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Creating Consistency in Educational Finance: A Training Curriculum

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Module 4: Entrance and Exit Counseling

Exit counseling

Learning Objectives

At the end of this module, you will be able to:

  • Provide consistent information to borrowers
  • Understand the statutory and regulatory requirements for conducting an exit counseling session
  • Inform students about when repayment begins for different loan types
  • Recognize the importance of understanding your institution's student demographics
  • Explain the role that each participant (school, lender, guarantor, etc.) plays in the life of the loan
  • Help students make informed decisions about Consolidation loans

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Regulatory requirements for exit counseling sessions

Schools must make sure that all students who have borrowed a Stafford or Grad PLUS loan and have graduated, withdrawn, or dropped below half-time status complete an exit counseling session.

Like the entrance counseling session, this session may be conducted in person, or by electronic means. For all forms of counseling, the school has the responsibility to make sure that an individual with expertise in Title IV programs is available to answer students' questions shortly after the counseling.

Although exit counseling must be provided before the student completes his or her course of study or otherwise leaves the school, occasionally students drop out without notifying the school. In this case, the school must confirm that the student has completed online counseling, or mail exit counseling material to the student's last known address within 30 days of learning that the student has withdrawn or failed to participate in an exit counseling session.

When mailing exit materials, the school is not required to use certified mail with a return receipt requested, but must document in the student's file that the materials were sent. If the student fails to provide the updated contact information, the school is not required to take any further action.

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Requirements
There are some basic regulatory requirements (listed below) that must be covered in the presentation:

  • Review information covered in entrance counseling, including:
    • The seriousness and importance of the repayment obligation that the student has assumed,
    • The likely consequences of default, including offset, litigation, adverse credit reports, and delinquent debt collection procedures under federal law, and
    • The student's obligation to pay back the student loan even if the student is not satisfied with the quality of the education received or its services, does not find employment after graduation, does not graduate, or does not complete the program of study within the regular time for program completion.
  • Sample monthly repayment amounts (based on several levels of indebtedness for borrowers with subsidized and unsubsidized Stafford, or on the average cumulative indebtedness of student borrowers at that school or in a particular program of study at that school. If the monthly repayment amount is based on average indebtedness, then the school must provide both Stafford and Grad PLUS indebtedness.)
  • Information on available repayment plans, including a description of the different features of each plan.
  • Sample information showing the average anticipated monthly payments under each repayment plan.
  • The difference in interest paid and total payments under each repayment plan.
  • Debt management strategies to facilitate loan repayment.
  • Terms and conditions under which a student may qualify for forbearance, deferment, or full or partial discharge of the loan.
  • The borrower's options to prepay each loan, pay each loan on a shorter schedule, and change repayment plans.
  • A general description of the types of tax benefits that may be available to students (e.g. Student Loan Interest Deduction, Tuition and Fees Deduction, and Hope and Lifetime Learning Credit)
  • The effects of consolidating Title IV loans to include: the effects on total interest, fees to be paid, and length of repayment; the effects on underlying loan benefits, including grace periods, loan forgiveness, cancellation, and deferment opportunities; the borrower's option to prepay the loan or to change repayment plans; variation in borrower benefit programs among different lenders.
  • Availability of the Student Loan Ombudsman's Office.
  • The availability of Title IV loan information in the National Student Loan Data System, and how the system can be used by the borrower to obtain information on the status of his or her loans.

Once the student completes the exit counseling session, schools must ensure that they collect the student's most updated personal information. This information must then be sent to the guarantor within 60 days after the exit interview. The student authorizes this transfer of information as part of the loan application process.

Although not required, financial aid officers may want to verify contact information provided by the student (e.g. verify the references provided by student on the exit survey by calling the telephone number).

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When repayment begins

In addition to the above requirements, it is imperative that the financial aid officer reiterate the repayment terms and options for each of the different types of loans. Many students borrow from various loan sources, and it may be helpful to remind them that not all loans have the same repayment start dates.

Repayment begins
Stafford (Subsidized) six (6) months after a student graduates, withdraws, or drops below half time
Stafford (Unsubsidized) six (6) months after a student graduates, withdraws, or drops below half time
PLUS sixty (60) days after the loan is fully disbursed (first payment may be delayed until six months after a student/borrower graduates, withdraws, or drops below half-time)
Perkins nine (9) months after a student graduates, withdraws, or drops below half time
Emergency Tuition Loans follow-up with the financial aid office/business office to determine the first due date
Private Loans check with the specific lender to determine first due date
If student cannot pay
Change repayment plan The borrower has the right to choose the repayment plan that best fits his or her circumstances.

A lender must comply with an eligible borrower’s request to revise his/her choice of repayment plan at least once annually. However, borrowers may request the Income-based repayment plan at any time.
Apply for deferment Students may qualify for a deferment if they are unemployed, experiencing economic hardship, or will continue their education. Interest during the deferment may be paid by the Department of Education on subsidized Stafford and Perkins loans.
Request forbearance A lender may be able to reduce or postpone student loan payments. However, interest on all types of federal loans accrues during a forbearance period, and if not paid, it will increase the amount owed.

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Consolidation loans

Students may decide that they want to consolidate their loans upon graduation. Therefore, it is important to educate students about the benefits and drawbacks of consolidation loans.

