**Proposed Regulatory Language**

**Committee I \-- Loans**

**Quick Fix:** No

**Origin:** FED UP #17

**Issue:** Direct Loan - Rehabilitation of Loans

**Regulatory Cite:** 685.211(f)

**Summary of Change:** Rehabilitation of a defaulted Direct Loan
provides for the removal of the default notation on a borrower\'s credit
history after the borrower makes 12 consecutive on-time, reasonable, and
affordable monthly payments. Currently, a borrower may rehabilitate a
defaulted Direct Loan on which a judgment has been obtained. The
proposed change to §685.211(f) would no longer allow a borrower to
rehabilitate a defaulted Direct Loan on which a judgment has been
obtained.

**(1) Change (context):**

[§685.211 Miscellaneous repayment provisions]{.underline}.

\* \* \* \* \*

\(f\) [Rehabilitation of defaulted loans]{.underline}. A defaulted
Direct Loan, except for a loan on which a judgment has been obtained, is
rehabilitated if the borrower makes 12 consecutive on-time, reasonable,
and affordable monthly payments. The amount of such a payment is
determined on the basis of the borrower's total financial circumstances.
If a defaulted loan is rehabilitated, the Secretary instructs any credit
bureau to which the default was reported to remove the default from the
borrower's credit history.

**(2) Amendatory Language:**

[§685.211 \[Amended\]]{.underline}

Section 685.211(f) is amended by adding, in the first sentence, \",
except for a loan on which a judgment has been obtained,\" after
\"Loan\".

\* \* \* \* \*

# **Proposed Regulatory Language**

## **Committee I - Loans**

# **Quick Fix:** No

**Origin:** FED UP (not on 12/14/01 list)

**Issue:** Direct Loan - Entrance and Exit Counseling

**Regulatory Cite:** §685.304

**Summary of Change:** The proposed changes would *(1)* ensure
consistency in counseling requirements across the three Title IV loan
programs and *(2)* clarify that a party other than the school may
provide the counseling.

**(1) Change (context):**

[§685.304 Counseling borrowers]{.underline}.

\(a\) [Initial counseling]{.underline}*.* (1) Except as provided in
paragraph (a)(4) of this section, a school must ensure that initial
counseling is conducted with each Direct Subsidized or Direct
Unsubsidized Loan borrower prior to making the first disbursement of the
proceeds of a loan to a student borrower unless the student borrower has
received a prior Direct Subsidized, Direct Unsubsidized, Federal
Stafford, or Federal SLS Loan.

\(2\) The initial counseling must be in person, by audiovisual
presentation, or by interactive electronic means. In each case, the
school must ensure that an individual with expertise in the title IV
programs is reasonably available shortly after the counseling to answer
the student borrower's questions. As an alternative, in the case of a
student borrower enrolled in a correspondence program or a study-abroad
program approved for credit at the home institution, the student
borrower may be provided with written counseling materials before the
loan proceeds are disbursed.

(3)The initial counseling must\--

\(i\) Explain the use of a Master Promissory Note;

\(ii\) Emphasize to the borrower the seriousness and importance of the
repayment obligation the student borrower is assuming;

\(iii\) Describe the likely consequences of default, including adverse
credit reports, garnishment of wages, Federal offset, and litigation;

\(iv\) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower's anticipated
indebtedness or on the average indebtedness of Direct Subsidized or
Direct Unsubsidized Loan borrowers at the same school or in the same
program of study at the same school;

\(v\) Emphasize that the student borrower is obligated to repay the full
amount of the loan even if the student borrower does not complete the
program, is unable to obtain employment upon completion, or is otherwise
dissatisfied with or does not receive the educational or other services
that the student borrower purchased from the school.

