Editor’s Note: This article has been updated following consideration of amendments, outlined at the end of the article, and passage of the bill on September 5, 2018.
The House of Representatives passed a bill on Wednesday that would implement new requirements designed to ensure that students make informed decisions when accepting federal loans and Pell Grants. The bill easily cleared the chamber by a vote of 406-4.
The Empowering Students Through Enhanced Financial Counseling Act, which would implement new requirements designed to ensure that students make informed decisions when accepting federal loans and Pell Grants, has previously passed through the full House in 2014 (by a vote of 405-11), and in 2016 (by voice vote), but was never considered in the Senate in either session. Rep. Brett Guthrie (R-KY), chairman on the Subcommittee on Higher Education and Workforce Development, along with 21 other Republican and Democrat representatives, sponsored the measure.
The bill would change the current one-time entrance counseling requirement for student loans into an annual counseling requirement that must be completed before the student receives a disbursement of any federal loan. In conjunction with the annual counseling, the borrower would be required to actively accept their loans annually by signing the master promissory note (MPN), or by signing a separate, written statement collected by the institution, which could be signed electronically. Passive confirmation of a subsequent loan would no longer be permitted.
All Loan or Pell Grant Recipients
The bill would require all recipients or borrowers of either Pell Grants or Direct Loans (DL), including parent PLUS borrowers, to receive the following information in their annual counseling before a disbursement from either program could be made:
How the student may budget for typical educational expenses and a sample budget based on the cost of attendance for the institution.
Information about consumer rights to access a free credit report annually.
The average income and the percentage of employed people with a high school diploma, some college completed or a certificate or a bachelor's degree for the state in which the institution is located.
Where to find additional financial literacy resources offered by the Financial Literacy and Education Commission.
Pell Grant Recipients
The bill would also include a requirement for all eligible Pell Grant recipients to complete annual counseling before the first disbursement of their grant each award year. Information conveyed in counseling would include explanations of:
Term and conditions of a Pell Grant.
Approved educational expenses for which the student may use a Pell Grant.
Why a student may have to repay the Pell Grant.
The maximum number of semesters or equivalent for which the student may be eligible to receive a Pell Grant, and a statement of the amount of time remaining for which the student may be eligible to receive a Pell Grant.
The impact on Pell Grant eligibility if the student transfers to another institution.
How the student may seek additional financial assistance from the institution’s financial aid office due to a change in the student’s financial circumstances, and the contact information for such an office.
During exit counseling, new information that must be provided under the bill includes:
A summary of the outstanding balance of principal and interest due on all federal loans for each individual borrower.
An explanation of the grace period and the date he or she can expect to enter repayment.
An explanation of interest capitalization and options to pay interest when not required; i.e. during his or her grace period, or any subsequent deferment or forbearance periods.
Monthly payments under the standard 10-year repayment plan and income-based repayment plans based on the borrower's loan balance.
Additional impacts of failure to repay, including decreased credit score, potential reduced ability to rent or purchase a home or car, and potential difficulty in securing employment.
Contact information and the website for the borrower's loan servicer.
The bill would allow institutions to provide additional information or counseling but institutions may not require the additional counseling as a condition for disbursement. The Department of Education (ED) would be required to develop new tools to comply with the new requirements created under this bill
Study of Effectiveness of Counseling
Lastly, as it relates to counseling, the bill also includes intentions to pursue a study of the effectiveness of student loan counseling. The study would collect data on who is completing counseling and measure it against those populations' persistence, degree attainment, and cumulative borrowing levels to assess whether annual counseling, including exit counseling and the ED-developed online tool, is having the intended impact on financial literacy.
In response to H.R. 1635, NASFAA issued the following statement:
Entrance and exit counseling in their current form are simply not working for the bulk of student borrowers. Most students are far too preoccupied during entrance counseling to fully absorb this important information, and students who most need exit counseling are the least likely to receive it since they often drop out of school before administrators can intervene.
NASFAA supports giving students the tools and help they need to make wise borrowing decisions, including several provisions within this bill. While this bill is a step in the right direction, we are concerned that it lacks flexibility for schools need to meet the unique needs of their student populations.
Giving more students and families tools to create and adhere to a reasonable budget, and then only take on permissible levels of debt are laudable goals. The key is to try and figure out what information should be delivered to which students at the right time and in the right way. The answers to those questions may differ depending on each institution's student population. We look forward to working with Congress on these concepts before we reach final legislation.
Amendments to the Bill
Prior to final passage of the bill on Wednesday, the House adopted seven amendments to the bill.
Amendment 1 by Rep. Stefanik (R-NY) would require annual counseling to include an explanation of how to contact the institution’s financial aid office in the event of a change in the student’s financial circumstances. Also, the amendment would require a borrower to specify their loan amount as part of annual loan acceptance.
Amendment 2 by Rep. Murphy (D-FL) would require annual counseling to include an explanation that in the event the student transfers to another institution, the aggregate limits in the case of loans and the usage limits in the case of Pell Grants still apply regardless of credit transfer.
Amendment 3 by Rep. O’Halleran (D-AZ) would clarify that as part of annual counseling, information on anticipated monthly payment amounts would include all income-driven repayment options for which the borrower is eligible.
Amendment 4 by Rep. Lewis (R-MN) would require annual counseling for Parent PLUS borrowers to include a notification that their dependent student should consider accepting any grant, scholarship, or work-study jobs for which the student is eligible prior to borrowing Parent PLUS Loans.
Amendment 5 by Rep. Allen (R-GA) would clarify that institutions may offer additional counseling beyond the new annual counseling requirement, but that counseling cannot “preclude or be considered a condition for disbursement of aid.”
Amendment 6 by Rep. Hartzler (D-MO) would allow institutions to encourage individuals to attend in-person loan counseling.
Amendment 7 by Rep. Jayapal (D-WA) would require exit counseling to include language regarding potential dangers of third-party student debt relief companies.
Publication Date: 9/5/2018