House Passes Annual Counseling Bill
By Megan Walter, Policy & Federal Relations Staff
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:
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How the student may budget for typical educational expenses and a sample budget based on the cost of attendance for the institution.
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Information about consumer rights to access a free credit report annually.
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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.
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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:
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Term and conditions of a Pell Grant.
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Approved educational expenses for which the student may use a Pell Grant.
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Why a student may have to repay the Pell Grant.
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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.
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The impact on Pell Grant eligibility if the student transfers to another institution.
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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.
Exit Counseling
During exit counseling, new information that must be provided under the bill includes:
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A summary of the outstanding balance of principal and interest due on all federal loans for each individual borrower.
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An explanation of the grace period and the date he or she can expect to enter repayment.
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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.
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Monthly payments under the standard 10-year repayment plan and income-based repayment plans based on the borrower's loan balance.
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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.
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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.
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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.
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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.
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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.
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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.
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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.”
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Amendment 6 by Rep. Hartzler (D-MO) would allow institutions to encourage individuals to attend in-person loan counseling.
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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
Larry C | 9/7/2018 8:28:17 AM
I agree with a previous comment - schools with low default rates, successful graduation rates for it's Pell grant recipients should be precluded from this requirements. Those that do have to meet these requirements should receive additional administrative cost allowance. I grow weary of unfunded mandates. Language to students needs to be simple and concise in its message.
Phil A | 9/6/2018 2:41:14 PM
I agree with Katie L that students do not read the fine print. That is exactly the reason that this requirement is meaningless. Back when the Prom Note was not a master note, students would simply 'forget' the perfunctory step of completing the note. The 'financial aid counseling' that then takes place is: "If you want a loan, you have to click the box". If students truly needed an annual note and an annual "counseling" session, that would be substantiated by increased default rates. But, over time and with flexibility in the mechanical steps to get a loan, those rates have actually fallen. Removing meaningless and arbitrary steps in the process allows more time for meaningful counseling to occur. Instead, we will return to the days of reciting, repeatedly, that you have no loan because you did not jump through one of the arbitrary hoops. And, by the way, no you can't pay your rent today because your refund money cannot be gotten here today. Get ready for a barrage of emergency loan requests!
Katie L | 9/6/2018 11:26:10 AM
I'm surprised by a lot of these comments. I don't understand how there isn't an instant recognition of the extra help this current generation needs. They never read the fine print, don't fully understand the weight of loans, don't realize their debt until they're out of school. This measure passed 406 - 4! Financial Aid counseling is your job! Most of the Amendments address practices that should already be in place by your office. Soliciting money out of the current administration to help fund education is going to be a lot harder than getting both sides to agree that the students should at least have access to as much information and counseling as possible when they are agreeing to 10+ years of debt.
Kimberly L | 9/6/2018 11:13:29 AM
I believe that this should be implemented at schools with high default rates. Ironically, we had most of these suggested requirements at our college a few years ago. Before putting these measures into practice, we had a default rate in excess of 19%. We managed to get our default rate down below 8%. I would also like to add that our school is a California community college. Tuition is covered by a state waiver for most financial aid students. Pell Grants and loans were largely used for other expenses. Sadly, we would see some students meet their aggregate loans limits here at a community college. I do not believe that these measures should be mandated by all schools.
David K | 9/6/2018 8:56:32 AM
Don't disagree with the intent but question the reality
And this from a Congress who has failed to pass reauthorization, removed a tool to assist high need students (Perkins), failed to provide oversight to DOE policies/actions, and by maintaining the federal loan limits to stagnate for over 2 decades driving students to private lenders.
Tyler C | 9/5/2018 4:49:13 PM
I'm actually 100% in favor of this, both for the Pell and loans. Yes, it'll be extra work on the student and us, but if it can prevent them from having to pay a portion or the full funds back, due to R2T4, I'm all for it. Don't think of this as a hurdle to students. Think of it as a needed educational tool to help students make the right decisions before they accept money with terms they know nothing about.
Tracey L | 9/5/2018 12:55:47 PM
Let's make yet another hurdle for our students. In particular needy ones.
Robert P | 9/5/2018 12:44:54 PM
It has been stated before that these great ideas need to be funded by the Government making them up. Until they have to pay for the staffing, hardware and software implementation costs they will keep piling operational costs onto colleges. It amazes me that they then wonder why the cost of college is going up...
Jose E | 9/5/2018 11:41:59 AM
Save the money on a study and money to implement needless steps in getting the needed funds. Hopefully, Graduate and Professional students will not be subjected to these useless tactics.
Phil A | 9/5/2018 10:34:28 AM
Absolutely agree with all these comments; this is a step back in time and a return to bureaucratic and meaningless steps in a cumbersome process. Having to read the "fine print" and check a box will have no impact on borrowing. This will serve to simply slow the process for students each year. In the absence of funding, the focus in Washington is almost always meaningless information, "communication", and "accountability".
James C | 9/5/2018 9:33:52 AM
I think annual loan counseling makes sense. Students have no idea how much they are borrowing but alternative loans needs to be part of the counseling. I also believe that all students should actively accept their loans instead of passively. But many schools have systems that can mandate students actively accept loans. Signing MPN's each year isn't necessary. Pell grant counseling will just create confusion.
Eric A | 9/5/2018 9:18:40 AM
Just what we need...one more thing to keep track of and ask students to do. Clueless people making out of touch bills once again. Let's make it more cumbersome to get aid in place for the most needy...brilliant! Let's educate students about accepting free money. Also brilliant.
Billy B | 9/5/2018 8:51:43 AM
Translation: Out of touch government plutocrats think providing counseling instead of free sources of money will somehow make students not need money to attend school.
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