Entrance Counseling for Federal Education Loans
Students who are first-time borrowers of subsidized or unsubsidized Federal Stafford loans must receive entrance counseling at or before the date the school can release the first loan disbursement. Entrance counseling is also required for Federal Grad PLUS loan borrowers who never previously borrowed a Federal Grad PLUS loan.
Entrance counseling helps ensure that the borrower understands the terms and conditions of the loan, as well as his or her rights and responsibilities, before receiving the loan proceeds. Once entrance counseling is completed, the school must document that the student participated in and completed the counseling requirement. Borrowers who do not complete an entrance counseling session will be unable to receive their federal education loan funding.
Schools may conduct loan entrance counseling in person, on a written form that the borrower must sign and return to the school, online or through interactive electronic means with borrowers acknowledging receipt of materials. Interactive electronic tools include the U.S. Department of Education's online entrance counseling tool, available through StudentLoans.gov. It takes about half an hour to complete the online entrance counseling.
Regardless of how the school provides entrance counseling, the entrance counseling must include:
- A review of the borrower's rights and responsibilities related to the student loan obligation and other information required by law
- A review of available repayment plans and the estimated monthly payments under each repayment plan
- Tips on budgeting and managing college costs
- Facts about other resources available to help cover educational costs
Pay attention to the entrance counseling. It may be boring, but it is very important. Students who don't pay attention may have difficulty managing their loans when they graduate.
Borrowers are also required to undergo exit counseling upon leaving school.
Borrower Rights and Responsibilities
The entrance counseling will discuss the importance of repayment and the consequences for failing to repay a federal education loan.
A borrower is required to repay the full loan amount even if he or she does not complete the academic program, takes longer than normal to complete the program, is unable to obtain employment upon completion or is otherwise dissatisfied with or does not receive educational or other services purchased from the school.
Defaulting on a federal education loan may lead to negative credit reports, garnishment of wages, offset of federal and state income tax refunds, offset of Social Security benefit payments, collection charges of up to 20% of payments on the loan, ineligibility for FHA and VA mortgages and other debt collection activities (including possibly litigation). The bad credit that results from a default may make it very difficult for the borrower to get credit cards, auto loans or mortgages. It may also affect the borrower's ability to get a job or rent an apartment.
The entrance counseling will discuss the use of the Master Promissory Note (MPN). Borrowers are entitled to receive a copy of the MPN when the loan is disbursed or earlier.
The entrance counseling will discuss the maximum eligibility period to receive subsidized Federal Stafford loans.
Borrowers are required to undergo exit counseling if they withdraw, graduate or drop below half-time enrollment. The entrance counseling will review:
- The school's definition of half-time enrollment ‐ during regular terms and summer periods ‐ and the consequences of not maintaining half-time enrollment
- The importance of contacting the appropriate school offices if the borrower withdraws prior to completing the program of study, so the school can provide exit counseling, including information regarding his or her repayment options and loan consolidation
The entrance counseling will discuss how interest accrues and is capitalized during periods when interest is not paid by the borrower or the U.S. Department of Education. Borrowers of unsubsidized Federal Stafford loans and Federal PLUS loans have the option of paying the interest while the student is still enrolled in school.
The entrance counseling will provide comparisons of unsubsidized Federal Stafford loans and Federal Grad PLUS loans for Federal Grad PLUS loan borrowers who have previously received Federal Stafford loans. This comparison will review the maximum interest rates on these loans, periods when interest accrues on these loans and when the loans will enter repayment.
Borrowers must notify the lender if they change their name (e.g., due to marriage), address or telephone number. Borrowers must also notify the lender if their employer changes or their employer's address or telephone number changes. Borrowers must notify the lender if there is a change in the borrower's status that may affect the loan, such as a borrower gets a job while receiving an unemployment deferment.
Borrowers will receive a statement before repayment begins that lists all of their federal education loans, including the interest rates, fees, balance owed and a repayment schedule.
When the loan is paid in full, the lender must provide the borrower with documentation of the paid status of the loan. Borrowers should keep this documentation indefinitely, in case they ever need to prove that the loan has been paid off.
Available Repayment Plans
The entrance counseling will discuss available repayment options. In particular, the counseling will provide examples of monthly repayment amounts based on a range of student levels of indebtedness. The examples will depend on the types of loans the borrower has obtained or the average cumulative indebtedness of other borrowers in the same programs of study as the borrower at the same school.
The entrance counseling will review other options relating to repaying their loans, including:
- Borrowers may be able to obtain a deferment or forbearance if they encounter financial difficulty or satisfy other requirements.
- Borrowers are entitled to prepay their loans in full or in part at any time without incurring a prepayment penalty or fee.
Tips on Budgeting and Managing College Costs
Many schools use entrance counseling as an opportunity to teach borrowers basic financial literacy concepts, such as how to create a budget and how to manage money. They also encourage students to borrow as little as possible, less than the maximum amount allowed.
The entrance counseling must also discuss the impact of accepting the loan on the student's eligibility for other forms of student financial aid.
The U.S. Department of Education also offers Financial Awareness Counseling in addition to entrance and exit counseling. This counseling is not required, but borrowers may find it interesting and helpful in managing their finances and avoiding default. The tool is populated with the borrower's federal student loan information automatically. Borrowers can add private student loans manually.
Other Available Resources
The entrance counseling will provide information on other sources of information about the student loans, including:
- The names and contact information of individuals who can answer questions about the borrower's rights and responsibilities or loan terms and conditions
- Information about the National Student Loan Data System (NSLDS) and how the borrower can access his or her records
If federal education loan borrowers have any questions about their rights and responsibilities and/or the terms and conditions of their loans, they should contact the college financial aid administrator (or other representative with an expertise in Title IV Federal aid programs) from the school at which they borrowed the loan or read the U.S. Department of Education publication, Repay Your Loan.