CHAPTER 3- INFORMATION TO BORROWERS Essential Questions - How can I explain the new program to my students? - Does the Department have any consumer publications on the Direct Loan Program? - What is the official name of the program; how should it appear in our publications? - Where can a consumer call for information? - What type of communications will the Servicing Center send to the student? - Does the Department have publications that explain interest rates and repayment options? - Are there charts that demonstrate sample repayment schedules? - How does a student learn about capitalization, variable interest rates, negative amortization, cancellation, deferments, forbearance, and consolidation? - Must I do entrance and exit counseling sessions? If so, when and for whom must these sessions be conducted? Will the Department provide support for these activities? - Since the Direct Loan Program is new, is everyone considered a new borrower? - What latitude does a campus have in developing its own entrance counseling material? General Information Getting the Word Out. With any new program, it is important to integrate information into all your existing publications, presentations, counseling sessions, and phone contacts. The Department of Education has published a 32-page booklet called "All About Direct Loans" that gives students detailed information about the Direct Loan Program, including loan repayment, deferment provisions, and the consequences of default. ED has also published a 12-page brochure for parent borrowers. "Direct PLUS Loan Basics" includes information on the definition of a dependent student, eligibility criteria, repayment options, options for postponing repayment, and loan consolidation. Schools can call the Servicing Center at 1(800)848-0978 to obtain copies of these publications. News releases and newsletters can be useful in informing local constituents about the Direct Loan Program and your schools participation. Remember, while all your students are your consumers, not all your consumers are students (some are parents!). Your consumers can call 1(800)4FED-AID (from 9 A.M. to 5 P.M. CST) for our Direct Loan general information brochure, Direct Loans A Better Way to Borrow, which gives a brief overview of the Direct Loan Program and includes information on application procedures, loan limits, and a brief description of the repayment options. The booklet also describes the advantages of Direct Loans for student and parent borrowers, schools, and taxpayers. Program Names. The official name of the program is the William D. Ford Federal Direct Loan Program. It may be abbreviated as the Direct Loan Program or Direct Loans. Several programs are included under the broad program title. These are - the Federal Direct Stafford/Ford Loan Program (Direct Subsidized Loans) - the Federal Direct Unsubsidized Stafford/Ford Loan Program (Direct Unsubsidized Loans) - the Federal Direct PLUS Loan Program (Direct PLUS Loans) - The Federal Direct Consolidation Loan Program (Direct Consolidation Loans). (NOTE: ED does not use the term Direct Lending Program. That is a way to describe what happens in Direct Loans, as in direct government lending, but it is not a program name.) Entrance and Exit Counseling. Conducting entrance and exit loan counseling is not a new school activity. Schools currently perform these functions under the FFEL and Federal Perkins Loan programs. To summarize the requirements: - Generally, initial (entrance) counseling is required in person or by videotape presentation for first-time student borrowers before disbursement, with exceptions for correspondence school and study abroad programs. In these instances, the school shall provide the borrower with written counseling materials by mail before disbursement. (NOTE: Students who have previously borrowed through the FFEL Program are not considered to be first-time borrowers under Direct Loans.) As part of your schools quality assurance plan, you may design entrance counseling to suit the needs of the students at your school. Under alternative counseling, you must provide borrowers with written counseling material, target students who are most likely to default, and include performance measures to demonstrate the effectiveness of the counseling, such as withdrawal and default rates and levels of borrowing. - Exit counseling is required for all loan recipients before they cease to be at least half-time students at your institution, with exceptions for correspondence school and students who withdraw without notice. Note that, while in-person counseling is not required for these categories of students, you still must mail them the counseling materials. You have the flexibility to use the Departments materials for entrance and exit counseling or to develop your own. When you are discussing entrance and exit requirements with your students, try to be consistent in the words you use. Both activities are described in several different ways such as, entrance (or initial) counseling, entrance (or initial) interviews, and exit counseling or exit interviews. Be certain to use one term consistently or make sure that your students understand that several terms can mean the same thing. The chart on the following page will provide you with information on what must be covered, for whom counseling is required, when entrance/exit counseling must occur, and how to cover the materials. Entrance/Exit Loan Counseling Federal Direct Subsidized Stafford/Ford and Federal Direct Unsubsidized Stafford/Ford Loans WHAT to cover: Core Items(required for both entrance and exit counseling) - Remind student to keep Servicing Center informed* - Review loan terms and conditions* - Review student rights and responsibilities* - Review available repayment options* - Review deferment, forbearance, and discharge conditions* - Review consequences of delinquency and default* - Emphasize