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DRAFT for discussion at 2nd session 

3/25/2009 

Issue 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). 
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DRAFT for discussion at 2nd session 

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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—
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DRAFT for discussion at 2nd session 

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1. The effects of the consolidation on total 

interest to be paid, fees, and length of 

repayment; 

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. 

Regulatory language:

Perkins

§ 674.42 Contact with the borrower. 

(b) Exit interview. (1) An institution must ensure that 

exit counseling is conducted with each borrower either in 

person, by audiovisual presentation, or by interactive 

electronic means. The institution must ensure that exit 

counseling is conducted shortly before the borrower ceases 

at least half-time study at the institution. As an 

alternative, in the case of a student enrolled in a 

correspondence program or a study-abroad program that the 

institution approves for credit, the borrower may be 

provided with written counseling material by mail within 30 
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DRAFT for discussion at 2nd session 

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days after the borrower completes the program. If a 

borrower withdraws from the institution without the 

institution's prior knowledge or fails to complete an exit 

counseling session as required, the institution must ensure 

that exit counseling is provided through either interactive 

electronic means or by mailing counseling materials to the 

borrower at the borrower's last known address within 30 

days after learning that the borrower has withdrawn from 

the institution or failed to complete exit counseling as 

required. 

(2) The exit counseling must--

(i) Inform the student as to the average anticipated 

monthly repayment amount based on the student's 

indebtedness or on the average indebtedness of students who 

have obtained Perkins loans for attendance at the 

institution or in the borrower's program of study; 

(ii) Expain the options the borrower has to prepay 

each loan or pay each loan on a shorter schedule; and

(iii) Review for the borrower available repayment 

ooption s ( e.g. loan consolidation and refinancing,the 

borrower has to consolidate a Federal Perkins Loan, 

including the consequences of consolidating a Federal 

Perkins Loan. Information on the consequences of loan 

consolidation must include, at a minimum—

(A) The effects of consolidation on total interest to 

be paid, fees to be paid, and length of repayment;
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DRAFT for discussion at 2nd session 

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(B) The effects of consolidation on a borrower’s 

underlying loan benefits, including grace periods, loan 

forgiveness, cancellation, and deferment opportunities;

(C) The option of the borrower to prepay the loan or 

to change repayment plans; and

(D) That borrower benefit programs vary among 

different lenders.

(iiiv) Suggest to the borrower debt-management 

strategies that would are designed to facilitate repayment; 

(v) Explain the use of a Master Promissory Note;

(ivi) Emphasize to the borrower the seriousness and 

importance of the repayment obligation the borrower is 

assuming; 

(vii) Describe the likely consequences of default, 

including adverse credit reports, delinquent debt 

collection procedures under Federal law, and litigation; 

(viii) Emphasize that the borrower is obligated to 

repay the full amount of the loan even if the borrower has 

not completed the program, has not completed the program 

within the regular time for program completion, is unable 

to obtain employment upon completion, or is otherwise 

dissatisfied with or didoes not receive the educational or 

other services that the borrower purchased from the 

institution; 
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DRAFT for discussion at 2nd session 

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(ixvii) Review for the borrower the conditions under 

which the borrower may defer repayment or obtain partial 

cancellation of a loan;Provide—

(A) A general description of the terms and conditions 

under which a borrower may obtain full or partial 

forgiveness or cancellation of principal and interest, 

defer repayment of principal or interest or be granted an 

extension of the repayment period or a forbearance on a 

title IV loan; and 

(B) A copy, either in print or by electronic means, of 

the information the Secretary makes available pursuant to 

section 485(d)of the HEA.

(xviii) Require the borrower to provide current 

information concerning name, address, social security 

number, references, and driver's license number, the 

borrower's expected permanent address, the address of the 

borrower's next of kin, as well as the name and address of 

the borrower's expected employer; 

(ixi) Review for the borrower information on the 

availability of the Student Loan Ombudsman's office; and 

(xii) Inform the borrower of the availability of title 

IV loan information in the National Student Loan Data 

System (NSLDS) and how NSLDS can be used to obtain title IV 

loan status information; 

(xiii) A general description of the types of tax 

benefits that may be available to borrowers.

