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DRAFT for discussion at 2nd session 

3/25/2009 

Issue 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 
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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 
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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; 

 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. 

Regulatory language: 

FFEL

§ 682.604 Processing the borrower's loan proceeds and 

counseling borrowers. 

(f) Initial counseling. (1) A school must ensure that 

initial counseling is conducted with each Stafford loan 

borrower prior to its release of the first disbursement, 
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unless the student borrower has received a prior Federal 

Stafford, Federal SLS, or Direct subsidized or unsubsidized 

loan. The initial counseling must—

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

(ii) Emphasize to the student 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, Federal offset, and 

litigation;

(iv) In the case of a student borrower (other than a 

borrower of a loan made or originated by the school), 

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 of the program, or is otherwise 

dissatisfied with or does not receive the educational or 

other services that the student borrower purchased from the 

school; and

(v) Inform the student borrower of sample monthly repayment 

amounts based on a range of student levels of indebtedness 

or on the average indebtedness of Stafford loan borrowers, 

or student borrowers with Stafford and PLUS loans, 

depending on the types of loans the borrower has obtained 

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

same school.
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(2) A school must ensure that initial counseling is 

conducted with each graduate or professional student PLUS 

loan borrower prior to its release of the first 

disbursement, unless the student has received a prior 

Federal PLUS loan or Direct PLUS loan. The initial 

counseling must—

(i) Inform the student borrower of sample monthly repayment 

amounts based on a range of student levels of indebtedness 

or on the average indebtedness of graduate or professional 

student PLUS loan borrowers, or student borrowers with 

Stafford and PLUS loans, depending on the types of loans 

the borrower has obtained, at the same school or in the 

same program of study at the same school;

(ii) For a graduate or professional student who has 

received a prior Federal Stafford, or Direct subsidized or 

unsubsidized loan, provide the information specified in 

§682.603(d)(1)(i) through §682.603(d)(1)(iii); and

(iii) For a graduate or professional student who has not 

received a prior Federal Stafford, or Direct subsidized or 

unsubsidized loan, provide the information specified in 

paragraph (f)(1)(i) through (f)(1)(iv) of this section.

 (3) Initial counseling for Stafford and PLUS Loan 

borrowers must provide the borrower with comprehensive 

information on the terms and conditions of the loan and on 

the responsibilities of the borrower with respect to the 

loan. This information may be provided to the borrower--

(i) During an entrance counseling session be conducted 

either in person;
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DRAFT for discussion at 2nd session 

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(ii) On a separate written form provided to the 

borrower that the borrower signs and returns to the school; 

or 

(iii) , by audiovisual presentation, or Online, by 

interactive electronic means, with the borrower 

acknowledging receipt of the information. . If initial 

counseling is conducted through interactive electronic 

means, the school must take reasonable steps to ensure that 

each student borrower receives the counseling materials, 

and participates in and completes the initial counseling.

(64) If initial counseling is conducted through 

interactive electronic means, the school must take 

reasonable steps to ensure that each student borrower 

receives the counseling materials, and participates in and 

completes the initial counseling, including completion of 

any interactive program that tests the borrower’s 

understanding of the terms and conditions of the borrower’s 

loans.

(45) A 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 regarding those programs. As an 

alternative, prior to releasing the proceeds of a loan, in 

the case of a student borrower enrolled in a correspondence 

program or a student borrower enrolled in a study-abroad 

program that the home institution approves for credit, the 

counseling may be provided through written materials. 
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(56) Initial counseling for Stafford Loan borrowers 

must-- 

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

(ii) Emphasize to the student 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, Federal offset, 

delinquent debt collection procedures under Federal law, 

and litigation; 

(iv) In the case of a student borrower (other than a 

loan made or originated by the school), 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, does not complete the program within the regular 

time for program completion, 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; and

(v) Inform the student borrower of sample monthly 

repayment amounts based on—

(A) A a range of student levels of indebtedness or on 

the average indebtedness of Stafford loan borrowers, or 

student borrowers with Stafford and PLUS loans, depending 

on the types of loans the borrower has obtained; or
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(B) The average cumulative indebtedness of other 

borrowers in the same program at the same school as the 

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

at the same school. 