\(4\) A school may adopt an alternative approach for initial counseling
as part of the school's quality assurance plan described in
§685.300(b)(9). If a school adopts an alternative approach, it is not
required to meet the requirements of paragraphs (a)(1)-(3) of this
section unless the Secretary determines that the alternative approach is
not adequate for the school. The alternative approach must\--

\(i\) Ensure that each student borrower subject to initial counseling
under paragraph (a)(1) of this section is provided written counseling
materials that contain the information described in paragraph (a)(3) of
this section;

\(ii\) Be designed to target those student borrowers who are most likely
to default on their repayment obligations and provide them more
intensive counseling and support services; and

\(iii\) Include performance measures that demonstrate the effectiveness
of the school's alternative approach. These performance measures must
include objective outcomes, such as levels of borrowing, default rates,
and withdrawal rates.

\(5\) If initial counseling is conducted through interactive electronic
means, a school must take reasonable steps to ensure that each student
borrower receives the counseling materials, and participates in and
completes initial counseling.

\(6\) The school must maintain documentation substantiating the school's
compliance with this section for each student borrower.

\(b\) [Exit counseling]{.underline}. (1) A school must ensure that exit
counseling is conducted with each Direct Subsidized or Direct
Unsubsidized Loan borrower shortly before the student borrower ceases at
least half-time study at the school.

\(2\) The exit counseling must be in person, by audiovisual
presentation, or by interactive electronic means. In each case, the
school must ensure that an individual with expertise in the title IV
programs is reasonably available shortly after the counseling to answer
the student borrower's questions. As an alternative, in the case of a
student borrower enrolled in a correspondence program or a study-abroad
program approved for credit at the home institution, the student
borrower may be provided with written counseling materials within 30
days after the student borrower completes the program.

\(3\) If a student borrower withdraws from school without the school's
prior knowledge or fails to complete the exit counseling as required,
the exit counseling must be provided either through interactive
electronic means or by mailing written counseling materials to the
student borrower at the student borrower's last known address within 30
days after the school learns that the student borrower has withdrawn
from school or failed to complete the exit counseling as required.

\(4\) The exit counseling must\--

\(i\) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower's indebtedness or on the
average indebtedness of Direct Subsidized or Direct Unsubsidized Loan
borrowers at the same school or in the same program of study at the same
school;

\(ii\) Review for the student borrower available repayment options
including the standard repayment, extended repayment, graduated
repayment, and income contingent repayment plans, and loan
consolidation;

\(iii\) Suggest to the student borrower debt-management strategies that
would facilitate repayment;

\(iv\) Explain to the student borrower how to contact the party
servicing the student borrower's Direct Loans;

\(v\) Meet the requirements described in paragraphs (a)(3)(i),(ii),
(iii), and (v) of this section;

\(vi\) Review for the student borrower the conditions under which the
student borrower may defer or forbear repayment or obtain a full or
partial discharge of a loan;

\(vii\) Review for the student borrower information on the availability
of the Department's Student Loan Ombudsman's office;

\(viii\) Inform the student borrower of the availability of title IV
loan information in the National Student Loan Data System (NSLDS); and

\(ix\) Require the student borrower to provide current information
concerning name, address, social security number, references, and
driver's license number and State of issuance, as well as the student
borrower's expected permanent address, the address of the student
borrower's next of kin, and the name and address of the student
borrower's expected employer (if known).

\(5\) The school must ensure that the information required in paragraph
(b)(4)(viii) of this section is provided to the Secretary within 60 days
after the student borrower provides the information.

\(6\) If exit counseling is conducted through interactive electronic
means, a school must take reasonable steps to ensure that each student
borrower receives the counseling materials, and participates in and
completes exit counseling.

\(7\) The school must maintain documentation substantiating the school's
compliance with this section for each student borrower.

**(2) Amendatory Language:**

Section 685.304 is amended:

A. By revising paragraphs (a)(1), (a)(2), and (a)(3).

B. In paragraph (a)(5), by removing \"A school that conducts\" and
adding, in its place, \"If\"; by adding \"is conducted\" after the first
occurrence of \"counseling\"; and by adding \", a school\" after
\"means\".

C. In paragraph (b)(1), by removing \"conduct\" and adding, in its
place, \"ensure that\"; and by adding \"is conducted\" after
\"counseling\".