(3) If exit counseling is conducted through 

interactive electronic means, the institution must take 
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DRAFT for discussion at 2nd session 

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reasonable steps to ensure that each student borrower 

receives the counseling materials, and participates in and 

completes the exit counseling. 

(4) The institution must maintain documentation 

substantiating the institution's compliance with this 

section for each borrower. 

FFEL

§ 682.604 Processing the borrower's loan proceeds and 

counseling borrowers. 

(g) Exit counseling. (1) A school must ensure that 

exit counseling is conducted with each Stafford loan 

borrower and student PLUS Loan borrower either in person, 

by audiovisual presentation, or by interactive electronic 

means. In each case, the school must ensure that this 

counseling is conducted shortly before the student borrower 

ceases at least half-time study at the school, and 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 that the home institution 

approves for credit, written counseling materials may be 

provided by mail within 30 days after the student borrower 

completes the program. If a student borrower withdraws from 

school without the school's prior knowledge or fails to 

complete an exit counseling session as required, the school 

must ensure that exit counseling is provided through either 
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DRAFT for discussion at 2nd session 

3/25/2009 

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 learning 

that the student borrower has withdrawn from school or 

failed to complete the exit counseling as required. 

(2) 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 

student borrowers who have obtained Stafford loans, PLUS 

Loans, or student borrowers who have obtained both Stafford 

and PLUS loans, depending on the types of loans the student 

borrower has obtained, for attendance at the same school or 

in the same program of study at the same school; 

(ii) Review for the student borrower available 

repayment plan options, including standard, graduated, 

extended, income sensitive and income-based repayment 

plans, including a description of the different features of 

each plan and sample information showing the average 

anticipated monthly payments, and the difference in 

interest paid and total payments under each plan;

(iii) Explain to the borrower the option of the 

borrower to prepay each loan, pay each loan on a shorter 

schedule, and to change repayment plans; and

(iv) Provide information on the effects of and loan 

consolidation including, at a minimum—
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DRAFT for discussion at 2nd session 

3/25/2009 

(A) The effects of consolidation on total interest to 

be paid, fees to be paid, and length of repayment;

(B) The effects of consolidation on a borrower’s 

underlying loan benefits, including grace periods, loan 

forgiveness, cancellation, and deferment opportunities;

(C) The option of the borrower to prepay the loan or 

to change repayment plans; and

(D) That borrower benefit programs may vary among 

different lenders.; 

(ivii) Suggest to the student borrower Include debtmanagement strategies that would are that would designed to 

facilitate repayment; 

(ivi) Include the matters described in paragraph 

(f)(62)(i) ), (f)(6)(ii), and through (f)(62)(iv) of this 

section; 

(vii) Describe the likely consequences of default, 

including adverse credit reports, delinquent debt 

collection procedures under Federal law, and litigation;

(viii) Provide—

(A) aA general description of the terms and conditions 

under which a borrower may obtain full or partial 

forgiveness or discharge of principal and interest, defer 

repayment of principal or interest or be granted 

forbearance on a title IV loan, Review for the student 

borrower the conditions under which the student borrower 

may defer or forbear repayment or obtain a full or partial 
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DRAFT for discussion at 2nd session 

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forgiveness or discharge of a loanincluding including 

forgiveness benefits or discharge benefits available to a 

FFEL borrower who consolidates his or her loan into the 

Direct Loan program,; and 

(B) include A a copy, either in print or by 

electronic means, of the information the Secretary makes 

available pursuant to HEA section 485(d).;

 (ixvi) 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). The school must 

ensure that this information is provided to the guaranty 

agency or agencies listed in the student borrower's records 

within 60 days after the student borrower provides the 

information; 

(ixvii) Review for the student borrower information on 

the availability of the Student Loan Ombudsman's office; 

and

(viiixi) Inform the student borrower of the 

availability of title IV loan information in the National 

Student Loan Data System (NSLDS)and how NSLDS can be used 

to obtain title IV loan status information; and

(xiii). A general description of the types of tax 

benefits that may be available to borrowers.
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DRAFT for discussion at 2nd session 

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(3) If exit counseling is conducted by electronic 

interactive means, the school must take reasonable steps to 

ensure that each student borrower receives the counseling 

materials, and participates in and completes the 

counseling. 

