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DRAFT for discussion at 3rd meeting

4/23/2009

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

Status: Tentative agreement reached

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, 

unless the student borrower has received a prior Federal 
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DRAFT for discussion at 3rd meeting

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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 
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DRAFT for discussion at 3rd meeting

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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.

(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 
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DRAFT for discussion at 3rd meeting

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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 graduate or 

professional student 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;

(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 or by 

interactive electronic means, with the borrower 

acknowledging receipt of the information. . If initial 
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DRAFT for discussion at 3rd meeting

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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 online or

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 which may 

include 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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DRAFT for discussion at 3rd meeting

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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
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DRAFT for discussion at 3rd meeting

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(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

(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;
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DRAFT for discussion at 3rd meeting

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(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; and

(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--
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DRAFT for discussion at 3rd meeting

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(i) (i) I iInform 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 FFEL 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 FFEL
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DRAFT for discussion at 3rd meeting

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Stafford, or Direct subsidized or unsubsidized loan, 

provide the information specified in paragraph (f)(61)(i) 

through (f)(16)(ivxii) 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)(8)(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)(8)(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 
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DRAFT for discussion at 3rd meeting

4/23/2009

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 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.
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DRAFT for discussion at 3rd meeting

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(3) Initial counseling for Direct Subsidized Loan, 

Direct Unsubsidized Loan, and graduate or professional 

student 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;

(iii) Online,or by interactive electronic means, with 

the borrower acknowledging receipt of the information;

(4) If initial counseling is conducted online or

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 which may 

include completion of any interactive program that tests 
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DRAFT for discussion at 3rd meeting

4/23/2009

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;

(ii) For a graduate or professional student who has 

received a prior Federal Stafford, or Direct Subsidized or 
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DRAFT for discussion at 3rd meeting

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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--
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DRAFT for discussion at 3rd meeting

4/23/2009

(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;

(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 
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DRAFT for discussion at 3rd meeting

4/23/2009

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 

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;
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DRAFT for discussion at 3rd meeting

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(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; and
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DRAFT for discussion at 3rd meeting

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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.

(5)(7) 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 FFEL Stafford, or 
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DRAFT for discussion at 3rd meeting

4/23/2009

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 FFEL

Stafford, or Direct Subsidized or Direct Unsubsidized Loan, 

provide the information specified in paragraph (a)(6)(i) 

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

(65)(8) 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)(7) 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 paragraphs (a)(4)

(a)(6)(i) through (a)(6)(v) of this section;
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DRAFT for discussion at 3rd meeting

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(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.

(7)(9) The school must maintain documentation 

substantiating the school's compliance with this section 

for each student borrower.
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DRAFT for discussion at 3rd meeting

4/23/2009

Issue 9

Proposed Regulatory Language

Team II - School-based Loan Issues

[Note to negotiators: The following regulatory text will 

appear within the amendatory language described for section 

682.604 in Issue Paper 6.]§682.604 Processing a borrower’s 

loan proceeds and counseling borrows.

* * * * *

(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, unless the student borrower has received a 

prior Federal Stafford, Federal SLS, or Direct subsidized 

or unsubsidized loan. 

(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. 
22

DRAFT for discussion at 3rd meeting

4/23/2009

(3) Initial counseling for Stafford and graduate or 

professional student PLUS Loan borrowers must provide 

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; 

or 

(iii) Online or by interactive electronic means, with 

the borrower acknowledging receipt of the information. 

(4) If initial counseling is conducted online or

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, which may include 

completion of any interactive program that tests the 

borrower’s understanding of the terms and conditions of the 

borrower’s loans.
23

DRAFT for discussion at 3rd meeting

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(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 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.

(6) 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, 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 
24

DRAFT for discussion at 3rd meeting

4/23/2009

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; 

(v) Inform the student borrower of sample monthly 

repayment amounts based on--

(A) A range of student levels of indebtedness of 

Stafford loan borrowers, or student borrowers with Stafford 

and PLUS loans, depending on the types of loans the 

borrower has obtained; or

(B) The average indebtedness of other borrowers in 

the same program at the same school as the borrower; 

(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;
25

DRAFT for discussion at 3rd meeting

4/23/2009

(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; and

(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--
26

DRAFT for discussion at 3rd meeting

4/23/2009

(i) Inform the student borrower of sample monthly 

repayment amounts based on--

(A) A range of student levels of 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

(B) The average 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 FFEL Stafford, or Direct 

subsidized or unsubsidized loan, provide the information 

specified in §682.603(d)(1)(i) through §682.603(d)(1)(iii); 

and

(iv) For a graduate or professional student PLUS Loan 

borrower who has not received a prior FFEL Stafford, or 

Direct subsidized or unsubsidized loan, provide the 

information specified in paragraph (f)(6)(i) through 

(f)(6)(xii) of this section.
27

DRAFT for discussion at 3rd meeting

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(8) A school must maintain documentation 

substantiating the school's compliance with this section 

for each student borrower.

* * * * *

[Note to negotiators: The following regulatory text will 

appear within the amendatory language described for section 

685.304 in Issue Paper 6.]

§685.304 Counseling borrowers.

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

paragraph (a)(8)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)(8) 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. 
28

DRAFT for discussion at 3rd meeting

4/23/2009

(3) Initial counseling for Direct Subsidized Loan, 

Direct Unsubsidized Loan, and graduate or professional 

student 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; 

or

(iii) Online or by interactive electronic means, with 

the borrower acknowledging receipt of the information.

(4) If initial counseling is conducted online or 

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, which may include 

completion of any interactive program that tests the 

borrower’s understanding of the terms and conditions of the 

borrower’s loans.
29

DRAFT for discussion at 3rd meeting

4/23/2009

(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.

(6) 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;

(iii) Describe the likely consequences of default, 

including adverse credit reports, delinquent debt 

collection procedures under Federal law, 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 
30

DRAFT for discussion at 3rd meeting

4/23/2009

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;

(v) Inform the student borrower of sample monthly 

repayment amounts based on--

(A) A range of student levels of 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 indebtedness of other borrowers in 

the same program at the same school as the borrower; 

(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;
31

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(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; and

(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 Direct PLUS Loan borrowers must--
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(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 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 FFEL 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 FFEL Stafford, or 

Direct Subsidized or Direct Unsubsidized Loan, provide the 

information specified in paragraph (a)(6)(i) through 

paragraph (a)(6)(xii) of this section.
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(8) 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)–(7) 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 paragraphs (a)(6)(i) 

through (a)(6)(v) 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.
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(9) The school must maintain documentation 

substantiating the school's compliance with this section 

for each student borrower.

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