(vi) To the extent practicable, explain the effect 

of accepting the loan to be disbursed on the eligibility 

of the borrower for other forms of student financial 

assistance;

(vii) Provide information on how interest accrues and 

is capitalized during periods when the interest is not 

paid by either the borrower or the Secretary;

(viii) Inform the borrower of the option to pay the 

interest on an unsubsidized Stafford Loan while the 

borrower is in school;

(ix) Explain the definition of half-time enrollment 

at the school, during regular terms and summer school, if 

applicable, and the consequences of not maintaining halftime enrollment;

(x) Explain the importance of contacting the 

appropriate offices at the school if the borrower 

withdraws prior to completing the borrower’s program of 

study so that the school can provide exit counseling, 

including information regarding the borrower’s repayment 

options and loan consolidation;

(xi) Provide information on the National Student Loan 

Data System and how the borrower can access the 

borrower’s records;
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DRAFT for discussion at 2nd session 

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(xii) Provide the name of and contact information for 

the individual the borrower may contact if the borrower 

has any questions about the borrower’s rights and 

responsibilities or the terms and conditions of the loan.

(7) Initial counseling for graduate or professional 

student PLUS Loan borrowers must--

(i) (i) I inform the student borrower of sample monthly 

repayment amounts based on—

(A) A a range of student levels of indebtedness or on 

the average indebtedness of graduate or professional 

student PLUS loan borrowers, or student borrowers with 

Stafford and PLUS loans, depending on the types of loans 

the borrower has obtained: or, at the same school or in the 

same program of study at the same school;

(B) The average cumulative indebtedness of other 

borrowers in the same program at the same school as the 

borrower. 

(ii) Inform the borrower of the option to pay interest 

on a PLUS Loan while the borrower is in school;

(iii) For a graduate or professional student PLUS Loan 

borrower who has received a prior Federal Stafford, or 

Direct subsidized or unsubsidized loan, provide the 

information specified in §682.603(d)(1)(i) through 

§682.603(d)(1)(iii); and 

(iii iv) For a graduate or professional student PLUS Loan 

borrower who has not received a prior Federal Stafford, or 
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Direct subsidized or unsubsidized loan, provide the 

information specified in paragraph (f)(61)(i) through 

(f)(16)(iv xii) of this section. 

 (87) A school must maintain documentation substantiating 

the school's compliance with this section for each student 

borrower. 

Direct Loan 

§ 685.304 Counseling borrowers. 

(a) Initial counseling. (1) Except as provided in 

paragraph (a)(65) of this section, a school must ensure 

that initial counseling is conducted with each Direct 

Subsidized Loan or Direct Unsubsidized Loan student 

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) Except as provided in paragraph (a)(56) of this 

section, a school must ensure that initial counseling is 

conducted with each graduate or professional student Direct 

PLUS Loan borrower prior to making the first disbursement 

of the loan unless the student borrower has received a 

prior Direct PLUS Loan or Federal PLUS Loan. The initial 

counseling must—

(i) Inform the student borrower of sample monthly repayment 

amounts based on a range of student levels or indebtedness 

or on the average indebtedness of graduate or professional 
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DRAFT for discussion at 2nd session 

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student PLUS loan borrowers, or student borrowers with 

Direct PLUS Loans and Direct Subsidized Loans or Direct 

Unsubsidized Loans, depending on the types of loans the 

borrower has obtained, at the same school or in the same 

program of study at the same school;

(ii) For a graduate or professional student who has 

received a prior Federal Stafford, or Direct Subsidized or 

Unsubsidized Loan provide the information specified in 

§685.301(a)(3)(i)(A) through §685.301(a)(3)(i)(C); and

(iii) For a graduate or professional student who has not 

received a prior Federal Stafford, or Direct Subsidized or 

Direct Unsubsidized Loan, provide the information specified 

in paragraph (a)(4)(i) through (a)(4)(iii) and paragraph 

(a)(4)(v) of this section.

 (3) Initial counseling for Direct Subsidized Loan, 

Direct Unsubsidized Loan, and Direct PLUS Loan borrowers 

must provide the borrower with comprehensive information on 

the terms and conditions of the loan and on the 

responsibilities of the borrower with respect to the loan. 

This information may be provided to the borrower--

(i) During an entrance counseling session, conducted 

in person;

(ii) On a separate written form provided to the 

borrower that the borrower signs and returns to the school;
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DRAFT for discussion at 2nd session 

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(iii) Online, by interactive electronic means, with 

the borrower acknowledging receipt of the information;

(4) If initial counseling is conducted through 

interactive electronic means, the school must take 

reasonable steps to ensure that each student borrower 

receives the counseling materials, and participates in and 

completes the initial counseling, including completion of 

any interactive program that tests the borrower’s 

understanding of the terms and conditions of the 

borrower’s loans.

(5) A 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.

