Issue Paper 1 

Proposed Regulatory Language 

Team II—School-based Loan Issues 

Origin: HEOA sections 120 and 1021(b) 

 

Issue: Required Disclosures for Covered Entities 

Statutory cites: HEA Sections 151 – 155 

Regulatory cites: New Part 601 

DCL GEN-08-12 cite: Pages 39 - 44 

Summary of issue: Sections 120 and 1021(b) of the HEOA amended Title I of the HEA 

by requiring significant new disclosures to borrowers of education loans and related 

institutional and lender reporting to the Department. The required borrower disclosures 

apply to both Title IV student loans and private education loans, and are required of 

institutions of higher education, institution-affiliated organizations, and lenders. The 

disclosures for private education loans are based on the Truth in Lending Act (TILA), 

and the Department is directed to work with the Board of Governors of the Federal 

Reserve System to implement these requirements. This issue paper discusses these 

requirements as they apply to institutions of higher education and their affiliated 

organizations. Lender-specific requirements are discussed in Team I’s Issue Paper 15. 

Note: The lender-specific responsibilities in Section 152(b), as well as the definitions for 

the terms “eligible lender,” “lender,” and “private education loan,” will be addressed by 

Team I—General/Lender Loan Issues. The remaining provisions in Sections 151 – 155 

will be addressed by Team II—School-based Loan Issues. 

Definitions (Sec. 151)

The HEOA provides definitions for the following terms: 

• Agent 

• Covered institution 

• Education loan 

• Eligible lender 

• Institution-affiliated organization 

• Lender 

• Officer 

• Preferred lender arrangement 

• Private education loan 

A “covered institution” is an institution of higher education that receives any Federal 

funding or assistance. An “institution-affiliated organization” is any organization 

directly or indirectly related to a covered institution, including alumni organizations, 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 1 
foundations, or social organizations, that recommends, promotes, or endorses education 

loans for students attending the covered institution. Note that a “covered institution” 

includes institutions that receive any type of Federal funding or assistance, not just Title 

IV, HEA funding or assistance. 

An “education loan” is a FFEL Loan, a Direct Loan, or a private education loan. A 

“private education loan” is a non-Title IV loan made to a borrower expressly for 

postsecondary educational expenses, and that is not an extension of credit under an openend consumer credit plan, or secured by real property or a dwelling. 

A “preferred lender arrangement” is an arrangement or agreement between a lender 

and a covered institution or an institution-affiliated organization, under which the lender 

provides education loans to the covered institution’s students or their families, and that 

relates to the covered institution or institution-affiliated organization recommending, 

promoting, or endorsing the lender’s education loan products. A preferred lender 

arrangement does include arrangements or agreements with respect to Direct Loan 

Program loans or loans that originate through the PLUS Loan auction pilot program. 

Preferred Lender Arrangement Disclosures (Sec 152(a)(1)(A))

A covered institution or an institution-affiliated organization with a preferred lender 

arrangement is required to provide on its website and in all informational materials 

including publications, mailings, electronic messages or materials that are distributed to 

current or prospective students and that describe or discuss education loans, the following 

disclosures: 

• The maximum amount of Title IV grant and loan aid available to students; 

• Certain information on FFEL loans offered pursuant to a preferred lender 

arrangement, to be determined by the Department of Education in 

coordination with the Board of Governors of the Federal Reserve System; 

• A statement that the institution is required to process documents required 

to obtain a FFEL loan from any eligible lender the student selects. 

Any websites or other information materials including publications, electronic messages 

or materials that describe or discuss private education loans made pursuant to a preferred 

lender arrangement must provide the following disclosures: 

• For a covered institution, the information required by Section 128(e)(11) 

of the Truth in Lending Act; 

• For an institution-affiliated organization, the information required by 

Section 128(e)(1) of the Truth in Lending Act. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 2 
Private Education Loan Disclosures (Sec. 152(a)(1)(B))

A covered institution, or an institution-affiliated organization that provides information 

regarding a private education loan from a lender to a prospective borrower, is required to 

provide the following disclosures: 

• The information required by Section 128(e)(1) of the Truth in Lending 

Act; 

• Information on the availability of Title IV loans or other assistance; 

• That the terms and conditions of Title IV loans or assistance may be more 

beneficial than the terms and conditions of private education loans. 