D. In paragraph (b)(2), by adding, in the first sentence, \"exit\" after
\"The\"; by removing, in the second sentence, \"knowledge of\" and
adding, in its place, \"expertise in\"; by removing, in the third
sentence, \"the school may provide\"; and by adding, in the third
sentence, \"may be provided\" after the second occurrence of
\"borrower\".

E. In paragraph (b)(3), by removing \"school must provide\"; and by
adding \"must be provided\" after the second occurrence of
\"counseling\".

F. By revising paragraph (b)(4).

G. By redesignating paragraphs (b)(5) and (b)(6) as (b)(6) and (b)(7)
respectively.

H. By adding a new paragraph (b)(5).

I. In redesignated paragraph (b)(6), by removing \"A school that
conducts\" and adding, in its place, \"If\"; by adding \"is conducted\"
after the first occurrence of \"counseling\"; and by adding \", a
school\" after \"means\".

The revisions and addition read as follows:

[§685.304 Counseling borrowers]{.underline}.

\(a\) [Initial counseling]{.underline}*.* (1) Except as provided in
paragraph (a)(4) of this section, a school must ensure that initial
counseling is conducted with each Direct Subsidized or Direct
Unsubsidized Loan borrower prior to making the first disbursement of the
proceeds of a loan to a student borrower unless the student borrower has
received a prior Direct Subsidized, Direct Unsubsidized, Federal
Stafford, or Federal SLS Loan.

\(2\) The initial counseling must be in person, by audiovisual
presentation, or by interactive electronic means. In each case, the
school must ensure that an individual with expertise in the title IV
programs is reasonably available shortly after the counseling to answer
the student borrower's questions. As an alternative, in the case of a
student borrower enrolled in a correspondence program or a
correspondence program or a study-abroad program approved for credit at
the home institution, the student borrower may be provided with written
counseling materials before the loan proceeds are disbursed.

\(3\) The initial counseling must\--

\(i\) Explain the use of a Master Promissory Note;

\(ii\) Emphasize to the borrower the seriousness and importance of the
repayment obligation the student borrower is assuming;

\(iii\) Describe the likely consequences of default, including adverse
credit reports, garnishment of wages, Federal offset, and litigation;

\(iv\) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower's anticipated
indebtedness or on the average indebtedness of Direct Subsidized or
Direct Unsubsidized Loan borrowers at the same school or in the same
program of study at the same school;

\(v\) Emphasize that the student borrower is obligated to repay the full
amount of the loan even if the student borrower does not complete the
program, is unable to obtain employment upon completion, or is otherwise
dissatisfied with or does not receive the educational or other services
that the student borrower purchased from the school.

\* \* \* \* \*

\(b\) \*\*\*

\(4\) The exit counseling must\--

\(i\) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower's indebtedness or on the
average indebtedness of Direct Subsidized or Direct Unsubsidized Loan
borrowers at the same school or in the same program of study at the same
school;

\(ii\) Review for the student borrower available repayment options
including the standard repayment, extended repayment, graduated
repayment, and income contingent repayment plans, and loan
consolidation;

\(iii\) Suggest to the student borrower debt-management strategies that
would facilitate repayment;

\(iv\) Explain to the student borrower how to contact the party
servicing the student borrower's Direct Loans;

\(v\) Meet the requirements described in paragraphs (a)(3)(i),(ii),
(iii), and (v) of this section;

\(vi\) Review for the student borrower the conditions under which the
student borrower may defer or forbear repayment or obtain a full or
partial discharge of a loan;

\(vii\) Review for the student borrower information on the availability
of the Department's Student Loan Ombudsman's office;

\(viii\) Inform the student borrower of the availability of title IV
loan information in the National Student Loan Data System (NSLDS); and

\(ix\) Require the student borrower to provide current information
concerning name, address, social security number, references, and
driver's license number and State of issuance, as well as the student
borrower's expected permanent address, the address of the student
borrower's next of kin, and the name and address of the student
borrower's expected employer (if known).

\(5\) The school must ensure that the information required in paragraph
(b)(4)(viii) of this section is provided to the Secretary within 60 days
after the student borrower provides the information.

\* \* \* \* \*