(i) Inform the student borrower of sample monthly repayment 

amounts based on a range of student levels or indebtedness 

or on the average indebtedness of graduate or professional 

student PLUS loan borrowers, or student borrowers with 

Direct PLUS Loans and Direct Subsidized Loans or Direct 

Unsubsidized Loans, depending on the types of loans the 

borrower has obtained, at the same school or in the same 

program of study at the same school;
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DRAFT for discussion at 2nd session 

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(ii) For a graduate or professional student who has 

received a prior Federal Stafford, or Direct Subsidized or 

Unsubsidized Loan provide the information specified in

§685.301(a)(3)(i)(A) through §685.301(a)(3)(i)(C); and

(iii) For a graduate or professional student who has not 

received a prior Federal Stafford, or Direct Subsidized or 

Direct Unsubsidized Loan, provide the information specified 

in paragraph (a)(4)(i) through (a)(4)(iii) and paragraph 

(a)(4)(v) of this section.

(3) 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.

(46) Initial counseling for Direct Subsidized Loan and 

Direct Unsubsidized Loan borrowers must-- 

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

(ii) Emphasize to the borrower the seriousness and 

importance of the repayment obligation the student borrower 

is assuming; 
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DRAFT for discussion at 2nd session 

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(iii) Describe the likely consequences of default, 

including adverse credit reports, garnishment of wages, 

delinquent debt collection procedures under Federal 

lawoffset, and litigation; 

(iv) 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, does not complete 

the program within the regular time for program completion, 

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;

(iv) Inform the student borrower of sample monthly 

repayment amounts based on—

(A)_A a range of student levels of indebtedness or on 

the average indebtedness of Direct Subsidized Loan and 

Direct Unsubsidized Loan borrowers, or student borrowers 

with Direct Subsidized, Direct Unsubsidized, and Direct 

PLUS Loans, depending on the types of loans the borrower 

has obtained; or 

(B) The average cumulative indebtedness of other 

borrowers in the same program at the same school as the 

borrower. or in the same program of study at the same 

school; and

A(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 
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with or does not receive the educational or other services 

that the student borrower purchased from the school.

(vi) To the extent practicable, explain the effect of 

accepting the loan to be disbursed on the eligibility of 

the borrower for other forms of student financial 

assistance;

(vii) Provide information on how interest accrues and 

is capitalized during periods when the interest is not 

paid by either the borrower or the Secretary;

(viii) Inform the borrower of the option to pay the 

interest on a Direct Unsubsidized Loan while the borrower 

is in school;

(ix) Explain the definition of half-time enrollment 

at the school, during regular terms and summer school, if 

applicable, and the consequences of not maintaining halftime enrollment;

(x) Explain the importance of contacting the 

appropriate offices at the school if the borrower 

withdraws prior to completing the borrower’s program of 

study so that the school can provide exit counseling, 

including information regarding the borrower’s repayment 

options and loan consolidation;

(xi) Provide information on the National Student Loan 

Data System and how the borrower can access the 

borrower’s records;
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DRAFT for discussion at 2nd session 

3/25/2009 

(xii) Provide the name of and contact information for 

the individual the borrower may contact if the borrower 

has any questions about the borrower’s rights and 

responsibilities or the terms and conditions of the loan.

(5) Initial counseling for graduate or professional student 

Direct PLUS Loan borrowers must--

(i) Inform the student borrower of sample monthly 

repayment amounts based on—

(A) A range of student levels or indebtedness of 

graduate or professional student PLUS loan borrowers, or 

student borrowers with Direct PLUS Loans and Direct 

Subsidized Loans or Direct Unsubsidized Loans, depending on 

the types of loans the borrower has obtained; or

(B) The average cumulative indebtedness of other 

borrowers in the same program at the same school.

(ii) Inform the borrower of the option to pay 

interest on a PLUS Loan while the borrower is in school

(iii) For a graduate or professional student PLUS Loan 

borrower who has received a prior Federal Stafford, or 

Direct Subsidized or Unsubsidized Loan provide the 

information specified in §685.301(a)(3)(i)(A) through 

§685.301(a)(3)(i)(C); and

(iv) For a graduate or professional student PLUS Loan 

borrower who has not received a prior Federal Stafford, or 

Direct Subsidized or Direct Unsubsidized Loan, provide the 
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information specified in paragraph (a)(6)(i) through 

paragraph (a)(6)(xii) of this section.

(65) 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)–(4) 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) or (a)(2) of this section 

is provided written counseling materials that contain the 

information described in paragraph (a)(4) 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. 

(6) 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 the initial 

counseling.
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(7) The school must maintain documentation substantiating 

the school's compliance with this section for each student 

borrower.