The HEOA specifies that the information regarding private education loans must be 

presented in a manner as to be distinct from information regarding Title IV loans. 

The covered institution or institution-affiliated organization must provide these 

disclosures whether or not the covered institution or institution-affiliated organization has 

a preferred lender arrangement with the lender. 

Use of Institution and Lender Name (Sec. 152(a)(2) and (3))

A covered institution or an institution-affiliated organization may not allow a lender with 

which it has a preferred lender arrangement to use the name, emblem, mascot, logo, or 

other identifiable symbol of the covered institution or institution-affiliated organization to 

market private education loans to students. 

A covered institution or an institution-affiliated organization shall ensure that the name of 

a lender with which it has a preferred lender arrangement is displayed in all information 

and documentation related to private education loans offered by the lender. 

Information to be Disclosed and Model Disclosure Form (Sec. 153(a))

The Department, in coordination with the Board of Governors of the Federal Reserve 

System, will determine the minimum information regarding FFEL Loans that covered 

institutions and institution-affiliated organizations participating in a preferred lender 

arrangement must provide to students and their families. 

The Department will develop a model disclosure form that includes this information. 

Covered institutions and institution-affiliated organizations may use the model disclosure 

form to provide this information to prospective borrowers and their families, but are not 

required to use the model disclosure form. 

Team II Loans Meeting—February 25-27, 2009 

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Duties of Covered Institutions and Institution-Affiliated Organizations (Sec. 153(c))

A covered institution and each or its institution-affiliated organizations that has a 

preferred lender arrangement must provide to students and their families, the following 

disclosures for education loans provided pursuant to any preferred lender arrangement: 

• For a covered institution and each of its institution-affiliated organizations, 

the information to be determined by the Department in coordination with 

the Federal Reserve Board, as specified in Sec. 153(a); 

• For a covered institution, the information required under section 

128(e)(11) of the Truth in Lending Act for private education loans offered 

pursuant to a preferred lender arrangement. 

• For an institution-affiliated organization, the information required under 

section 128(e)(1) of the Truth in Lending Act for private education loans 

offered to students of the institution the organization is affiliated with 

offered pursuant to a preferred lender arrangement. 

These disclosures must be provided in a timely manner allowing students and their 

families to take such information into account before selecting a lender or applying for an 

education loan. 

Annual Report (Sec. 153(c)(2))

A covered institution and an institution-affiliated organization that has a preferred lender 

arrangement must submit to the Department an annual report that provides the 

information described in the section above, and a detailed explanation of why the covered 

institution or institution-affiliated organization entered into a preferred lender 

arrangement with the lender. The explanation must explain how the terms, conditions, 

and provisions of each type of education loan provided pursuant to the preferred lender 

arrangement are beneficial for students attending the covered institution. 

Code of Conduct (Sec. 153(c)(3))

A covered institution and an institution-affiliated organization that has a preferred lender 

arrangement must comply with the code of conduct requirements in Section 

487(a)(25)(A) – (C) of the HEA. 

An institution-affiliated organization of a covered institution must comply with the code 

of conduct developed and published by the covered institution; publish the code of 

conduct prominently on its web site, if it has one; and administer and enforce the code of 

conduct. At a minimum, the institution-affiliated organization must require that all of the 

organization’s agents with responsibilities with respect to education loans are annually 

informed of the provisions of the code of conduct. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 4 
Disclosure Requirements for Direct Loan Schools (Sec. 154)

The Department will develop a model disclosure form for Direct Loans, based on the 

model disclosure form described in Sec. 153(a). The Department will provide the Direct 

Loan model disclosure form to Direct Loan schools, within 180 days of the development 

of the FFEL model disclosure form. A Direct Loan school must provide the information 

required on the model disclosure form to students attending or planning to attend the 

school, or their families. If the Direct Loan school provides information regarding a 

private education loan to a prospective borrower, it must provide the information from 

the Direct Loan model disclosure form at the same time. 

