[Code of Federal Regulations] [Title 34, Volume 3] [Revised as of July 1, 2001] From the U.S. Government Printing Office via GPO Access [CITE: 34CFR685.304] [Page 867-869] TITLE 34--EDUCATION CHAPTER VI--OFFICE OF POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM--Table of Contents Subpart C--Requirements, Standards, and Payments for Direct Loan Program Schools Sec. 685.304 Counseling borrowers. (a) Initial counseling. (1) Except as provided in paragraph (a)(4) of this section, a school must conduct initial counseling prior to making the first disbursement of the proceeds of a Direct Subsidized or Direct Unsubsidized Loan to a borrower unless the student borrower has received a prior Direct Subsidized, Direct Unsubsidized, Federal Stafford, Federal Unsubsidized Stafford, or Federal SLS Loan. (2) The counseling must be in person, by audiovisual presentation, or by interactive electronic means. In each case, the school must ensure that an individual with knowledge of 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 school may provide the student borrower with written counseling materials prior to disbursing the loan proceeds. (3) In conducting the initial counseling, the school must-- (i) Explain the use of a Master Promissory Note; (ii) Emphasize to the borrower the seriousness and importance of the repayment obligation the student borrower is assuming; (iii) Describe in forceful terms the likely consequences of default, including adverse credit reports, garnishment of wages, and litigation; (iv) Provide the student borrower with general information with respect to the average indebtedness of student borrowers who have obtained Direct Subsidized or Direct Unsubsidized [[Page 868]] Loans for attendance at that school or in the student borrower's program of study; (v) Inform the student borrower as to the average anticipated monthly repayment for those student borrowers based on the average indebtedness provided under paragraph (a)(3)(iv) of this section. (4) A school may adopt an alternative approach for initial counseling as part of the school's quality assurance plan described in Sec. 685.300(b)(9). If a school adopts an alternative approach, it is not required to meet the requirements of paragraphs (a)(1)-(3) 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) of this section is provided written counseling materials that contain the information described in paragraph (a)(3) 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. (5) A school that conducts initial counseling through interactive electronic means must take reasonable steps to ensure that each student borrower receives the counseling materials, and participates in and completes initial counseling. (6) The school must maintain documentation substantiating the school's compliance with this section for each student borrower. (b) Exit counseling. (1) A school must conduct exit counseling with each Direct Subsidized or Direct Unsubsidized Loan borrower shortly before the student borrower ceases at least half-time study at the school. (2) The counseling must be in person, by audiovisual presentation, or by interactive electronic means. In each case, the school must ensure that an individual with knowledge of 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 school may provide the student borrower with written counseling materials within 30 days after the student borrower completes the program. (3) If a student borrower withdraws from school without the school's prior knowledge or fails to complete the exit counseling as required, the school must provide exit counseling 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) In conducting the exit counseling, the school 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 or Direct Unsubsidized Loans for attendance at that school or in the student borrower's program of study; (ii) Review for the student borrower available repayment options including the standard repayment, extended repayment, graduated repayment, and income contingent repayment plans, and loan consolidation; (iii) Provide options to the student borrower concerning those debt- management strategies that the school determines would facilitate repayment by the student borrower; (iv) Explain to the student borrower how to contact the party servicing the student borrower's Direct Loans; (v) Meet the requirements described in paragraphs (a)(3)(ii) and (iii) of this section; (vi) Review with the student borrower the conditions under which the student borrower may defer repayment or obtain a full or partial cancellation of a loan; [[Page 869]] (vii) Review with the student borrower information on the availability of the Department's Student Loan Ombudsman's office; and (viii) Require the student borrower to provide corrections to the school's records 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 provide this information to the Secretary within 60 days. (5) A school that conducts exit counseling through interactive electronic means must take reasonable steps to ensure that each student borrower receives the counseling materials, and participates in and completes exit counseling. (6) The school must maintain documentation substantiating the school's compliance with this section for each student borrower. (Approved by the Office of Management and Budget under control number 1845-0021) (Authority: 20 U.S.C. 1087a et seq.) [59 FR 61690, Dec. 1, 1994, as amended at 62 FR 63435, Nov. 28, 1997; 64 FR 58971, Nov. 1, 1999; 65 FR 65651, Nov. 1, 2000; 66 FR 34766, June 29, 2001]