that loan repayment is required even if program is not completed or doesn't met borrowers expectations* - Counsel on personal financial planning* - Explain how to contact Servicing Center* ENTRANCE - Explore all sources of aid - Stress constraints on aid - Urge students to read and save all loan documents - Describe consequences of multiple borrowing - Review schools refund policy - Explain servicing of loans* EXIT - Review loan repayment obligations - Provide data on average anticipated monthly repayment* - Provide information on debt management strategies - Provide name, address, and phone number of the Servicing Center* - Obtain name and address of next of kin, borrowers expected employers name and address* - Correct institutional record, if needed, for borrowers name, address, Social Security Number, references, next of kin, expected employment, and drivers license number* WHEN to cover: ENTRANCE Prior to delivery of the first disbursement of a loan to any first-time borrower at the school EXIT Shortly before any borrower ceases at least half-time enrollment or (by mail) within 30 days after learning that student has withdrawn or failed to attend scheduled exit counseling HOW to cover: ENTRANCE In-person or videotaped presentation or written materials. EXIT In-person presentation. Written counseling materials: 1) permissible for students enrolled in correspondence study, external degree or study abroad program; 2) mandatory for students who have withdrawn without notifying the school or failing to attend scheduled exit counseling. Provisions must be made to correct required updates of information for reporting to Servicing Center. * Required for schools to comply with Appendix D (Default Reduction Measures, Student Assistance General Provisions regulations. In the FFEL Program, some schools rely on lenders, guaranty agencies, and/or secondary markets to provide loan counseling materials. Keeping borrowers informed of their obligations and rights and responsibilities is essential to the success of the Direct Loan Program. To assist Direct Loan schools with managing this activity, the Department will provide all necessary materials for entrance and exit counseling. Participating schools, however, will not be required to use these materials. They may develop their own materials if they choose. The Departments entrance and exit loan counseling materials include paper materials and entrance and exit counseling videotapes. An interactive computer program for counseling purposes is under development. Printed Loan Counseling Materials for 1995-96. The Entrance Counseling Guide for Borrowers covers topics such as loan amounts, interest rates, capitalization of interest, and-briefy-the repayment plans available under Direct Loans. Also discussed are deferments, forbearance, and the consequences of default. There is also a sample entrance counseling quiz, a loan history worksheet, and a glossary of common Direct Loan terms. The Borrowers Guide also includes tips on how students can budget their money (and provides a budget planning worksheet) so students will have enough to stay in school and to repay their loans later. The Entrance Counseling Guide for Counselors offers tips on what to cover in entrance counseling and gives explanations that follow the order of topics in the Borrowers' Guide. The Exit Counseling Guide for Borrowers explains the role of the Direct Loan Servicing Center and explains in greater depth the various repayment plans. The Borrowers Guide covers Direct Consolidation Loans, deferment provisions, forbearance, and discharge (cancellation). It spells out the consequences of default and offers suggestions on how borrowers can budget once they leave school so they can avoid default. It also includes a list of borrower rights and responsibilities. The Exit Counseling Guide for Counselors explains what you must cover to meet the Departments regulatory requirements, offers tips on organizing counseling sessions, and presents an outline of discussion topics that follows the Borrowers Guide. Companion entrance and exit counseling videos to supplement the written materials are also available. The videos are 14 minutes each and illustrate situations your students are likely to face. We have not changed the videos from last year, except for a brief introductory notice that the Direct Loan Program is now known as the William D. Ford Federal Direct Loan Program. The Direct Loan Servicing Center will also prepare borrower specific counseling materials upon request. Contact School Relations at 1-800-848-0978. If you order these videos, you will receive them in a vinyl counseling kit designed to hold the videos and the entrance and exit Counselors' Guides. Repayment. Payment options have been designed to meet the unique financial needs of borrowers. The Servicing Center provides information on the various repayment plans as the borrower approaches his/her repayment period. It is important to encourage your borrowers to carefully read the information mas they choose their repayment plan. The charts on the following pages describe these options. Our 1995-96 Repayment Booklet explains in detail the four repayment plans available under Direct Loans and gives examples of how each plan works. The booklet includes a table that allows borrowers to see at a glance approximately how much they would repay (per month and in total) under each repayment plan (assuming different debt levels). Worksheets (and supplementary charts) allow borrowers, including Direct PLUS Loan borrowers, to estimate what they would owe under each repayment plan, based on their actual circumstances. The booklet will help borrowers choose the best repayment plan for them. Direct Loan Program Repayment Plans Standard Repayment Plan · Maximum repayment period 10 years · Payments at least $50 per month · The repayment amount may be adjusted to reflect