The Direct Loan school may use the Direct Loan model disclosure form for this purpose, 

or may use a comparable form designed by the school. 

Self-Certification Form for Private Education Loans (Sec. 155)

The Department, in consultation with the Board of Governors of the Federal Reserve 

System, will develop a self-certification form for private education loans, to meet the 

requirements of Sec. 128(e)(3) of the Truth in Lending Act. The self-certification form 

will be developed in a standardized format and must be made available to the applicant at 

the institution of higher education upon the request of the applicant. The form will 

contain only the disclosures specified in Sec. 155(a)(3) and include a place for the 

applicant to provide information on the applicant’s— 

• Cost of Attendance 

• Expected Family Contribution 

• Estimated Financial Assistance 

• The difference between the applicant’s COA and EFA 

• The sum of that difference plus EFC. 

The self-certification form must disclose to the applicant that the information that the 

applicant is required to provide on the form is available from officials at the financial aid 

office of the institution of higher education. 

The self-certification form must include a place for the applicant’s signature, in written or 

electronic form. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 5 
Issue Paper 2 

Proposed Regulatory Language 

 Team II – School-based Loan Issues 

Origin: HEOA section 493(e) 

 

Issue: PPA: Code of Conduct 

Statutory cites: HEA section 487(a)(25) and (e)

Regulatory cites: TBD; possibly §668.14(b)(27), or Part 601 

DCL GEN-08-12 cite: Page 69 

Summary of issue: The HEOA adds to the Program Participation Agreement (PPA) a 

requirement that an institution participating in a Title IV loan program must develop, 

publish, administer, and enforce a code of conduct. . 

The code of conduct applies to the officers, employees, and agents of the institution and 

must include the following: 

• a ban on revenue-sharing arrangements with any lender. The HEOA defines 

“revenue-sharing arrangement” as any arrangement between an institution and a lender 

under which the lender makes Title IV loans to students attending the institution (or to 

the families of those students), the institution recommends the lender or the loan products 

of the lender and, in exchange, the lender pays a fee or provides other material benefits, 

including revenue or profit-sharing, to the institution or to its officers, employees, or 

agents; 

• a ban on employees of the financial aid office receiving gifts from a lender, 

guaranty agency or loan servicer. No officer or employee of an institution’s financial aid 

office (or an employee or agent who otherwise has responsibilities with respect to 

educational loans) may solicit or accept any gift from a lender, guarantor, or servicer of 

education loans. A “gift” is defined as any gratuity, favor, discount, entertainment, 

hospitality, loan, or other item having monetary value of more than a de minimus amount. 

However, a gift does not include (1) standard material, activities or programs on issues 

relating to a loan, default aversion, or financial literacy, such as a brochure, workshop or 

training; (2) food, refreshments, training, or informational material provided as part of a 

training session designed to improve the service of a lender, guarantor, or servicer if the 

training contributes to the professional development of the institution’s officer, employee 

or agent; (3) favorable terms and benefits on an education loan provided to a student 

employed by the institution if those terms and benefits are comparable to those provided 

to all students at the institution; (4) entrance and exit counseling services provided to 

borrowers as long as the institution’s staff are in control of the counseling and the 

counseling does not promote the services of a specific lender; (5) philanthropic 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 6 
contributions from a lender, guarantor, or servicer that are unrelated to education loans or 

any contribution that is not made in exchange for any advantage related to education 

loans, and; (6) State education grants, scholarships, or financial aid funds administered by 

or on behalf of a State; 

• a ban on contracting arrangements. No officer or employee of an institution who 

is employed in the financial aid office of the institution (or an employee or agent who 

otherwise has responsibilities with respect to education loans) may accept from a lender, 

or an affiliate of any lender, any fee, payment, or other financial benefit as compensation 

for any type of consulting arrangement or contract to provide services to or on behalf of a 

lender relating to education loans; 

