First-time student borrowers must complete entrance counseling before they can receive the first disbursement of a Direct Loan, and all student Direct Loan borrowers must complete exit counseling shortly before they cease to be enrolled on at least a half-time basis. There is a special counseling requirement for student and parent Direct PLUS Loan borrowers who meet the requirements to receive a Direct PLUS Loan after having been determined to have an adverse credit history. This chapter discusses the counseling requirements for Direct Loan borrowers and associated school responsibilities.
Entrance counseling is required for all first-time student Direct Subsidized Loan, Direct Unsubsidized Loan, and Direct PLUS Loan borrowers. Entrance counseling is not required for parent Direct PLUS Loan borrowers.
For this purpose, a first-time Direct Subsidized Loan or Direct Unsubsidized Loan borrower is someone who has not received a prior Direct Subsidized Loan, Direct Unsubsidized Loan, Subsidized Federal Stafford Loan, Unsubsidized Federal Stafford Loan, or Federal SLS Loan. In the case of a graduate or professional student who requests a Direct PLUS Loan, a first-time Direct PLUS Loan borrower is someone who has not received a prior student Direct PLUS Loan or student Federal PLUS Loan. Subsidized and Unsubsidized Federal Stafford Loans, Federal SLS Loans, and Federal PLUS Loans are loan types that were made under the Federal Family Education Loan (FFEL) Program.
Before making the first disbursement of a Direct Subsidized Loan, Direct Unsubsidized Loan, or student Direct PLUS Loan to a first-time borrower, you must ensure that the student receives entrance counseling.
Entrance counseling provides borrowers with comprehensive information on the terms and conditions of the loan they are about to receive, and their responsibility for repaying the loan. This information may be provided during an in-person counseling session, on a separate written form that the borrower signs and returns to the school, or online or by interactive electronic means, with the borrower acknowledging receipt of the information.
If entrance counseling is conducted online or through interactive electronic means, your school must take reasonable steps to ensure that students finish the counseling, which may include completing a test of their understanding of the terms and conditions of the loan. If a standardized, interactive electronic tool is used for counseling, you must give the borrower any required information that is not addressed in the tool either in person or in a separate written or electronic document.
Your school must have someone with expertise in the Title IV programs reasonably available shortly after the counseling to answer students’ questions. As an alternative, if students are enrolled in an approved correspondence, distance education, or study-abroad program, they may be provided with written counseling materials before the loan is disbursed.
You may not require that students complete additional counseling beyond entrance counseling. However, your entrance counseling policy can require more than the minimum specified by the regulations as long as the additional requirements are reasonable as to time, effort, and relevance to the students’ borrowing and are not administered in a way that unreasonably impedes students’ ability to receive Direct Loans in a timely manner. For example, your entrance counseling can include one or more of the following:
Extra information as part of in-person individual or group training or through your website, other electronic means, written materials, or different methods;
A requirement for first-time student borrowers to take a test or evaluation of what they learned in counseling (though you cannot establish a passing score that they must achieve to get a Direct Loan);
A requirement for students to complete a worksheet, budget, or other exercise designed to improve financial literacy and understanding of the implications of borrowing (but you cannot require them to justify the need for a loan); or
A requirement for students to participate in a workshop, loan orientation presentation, or similar activity.
Also, although you cannot mandate it, you can encourage borrowers to participate in counseling beyond entrance counseling to be better informed about borrowing, the terms of their Direct Loans, their repayment responsibilities and options, and the consequences of default. Your school also has the academic prerogative to provide financial literacy classes, on a credit or non-credit basis, that include information on budgeting, debt management, anticipated earnings by profession, elements of loan counseling, etc., though eligibility for a Direct Loan cannot be contingent on completion of such a class.