changes in the variable interest rate unless the borrower requests a change in the repayment amount Extended Repayment Plan · Fixed monthly payments within an extended period of time that varies with the amount of loans (refer to table on next page) · Fixed monthly payments of at least $50 · Fixed monthly amount may be adjusted to reflect changes in the variable interest rate Graduated Repayment Plan · Payments will start out smaller and will increase every two years · Paid over period of time that varies with the amount of loans (refer to table) · No scheduled payment may be less than the amount of interest accrued monthly · No scheduled payment may be less than 50% or more than 150% of what the borrower would pay if loan repaid under the Standard Repayment Plan · The repayment amount may be adjusted to reflect changes in the variable interest rate unless the borrower requests a change in the repayment amount Income ContingentRepayment Plan · Maximum repayment period may not exceed 24 years · Monthly repayment amount is based on total amount of loans, Adjusted Gross Income (AGI), and family size · Two options for repayment· Option 1: Calculation of monthly payment based on a formula that assess between 4-15% of income and is adjusted for family size · Minimum repayment amount = $25; if less than $25, no payment is required but interest accrues and is capitalized. Option 2: Same as Option 1, except no monthly payment exceeds what the payment would be if the loan were paid over 12 years using standard amortization. There is no family size adjustment or minimum repayment amount Repayment Periods for Extended or Graduated Plans If total Direct Loan amount is Time · Less than $10,000 Within 12 years · Greater than or equal to $10,000 Within 15 years but less than $40,000 · Greater than or equal to $20,000 Within 20 years but less than $40,000 · Greater than or equal to $40,000 Within 25 years but less than $60,000 · Greater than or equal to $60,000 Within 30 years Servicing Center Communications. The Servicing Center provides specific communications to the borrower. These include - disbursement confirmation - quarterly and annual statements - direct PLUS Loan application denial/approval information - repayment options information All are sent to the borrower's permanent address. Copies of these communications and others can be found in the appendices to this Guide. Implementation Issues and Management Tips Review your procedure for withholding funds from students who have not participated in entrance counseling. If you already use Electronic Funds Transfer (EFT), you probably already have procedures in place. However, if your current process is based on your office receiving a check, and if you operate with a student accounts system, the way you handle entrance counseling tracking may change with Direct Loans. You should consider how your process will indicate that students have met the required entrance counseling activity so Direct Loan disbursements are authorized correctly. - For example, many institutions with student accounts systems used the FFEL loan check as a mechanism to trigger the review of the entrance counseling requirement. With Direct Loans, the money is credited to the students account and this trigger no longer exists. Therefore, you will need to design a method to flag students who have not participated in entrance counseling before crediting their accounts. TIP * Look at entrance counseling as an opportunity not just another requirement to establish a link with and advise the borrower about his/her rights and responsibilities. TIP * Consider developing profiles of students at your institution to determine if there should be a different approach to entrance counseling for some students. One year later, review these students profiles to determine if further intervention is necessary with the financial aid office and/or academic counseling office. Realize you may need to share more information with your continuing borrowers about the Direct Loan process and your schools participation. Students new to borrowing will most likely accept the process as is because they cannot compare it to anything else. Continuing borrowers may be expecting different procedures so, in essence, they need to be re-educated. It may be helpful to educate students about the types of communications they will receive from the Servicing Center before the communication is sent. - For example, the Servicing Center will send a notice to the students local or permanent address 10 working days after each disbursement has been accepted. It is possible that upon receipt of that notice, a student may incorrectly assume the letter requests loan repayment and may contact your office with questions. TIP * Prepare your front line staff so they are knowledgeable about the types of communications students will receive and allow your staff to have a sample letter available. Be sure they understand the intent of the notification and any action the student may be required to take. Although the notifications will provide Servicing Center phone numbers, students are likely to contact the financial aid office first. It may be appropriate for you to identify new words associated with Direct Loans for your clients. - For example, several years ago, the Federal Perkins Loan was called a Direct Loan. For students coming back to school or for others involved with that program, the name Direct Loan Program may be confing. Identify the correct way of addressing the Direct Loan Program and be consistent in how you use it. The term Servicing Center" may be new to families as well. In some cases it may be a familiar word but the student may have a different understanding. Servicing Center under Direct Loans is not synonymous with the term servicer under the FFEL Program. TIP * Wherever possible, clarify these distinctions in your communications with borrowers. |