• a prohibition against steering borrowers to particular lenders or delaying loan 

certifications. For any first-time borrower, an institution may not assign, through the 

award packaging or other methods, the borrower’s loan to a particular lender. In addition, 

the institution may not refuse to certify, or delay the certification, of any loan based on 

the borrower’s selection of a particular lender or guaranty agency; 

• a prohibition on offers of funds for private loans. An institution may not request 

or accept from any lender any offer of funds for private loans, including funds for an 

opportunity pool loan, to students in exchange for providing concessions or promises to 

the lender for a specific number of Title IV loans made, insured, or guaranteed, a 

specified loan volume, or a preferred lender arrangement. An “opportunity pool loan” is 

defined as a private education loan made by a lender to a student (or the student’s family) 

that involves a payment by the institution to the lender for extending credit to the student; 

• a ban on staffing assistance. An institution may not request or accept from any 

lender any assistance with call center staffing or financial aid office staffing. However, a 

lender may provide professional development training, educational counseling materials 

(as long as the materials identify the lender that assisted in preparing the materials), or 

staffing services on a short-term, nonrecurring basis during emergencies or disasters; and 

• a ban on advisory board compensation. An employee of an institution’s financial aid 

office (or employee who otherwise has responsibilities with respect to education loans or 

financial aid) who serves on an advisory board, commission, or group established by a 

lender or guarantor (or a group of lenders or guarantors) is prohibited from receiving 

anything of value from the lender, guarantor, or group, except for reimbursement for 

reasonable expenses incurred by the employee for serving on the board. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 7 
Issue Paper 3 

Proposed Regulatory Language 

 Team II – School-based Loan Issues 

Origin: HEOA section 1011 

 

Issue: Disclosures of Reimbursements for Service on Advisory 

Boards 

Statutory cites: HEA section 485(m)

Regulatory cites: TBD; possibly §668.16(c) 

DCL GEN-08-12 cite: Page 102 

Summary of issue: The HEOA adds a new requirement that an institution participating 

in any Title IV program report annually to the Secretary, any reasonable expenses paid or 

provided under section 140(d) of the Truth in Lending Act to any employee who is 

employed in the financial aid office, or who otherwise has responsibilities with respect to 

education loans or other financial aid of the institution. The report must include: 

• the amount of each specific instance of reasonable expenses paid or provided; 

• the name of the financial aid official, other employee, or agent to whom the expenses 

were paid or provided; 

• the dates of the activity for which the expenses were paid or provided; and 

• a brief description of the activity for which the expenses were paid or provided. 

The Secretary must summarize the information received from institutions in an annual 

report to Congress. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 8 
Issue Paper 4 

Proposed Regulatory Language 

 Team II – School-based Loan Issues 

Origin: HEOA section 493 

 

Issue: PPA: Private Education Loan Certification 

Statutory cites: HEA section 487(a)(28) 

Regulatory cites: TBD; possibly §668.14(b)(29) 

DCL GEN-08-12 cite: Page 71 

Summary of issue: The HEOA adds a new requirement to the Program Participation 

Agreement (PPA) that an institution participating in any Title IV program must, upon the 

request of an applicant for a private education loan, provide the applicant the selfcertification form for private education loans required under section 128(e)(3) of the 

Truth in Lending Act (TILA) and the information needed to complete the form, specified 

in HEA section 155(a)(4), to the extent the institution has that information. The 

information to be supplied by the institution (if available) to the applicant includes: 

• The applicant’s cost of attendance (COA) at the institution; 

• The applicant’s expected family contribution (EFC), if the applicant completed the 

Free Application for Federal Student Aid (FAFSA); 

• The applicant’s estimated financial assistance (EFA); 

• The difference between the COA and the EFA; and 

• The sum of the EFC and the difference between the COA and EFA. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 9 
Issue Paper 5 

Proposed Regulatory Language 

 Team II – School-based Loan Issues 

Origin: HEOA section 488(a) 

 

Issue: Information and Dissemination Activities 

Statutory cites: HEA section 485(a)

Regulatory cites: §668.42(a) 

DCL GEN-08-12 cite: Page 95 

Summary of issue: As part of the required information an institution must make 

available to prospective and enrolled students, the HEOA added a general requirement 

that the institution describe the terms and conditions of the loans students receive under 

the FFEL, Direct Loan and Perkins Loan programs. The HEA and current regulations—

in 34 CFR §668.42(a)(1)—require that an institution provide a description of all student 

financial assistance programs to prospective and enrolled students. The new statutory 

provision expands the information that institutions must provide to include the terms 

and conditions of the loans. 

