HEAA: Senate Democrats Propose Changes to Counseling and Loan Servicing
By Joan Berkes, NASFAA Policy & Federal Relations Staff
Tom Harkin (D-IA), chairman of the Senate Committee on Health, Education, Labor and Pensions (HELP), introduced a comprehensive Higher Education Act reauthorization bill on June 25. The Higher Education Affordability Act (HEAA), which includes several provisions for which NASFAA has been advocating, takes the form of a discussion draft and marks the HELP Committee’s first step toward reauthorization of the Higher Education Act. This article is the sixth in a series that examines various provisions proposed by this bill.
The Harkin discussion draft bill seeks to improve loan servicing and introduces new counseling requirements. This article examines the following provisions of the draft bill:
- Exit counseling for borrowers
- Entrance counseling for borrowers
- Additional notifications and counseling
- Interim in-school counseling
- Parent PLUS loan counseling
- Improved student loan servicing, reduced duplication, and debt collection practices
- Improved consumer protections for student loan servicing
Exit Counseling for Borrowers
The Harkin bill would replace information required to be given during exit counseling about average monthly payments with personalized information that reflects the borrower’s actual borrowing as it relates to each available repayment plan. It would add two elements to exit counseling: a statement that student loans must be repaid even if the student does not complete the academic program (the Department of Education’s online counseling already does this), and information and resources related to financial literacy and planning, including budgeting (regulations currently require inclusion of debt-management strategies). The bill would also require the counseling to check for comprehension. Students would have to provide more information in addition to what is already required during exit counseling, including any phone number and personal electronic mailing address that the student has.
Entrance Counseling for Borrowers
The bill would require that entrance counseling be conducted prior to the signing of the promissory note, rather than prior to disbursement as is now required. It would eliminate the option of providing the information on a separate written form and require either in person or online sessions. It would add several items to the information that must be imparted:
- The benefits of federal loans over private loans (ED and the Consumer Financial Protection Bureau – CFPB – would be directed to prepare this information for the school to distribute);
- The borrower’s right to refuse or reduce a proffered Direct Loan;
- The institution's cohort default rate (CDR), with related information including the national average rate, and, if applicable, cautions about high rates;
- Speed-based repayment rate (explained in an earlier article on the Harkin bill’s proposed institutional eligibility amendments) and related information including the national average rate;
- If the school’s default risk meets a threshold measure, information about the consequences to the institution (explained in an earlier article on the Harkin bill’s proposed institutional eligibility amendments);
- The percentages of students who obtain a degree or certificate within 100 percent and within 150 percent of the normal time for completion of the student’s program; and
- Information and resources related to financial literacy and planning, including budgeting.
Additional Notifications and Counseling
The Harkin bill would expand institutions’ counseling responsibilities beyond one-time entrance and exit counseling. The bill adds written notifications and disclosures that all institutions would have to provide to students annually, and adds other counseling requirements for only certain students at an institution or for all borrowers at certain schools.
All institutions would have to provide certain personalized written notifications annually to enrolled students who are borrowers. Generally, these notifications could be fulfilled at same time as existing methods of communication, such as accompanying the annual financial aid award letter, unless the school is subject to interim counseling requirements, described further below. These notifications would inform students of the following, as applicable:
- The borrower’s outstanding balance on any Title IV loan and repayment options; general benefits of borrowing federal over private loans; information provided by ED about federal loans;
- The borrower’s remaining eligibility for the Stafford loan subsidy, and periodic notifications as a borrower approaches his or her limit; and
- The borrower’s remaining Pell Grant eligibility.
- The institution would have to require the student to provide written confirmation that he or she received and understood each of above notifications applicable to him or her.
Additional counseling session
Borrowers who have transferred from another institution or who are deemed to be at greater risk of default under criteria defined by ED would have to undergo an additional counseling session. The bill specifically prohibits schools from selecting their own criteria. The financial aid office and the student’s academic advisor would have to coordinate the counseling jointly, and:
- Disclose estimated additional costs borrower may incur by failing to progress in line with satisfactory academic progress (SAP) requirements; and
- Develop an academic plan for completion within reasonable timeframe,, in the case of borrowers at greater risk of default.
Interim in-school counseling
The Harkin bill proposes a new measure of institutional performance, the student default risk. This measure was described in the Today’s News article that addressed institutional eligibility. Schools that have a student default risk greater than the national average would have to require borrowers to undertake at least one additional in-person or online counseling session at the beginning of each academic year of enrollment. This interim in-school counseling would have to be the vehicle for providing the annual notifications described above, that would otherwise be provided as part of other existing communications such as the award letter. The counseling would also have to remind the student that he or she must repay student loans regardless of program completion.
Parent PLUS counseling
The Harkin bill would institute pre-disbursement in-person or online counseling for parent PLUS borrowers using interactive programs that test understanding. The counseling would have to explain:
- How interest accrues and is capitalized;
- When repayment begins, options for deferment, and interest accrual during deferment;
- Available repayment plans (with a specific caution that PLUS loans are not repayable under an income-based plan), with personalized information about monthly payments under each plan, and differences in interest paid and total payment under each plan;
- The obligation to repay regardless of the student’s program completion;
- Consequences of default;
- Contact information in case the borrower has questions.
Improved Student Loan Servicing, Reduced Duplication, and Debt Collection Practices
The Harkin bill would direct ED to reduce duplication in the administration of the loan programs. It would require that ED’s contracts with servicers:
- Prohibit the servicer from marketing to a borrower of a loan which the servicer services, a financial product or service while the borrower is enrolled in an institution of higher education;
- Specify that after a borrower leaves the institution, a servicer may market only through an opt-in system;
- Ensure that correspondence or website information clearly indicates that the correspondence or material relates to an ED loan; and
- Include a provision that rights and remedies available to borrowers against the servicer may not be waived by any agreement, policy, or form, including by a predispute arbitration agreement.
The bill would require ED to conduct a study of Direct Loan collection to determine whether it is efficient and effective to contract with private entities to collect loans that are in default. Another required study would determine whether specialty contracts could better serve varying segments of student loan borrowers, and, in particular, the unique needs of borrowers in delinquency or experiencing partial financial hardship and the allocation of servicer resources to assist that borrower segment.
Improved Consumer Protections for Student Loan Servicing
The Harkin bill would amend TILA by adding a chapter on postsecondary education loans. Among many other things, the new provisions would:
- Prohibit student loan servicers from charging a fee to respond to written requests;
- Require servicers to take timely action to correct error;
- Prohibit negative credit reporting for 60 days while resolving disputes about payments
- Respond to borrower requests for contact information for a loan holder in 10 days, and meet other specific timeframes for responding to borrowers;
- Establish a single point of contact for delinquent borrowers needing to submit documentation for a repayment option or modification;
- Require a liaison for service members and vets;
- Comply with Servicemembers Civil Relief Act (SCRA);
- Require up front disclosures about possibility of transfer of servicing and other related notifications and requirements;
- Prohibit recommending or encouraging delinquency or default to qualify for or enroll in an alternate repayment arrangement or refinancing; and
- Place restrictions on late fees and acceleration.
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