(4) The school must maintain documentation 

substantiating the school's compliance with this section 

for each student borrower. 

Direct Loan

§ 685.304 Counseling borrowers. 

(b) Exit counseling. (1) A school must ensure that 

exit counseling is conducted with each Direct Subsidized 

Loan or Direct Unsubsidized Loan borrower and student 

Direct PLUS 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. 
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DRAFT for discussion at 2nd session 

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(3) If a student borrower withdraws from school 

without the school's prior knowledge or fails to complete 

the exit counseling as required, 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 

student borrowers who have obtained Direct Subsidized Loans 

and Direct Unsubsidized Loans, student borrowers who have 

obtained only Direct PLUS Loans, or student borrowers who 

have obtained Direct Subsidized, Direct Unsubsidized, and 

Direct PLUS Loans, depending on the types of loans the 

student borrower has obtained, for attendance at the same 

school or in the same program of study at the same school; 

(ii) Review for the student borrower available 

repayment plan options including the standard repayment, 

extended repayment, graduated repayment, income contingent 

repayment plans, and income-based repayment plans, and loan 

consolidation; including a description of the different 

features of each plan and sample information showing the 

average anticipated monthly payments, and the difference in 

interest paid and total payments under each plan;
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DRAFT for discussion at 2nd session 

3/25/2009 

(iii) Explain to the borrower the option of the borrower 

to prepay each loan, pay each loan on a shorter schedule, 

and to change repayment plans; 

(iv) Provide information on the effects of loan 

consolidation including, at a minimum—

(A) The effects of consolidation on total interest to 

be paid, fees to be paid, and length of repayment;

(B) The effects of consolidation on a borrower’s 

underlying loan benefits, including grace periods, loan 

forgiveness, cancellation, and deferment opportunities;

(C) The option of the borrower to prepay the loan or 

to change repayment plans; and 

(D) That borrower benefit programs may vary among 

different lenders.;

(ivii) Suggest to the student borrower dInclude debtmanagement strategies that would are designed to facilitate 

repayment; 

(ivi) Explain to the student borrower how to contact 

the party servicing the student borrower's Direct Loans; 

(vii) Meet the requirements described in paragraphs 

(a)(34)(i), (ii), (iii), and (v) of this section; 

(viii) Describe the likely consequences of default, 

including adverse credit reports, delinquent debt 

collection procedures under Federal law, and litigation;
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DRAFT for discussion at 2nd session 

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(viix) Provide—

(A) A general description of the terms and conditions 

under which a borrower may obtain full or partial 

forgiveness or discharge of principal and interest, defer 

repayment of principal or interest or be granted 

forbearance on a title IV loan; and 

(B) include A a copy, either in print or by electronic 

means, of the information the Secretary makes available 

pursuant to HEA section 485(d)of the HEA. Review for the 

student borrower the conditions under which the student 

borrower may defer or forbear repayment or obtain a full or 

partial forgiveness or discharge of a loan;

(viix) Review for the student borrower information on 

the availability of the Department's Student Loan 

Ombudsman's office; 

(viiixi) Inform the student borrower of the 

availability of title IV loan information in the National 

Student Loan Data System (NSLDS); and how NSLDS can be used 

to obtain title IV loan status information; and

(xii) A general description of the types of tax 

benefits that may be available to borrowers.

(ixiii) Require the student borrower to provide 

current information concerning name, address, social 

security number, references, and driver's license number 
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DRAFT for discussion at 2nd session 

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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)(ixiii) 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 the 

exit counseling. 

(7) The school must maintain documentation 

substantiating the school's compliance with this section 

for each student borrower.