For students receiving financial assistance, current regulations—in 34 CFR 

§668.42(c)(4)—require an institution to provide specific information about any loan 

received by the student as part of the aid package. 

The HEOA also deleted the specific statutory requirement that institutions provide 

information about the terms and conditions under which FFEL and Perkins Loans could 

be deferred for service under the Peace Corps or Domestic Volunteer Service acts. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 10 
Issue Paper 6 

Proposed Regulatory Language 

Team II—School-based Loan Issues 

Origin: HEOA section 488(b) 

 

Issue: Exit Counseling 

Statutory cites: HEA Section 485(b)(1)(A) 

Regulatory cites: §§674.42(b); 682.604(g); and 685.304(b) 

DCL GEN-08-12 cite: Pages 96 - 97

Summary of issue: The HEOA modified the HEA to require each eligible institution, 

through financial aid offices or otherwise, to conduct exit counseling for borrowers 

receiving loans made, insured or guaranteed under the FFEL Program (except for 

Consolidation Loans or Federal PLUS loans made to parent borrowers) or loans made 

under the Direct Loan Program (other than Federal Direct Consolidation Loans or Federal 

Direct PLUS loans made to parent borrowers) or made under the Perkins Loan Program 

prior to the completion of the borrower's course of study or the borrower's departure from 

the institution. Many of the exit counseling requirements are similar to existing exit 

counseling requirements required by the Department’s regulations at 34 CFR §§ 

674.42(b), 682.604(g), and 685.304(b). 

The exit counseling must include: 

• Information on repayment plans which includes a description of the different 

features of each plan and samples showing average anticipated monthly 

payments with the difference in interest paid and total payments shown with 

each plan; 

• Debt management strategies to assist the borrower in repaying the debt; 

• Options the borrower has to prepay each loan or pay each loan on a shorter 

schedule or to change repayment plans; 

• Information on loan forgiveness and cancellation provisions and the 

conditions under which the borrower may obtain full or partial forgiveness or 

cancellation of principal and interest; 

• Information on forbearance provisions and a general description of terms and 

conditions under which the borrower may defer repayment of principal or 

interest or be granted forbearance; 

• Information on the consequences of default on a loan which includes adverse 

credit reports and delinquent debt collection procedures under Federal law and 

litigation; 

• Information with respect to Consolidation Loans to discharge FFEL, Direct 

Loan, and Perkins Loan program loans which includes— 

1. The effects of the consolidation on total interest to be paid, fees, and 

length of repayment; 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 11 
2. The effect on a borrower’s underlying loan benefits, which includes grace 

periods, loan forgiveness, cancellation and deferment; 

3. The option the borrower has to prepay the loan or to change repayment 

plans; and 

4. That borrower benefit programs may vary depending on the lender; 

• A general description of the types of tax benefits that might be available to 

borrowers; and 

• Information on how a borrower can use NSLDS to get information on the 

status of their loans. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 12 
Issue Paper 7 

Proposed Regulatory Language 

 Team II – School-based Loan Issues 

Origin: HEOA section 493(h) 

 

Issue: PPA: Preferred Lender Lists 

Statutory cites: HEA section 487(h)

Regulatory cites: TBD; possibly §668.14(b)(28) 

DCL GEN-08-12 cite: Page 70 

Summary of issue: The HEOA adds a new requirement to the Program Participation 

Agreement (PPA) for an institution that enters into a preferred lender arrangement 

An institution that enters into a preferred lender arrangement must—as a condition of 

program participation—compile, maintain, and make available to students and their 

families a list of the specific lenders for loans made under a Title IV program and for 

private education loans the institution recommends or promotes in accordance with its 

lender arrangement. The institution must, at least annually, compile and make the list 

available in print or other medium. 