A basic description of consolidation loans and their terms follows:

The Federal Consolidation Loan Program allows a student or parent borrower to lock in a fixed interest rate for the entire repayment period, and combine multiple loan balances under a single lender, so that the borrower is required to make only one payment. The following list includes additional information about consolidation loans:

  • Loans that may be consolidated include:
    • FFELP loans (Stafford, PLUS, SLS, and prior Consolidation loans)
    • FDLP loans (Stafford, PLUS, and prior Consolidation loans)
    • FISL loans
    • Perkins loans (formerly National Student Defense Loans)
    • Health Professions Student Loans (HPSL), including Loans for Disadvantaged Students (LDS)
    • Nursing Student Loans (NSL)
    • Health Education Assistance Loans (HEAL)
  • Students can consolidate with any lender that participates in the Federal Consolidation Loan Program.
  • Students can start by contacting the lender(s) or servicer(s) that holds their loans to discuss consolidation.
  • Students can also choose a lender other than the lender that currently holds their loans. Another option that students have for consolidation of their loans is through the Federal Direct Loan Program.
  • Loans must be in their grace or repayment period to be consolidated. Note that the grace period terminates at the time of consolidation.
  • The interest rate for the consolidation loan is calculated as the weighted average for the loans being consolidated, rounded up to the nearest one-eighth of one percent, not to exceed 8.25%.
  • Extended repayment periods, up to 30 years, are available, depending on the total amount of the borrower's debt. By extending the timeframe, the monthly payment may be reduced, but this reduction may be outweighed by the amount of interest added to the loan over the additional years.
  • Standard, graduated, income-sensitive or income-based repayment plans are available.
  • Delinquent or defaulted borrowers may qualify for consolidation loans.
  • Deferments for specific situations and forbearance may be available.

Recent changes in regulations have affected the availability of lenders participating in federal consolidation under the Federal Family Education Loan Program. However, students can still take advantage of loan consolidation through the Federal Direct Loan Program by contacting the Department of Education. Also, the financial aid office can serve as a starting point for more information about loan consolidation.

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Understanding the roles of those involved in the life of the loan

There are many service providers in the student loan programs. An explanation of each of the roles and duties that participants play should be provided to the borrower. Having an understanding of what each participant contributes to the process over the life of the loan will better prepare students to manage their student loan debt when they enter repayment.

Below is summary of each of the participant's roles in the student loan process:

Students and Parents

  • Select a school and lender
  • Complete the Free Application for Federal Student Aid (FAFSA) and other school forms.
  • Complete a Stafford Loan Master Promissory Note or PLUS Master Promissory Note
  • Repay the loan

Schools

  • Provide the education
  • Provide financial aid and college awareness
  • Agree to follow policy and procedures set forth in federal regulations and by the guarantor
  • Provide entrance and exit counseling
  • Release funds
  • Monitor and report student enrollment

Lenders

  • Provide capital for the loan
  • Request a guarantee of a borrower's loan from the guarantor
  • Agree to follow policy and procedures set forth in federal regulations and by the guarantor
  • Conduct credit checks for parent loan borrowers and for Grad PLUS student borrowers
  • Disburse funds
  • Service the loan and/or perform collection efforts (these functions are sometimes delegated to the servicer)
  • Receive interest benefits and special allowance payments for loans that are originated and serviced properly
  • Refinance eligible loans or make Consolidation loans
  • Submit default aversion assistance requests on delinquent loans to a guarantor
  • Receive claim payments from the guarantor on defaulted loans or on loans for other special circumstances (e.g. death of borrower)

Secondary Markets

  • Purchase FFELP loans from participating lenders to replenish the lenders' capital
  • Agree to follow policies and procedures set forth in federal regulations and by the guarantor
  • Service the loan and/or perform collection efforts (these functions are sometimes delegated to a servicer)
  • Receive interest benefits, special allowance payments, and guarantee for loans that are originated and serviced properly
  • Refinance eligible loans or make Consolidation loans
  • Submit default aversion assistance requests on delinquent loans to the guarantor
  • Receive claim payments on defaulted loans or on loans for other special circumstances (e.g., death of a borrower) from the guarantor
  • Issue tax-exempt or taxable bonds to secure new capital

Servicers

  • Bill for and post payments to borrower accounts on behalf of the lender or loan holder
  • Perform collection due diligence on delinquent accounts on behalf of the lender or loan holder
  • Perform other activities to properly service FFELP loans on behalf of the lender or loan holder

Guaranty Agencies

  • Administer the Federal Family Education Loan Program
  • Guarantee loans, enabling students to receive a loan without having established credit
  • Provide financial aid and college awareness
  • Provide products, services, and training to assist customers and program participants
  • Provide interpretations of and guidance on regulatory and policy matters
  • Engage in gate keeping activities such as conducting compliance reviews and fraud investigations, and determining eligibility processes
  • Prevent defaults by providing default aversion assistance to schools, lenders, servicers, and student loan borrowers
  • Pay claims to lenders in case of borrower death, disability, bankruptcy, unpaid refund, or default
  • Collect on defaulted loans
  • Receive reinsurance and other administrative payments from the federal government
  • Administer discharge and forgiveness programs for borrowers

U.S. Department of Education

  • Oversees all Title IV Student Aid programs, including the Federal Family Education Loan Program (FFELP)
  • Provides loans directly to students at schools participating in the Federal Direct Loan Program
  • Develops regulations and enforces program compliance
  • Provides interpretations of and guidance on regulatory and policy matters
  • Provides training and information to program participants
  • Pays interest benefits to lenders on behalf of eligible Federal Stafford and Consolidation loans
  • Pays special allowance benefits to lenders on eligible Federal Stafford, SLS, PLUS, and Consolidation loans
  • Reinsures loans for the guarantor
  • Pays the guarantor administrative fees for certain activities

U.S. Congress

  • Writes laws concerning federal student loan programs

In providing the above information to the borrower, students have the opportunity to learn more and ask questions about who is involved in the loan process. Making students aware about the roles and responsibilities of each participant will help the student gain a better understanding of what to expect when contacting each of them.

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