The Higher Education Act of 1965 requires colleges to provide borrowers of federal student loans with loan counseling. Entrance counseling occurs before the loan is disbursed and exit counseling occurs shortly before the student graduates or drops below half-time enrollment. While the loan counseling is focused on helping students understand their rights and responsibilities and obligation to repay the debt, some colleges use the opportunity to teach budgeting and money management tips. This loan counseling is often provided through interactive web sites.
Information Presented During Loan Counseling
The loan counseling will review a lot of information concerning the borrower’s loans, including: the terms and conditions of the loan an example or actual monthly payments (depending on whether the borrower is receiving entrance or exit counseling) available repayment plans deferment and forbearance options loan forgiveness and cancellation provisions the ability to accelerate repayment without a prepayment penalty the pros and cons of consolidation, such as the impact on minimum monthly payments, loan terms and loan benefits (e.g., the loss of the grace period and forgiveness options) the consequences of default, including ruined credit, litigation, referral to collection agency, wage garnishment, offset of income tax refunds, the deduction of collection charges of up to 25% from payments, non-renewal of professional licenses, and the loss of deferment and forbearance options availability of tax benefits, such as the student loan interest deduction. The college will also review borrower rights and responsibilities, provide contact information for the US Department of Education’s student loan ombudsman, and tell the borrowers how to access loan status information through the National Student Loan Data System (NSLDS). The loan counseling session will emphasize that the borrower is obligated to repay the full amount of the loan even if the borrower does not graduate, is unable to get a job after graduation or is dissatisfied with the quality of the educational program or other services. Payments are due even if the borrower does not receive a bill or payment coupon. Some colleges will discuss debt-management strategies, such as how to budget and manage expenses, and emphasize the importance of keeping good records. There are some differences between entrance and exit counseling. For example, entrance counseling will explain the use of the Master Promissory Note (MPN) and the impact of deferring interest (interest capitalization) on the loan balance and cost of the loan. Exit counseling will substitute figures based on the borrower’s actual loans for the typical average figures used during entrance counseling. During exit counseling borrowers are required to provide their updated permanent address, the name and address of their employer and the address of their next of kin.
Methods of Providing Loan Counseling
Loan counseling may be conducted in person, through an audiovisual presentation, or through interactive electronic means. Many colleges favor the use of web-based loan counseling tools because the interactive programs can be automatically customized to the borrower and can test borrower understanding of the terms and conditions of their loans.
Web-Based Loan Counseling Tools
The US Department of Education’s Direct Loan Program provides online entrance and exit counseling through its web site. Mapping Your Future, which is non-profit and jointly sponsored by the student loan guarantee agencies, provides one of the most popular online loan counseling tools. Other web sites that provide online entrance and exit counseling include: AES/PHEAA, EdFund’s EdTest, iGrad, KHEAA, Nelnet, RISLA, Student Loan Network and Wachovia. NSLP provides a collection of loan counseling tools and resources for colleges.