In compiling, maintaining, and making available the preferred lender list, an institution 

must: 

 • disclose detailed information about the terms and conditions of the loans offered 

by preferred lenders, as required under section 153(a)(2)(A) of the HEA; 

• disclose why it entered into an arrangement with each lender, particularly with 

respect to terms and conditions or provisions favorable to the borrower; 

• disclose that students and families of students do not have to borrow from a 

lender on the preferred lender list; 

• ensure that the list contains at least three unaffiliated lenders for FFEL loans 

and, if the institution has a preferred lender list for private loans, at least two unaffiliated 

lenders for those loans. The list must specifically indicate whether a lender is or is not an 

affiliate of each other lender on the list. If a lender is an affiliate of another lender, the 

institution must describe that affiliation; 

 

• prominently disclose the method and criteria used in selecting the lenders to 

ensure that the lenders are selected on the basis of the best interests of the borrowers; 

• exercise a duty of care and a duty of loyalty in compiling the list without 

prejudice and for the sole benefit of students and their families; and 

Team II Loans Meeting—February 25-27, 2009 

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• not deny or impede the borrower’s choice of a lender or unnecessarily delay 

certifying a Title IV loan for a borrower who chooses a lender not on the list. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 14 
Issue Paper 8 

Proposed Regulatory Language 

 Team II – School-based Loan Issues 

Origin: HEOA section 436 

Issue: Cohort Default Rate Calculation, Institutional Eligibility, 

and Default Prevention Plans 

Statutory cites: Sections 435(a) and (m) of the HEA 

Regulatory cites: §§668.183, 668.187, 668.189, and 668.195 

DCL GEN-08-12 cite: Page 131

Summary of issue: Cohort Default Rate Calculation. The HEOA increases the period 

used to calculate the cohort default rate from 2 to 3 years. Under the new calculation, the 

cohort default rate is the percentage of borrowers who default on their FFEL or Direct 

Loans before the end of the second fiscal year (instead of the first fiscal year) following 

the fiscal year in which those borrowers entered repayment. The new calculation is 

effective for cohort default rates calculated for fiscal year 2009 and subsequent years. In 

addition, the HEOA provides for a transition period during which sanctions will be 

continue to be imposed based on rates calculated using the 2-year methodology, until 

rates based on the 3-year rate have been calculated for 3 consecutive years. 

Institutional Eligibility: Beginning with cohort default rates calculated for fiscal year 

2012, the HEOA increases the threshold default percentage from 25 percent to 30 

percent. An institution may lose its eligibility to participate in the Pell, FFEL, and Direct 

Loan programs if its cohort default rate is equal to or greater than the threshold 

percentage for 3 successive years. 

The HEOA changes the provisions for default rate appeals. If the institution files a 

timely appeal and the Secretary determines that the institution demonstrates exceptional 

mitigating circumstances, the Secretary may not subject the institution to provisional 

certification based solely on its default rate. 

In addition, effective October 1, 2011, the HEOA increases the participation rate index

for appeal purposes from 0.0375 to 0.0625. An institution’s participation rate index is 

calculated by: 

(a) Dividing the total number of borrowers in a 12-month period by the total 

number of regular students enrolled on at least a half-time basis in the 12-month period, 

and 

(b) Multiplying the result in (a) by the institution’s cohort default rate. 

An institution may avoid sanctions based on three consecutive years of cohort default 

rates that are 30% or higher if its participation rate index for any of the three years is 

0.0625 or lower. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 15 
Default Prevention Plans: The HEOA requires an institution whose cohort default rate is 

greater than or equal to the 30% threshold for any fiscal year to establish a default 

prevention task force to prepare a default prevention plan to: 

● Identify the factors causing the institution’s rate to exceed the threshold; 

● Establish measurable objectives and the steps to be taken to improve the 

institution’s default rate; and 

● Specify actions the institution can take to improve student loan repayment, 

including appropriate counseling regarding loan repayment options. 

The institution must submit its default prevention plan to the Department. The 

Department is required to review the plan and provide technical assistance to the 

institution to promote improved student loan repayment. 

If the institution’s cohort default rate exceeds the threshold percentage for two 

consecutive fiscal years, its default prevention plan must be reviewed and revised by the 

task force and resubmitted to the Department. The Department is required to review the 

revised plan and may require the institution to amend the plan to include actions with 

measurable objectives that the Department determines will promote student loan 

repayment. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 16 
Issue Paper 9 

Proposed Regulatory Language 

Team II—School-based Loan Issues 

Origin: HEOA section 488(g) 

 

Issue: Entrance Counseling 

 

Statutory cites: HEA Section 485(l) 

Regulatory cites: §§682.604(f) and 685.304(a) 

DCL GEN-08-12 cite: Page 102 

Summary of issue: The entrance counseling that institutions is required to provide to 

first time borrowers of FFEL Program or Direct Loan Program loans at or prior to 

disbursement is modified under new subsection (l) of section 485 of the HEA to ensure 

that the borrower receives detailed information on the terms and conditions of the loan 

and the borrower's responsibilities with respect to the loan. Institutions are encouraged to 

use interactive programs to test the borrower’s understanding of the terms and conditions 

of their loans. The entrance counseling may be conducted during an in-person session, or 

provided in a separate notice to a borrower who acknowledges receipt and understanding 

by signing and returning an acknowledgement to the institution or by providing an online 

borrower acknowledgement of receipt. 

The entrance counseling must include the following information: 

• To the extent practicable, what the effect of accepting the loan to be disbursed 

will have on the eligibility of the borrower for other forms of student aid; 

• An explanation of the use of the master promissory note; 

• Information on how interest accrues and is capitalized during periods when 

the interest is not paid by the borrower or the Secretary; 

• For Unsubsidized Stafford Loans or PLUS Loans made under the FFEL or 

Direct Loan programs, the option of the borrower to pay the interest while in 

school; 

• The definition of half-time enrollment at the institution, during regular terms 

and summer school, and the consequences of not maintaining half-time 

enrollment; 

• An explanation of the importance of contacting the appropriate offices at the 

institution if the borrower withdraws prior to completing the program of study 

so the institution can provide exit counseling, including information regarding 

the borrower’s repayment options and loan consolidation; 

• Examples of monthly repayment amounts based on a range of level of 

indebtedness of borrowers of loans under section 428 or 428H of the HEA 

and, as appropriate, graduate borrowers of loans under section 428, 428B or 

428H of the HEA, or the average cumulative indebtedness of other borrowers 

in the same programs as the borrower at the same institution; 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 17 
• The obligation of the borrower to repay the full amount of the loan, regardless 

of whether the borrower completes the program in which the borrower is 

enrolled within the regular time for completion; 

• The likely consequences of default on the loan, including adverse credit 

reports, delinquent debt collection procedures under Federal law, and 

litigation; 

• Information on the NSLDS and how the borrower may access their records; 

and 

• The name and contact information of the individual a borrower can contact 

with questions regarding the borrower’s rights and responsibilities for the 

terms and conditions of the loan. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 18 
Issue Paper 10 

Proposed Regulatory Language 

 Team II – School-based Loan Issues 

Origin: HEOA section 451 

 

Issue: Direct Loan Borrower Disclosures 

Statutory cites: HEA section 455(p)

Regulatory cites: §685.300(b) 

DCL GEN-08-12 cite: Page 138 

Summary of issue: The HEOA amends section 455 of the HEA to require schools 

participating in the Direct Loan Program to provide Direct Loan borrowers with the same 

disclosures lenders in the FFEL Program must provide to FFEL borrowers under §433 of 

the HEA. 

The Department is also required to ensure that its contractors working on the Direct Loan 

Program also comply with these requirements. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 19 
Issue Paper 11 

Proposed Regulatory Language 

Team II: School-based Loan Issues 

Origin: HEOA section 463

Issue: Perkins Loans Mandatory Assignment Program 

Statutory cite: HEA section 463(a)(4)(e)(5), 463(a)(9) 

Regulatory cite: §674.8 

DCL GEN-08-12 cite: Page 134 

Summary of Issue: The HEOA repealed the Department’s authority to require 

mandatory assignment of Perkins Loans based on Section 463(a)(9) which allowed the 

Department to include reasonable provisions as may be necessary to protect the United 

States from unreasonable risk of loss and as are agreed to by the Secretary and the 

institution. This statutory change nullifies the mandatory assignment regulations 

contained in Section 674.8 and published in a final rule on November 1, 2007. The 

Department continues to have the authority to require assignment as provided in HEA 

Section 463(a)(4) and 463(a)(5) if an institution has knowingly failed to maintain an 

acceptable collection record with regard to the loan or chooses to stop servicing and 

collecting its Perkins Loans. If the Department mandates assignment, it must apportion 

any sums collected on such a loan, less an amount not to exceed 30 percent of any sums 

collected to cover the Secretary’s collection costs, among other institutions in accordance 

with section 462. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 20 
Issue Paper 12 

Proposed Regulatory Language 

Team II—School-based Loan Issues 

Origin: HEOA section 465 

Issue: Expansion of Teacher, Head Start, and Law Enforcement 

Cancellation Categories 

Statutory cite: HEA section 465(a) 

Regulatory cite: §§674.53, 674.57, 674.58 

DCL GEN-08-06 cite: Page 135

Summary of Issue: The HEOA expanded the existing teacher, Head Start, and law 

enforcement cancellation categories. These cancellations categories have been expanded 

to include: 

• A teacher in a designated low-income elementary or secondary school who is 

employed by, or working in a school operated by, an educational service agency, 

• Full-time staff members in a pre-kindergarten or childcare program that is 

licensed or regulated by the State; 

• Full-time attorneys employed in Federal Public Defender Organizations or 

Community Defender Organizations, established in accordance with Section 

3006A(g)(2) of Title 18, U.S.C. 

Current borrowers with outstanding balances on loans already in repayment and for all 

new borrowers with eligible service performed on or after August 14, 2008, in these 

expanded cancellation categories, will qualify a borrower for cancellation, regardless of 

whether information on the expansion of the cancellation category appears on the 

borrower’s promissory note.

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 21 
Issue Paper 13 

Proposed Regulatory Language 

Team II: School-based Loan Issues

Origin: HEOA section 465

Issue: Addition of New Public Service Cancellation Categories 

Statutory cite: HEA section 465(a) 

Regulatory cite: 674.56 

DCL GEN-08-12 cite: Page 136

Summary of Issue: The HEOA adds public service cancellation categories for 

borrowers who are: 

• Full-time fire fighters with a local, State, or Federal fire department or fire district; 

• Full-time faculty members at a Tribal College or University; 

• Librarians with a master’s degree in library science who are employed in an 

elementary or secondary school that qualifies for Title I funding, or in a public library 

that serves a geographic area that includes one or more Title I schools; or 

• Full-time speech-language pathologists with a master’s degree who are working 

exclusively with Title I eligible schools. 

Current borrowers with outstanding balances on loans already in repayment and for all 

new borrowers with eligible service performed on or after August 14, 2008, in these new 

cancellation categories, will qualify for cancellation, regardless of whether the 

cancellation category appears on the borrower’s promissory note. 

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 22 
 Issue Paper 14 

Proposed Regulatory Language 

Team II: School-based Loan Issues 

Origin: HEOA section 465

Issue: Military Service Cancellation 

Statutory cite: HEA section 465(a)(3)(A) 

Regulatory cite: §674.59 

DCL GEN-08-12 cite: Page 136 

Summary of Issue: The HEOA eliminates the 50 percent limitation on military service 

cancellations. Borrowers who are serving in areas of hostility may now receive military 

service cancellations of up to 100 percent of the loan in increments of 15 percent for the 

first and second years of service; 20 percent for the third and fourth years of service; and 

30 percent for the fifth year of service. The cancellation provision applies to NDSL and 

Perkins Loans and the effective date is August 14, 2008.

Team II Loans Meeting—February 25-27, 2009 

3/3/2009 – Page 23