FiCEP Student Loan Counseling 5 — Questions and Answers
Question 1: A client has both federal and private student loans and is struggling financially. Which debt should a financial counselor generally prioritize for repayment protection first?
- Private loans, because they typically have higher interest rates
- Federal loans, because they offer more repayment flexibility and hardship protections (Correct answer)
- Whichever loan has the smallest balance to gain a quick win
- Both should be treated equally regardless of loan type
Correct answer: Federal loans, because they offer more repayment flexibility and hardship protections
Federal loans offer income-driven repayment, deferment, forbearance, and forgiveness options that private loans generally lack, making them the priority for hardship protection.
Question 2: Under the Saving on a Valuable Education (SAVE) plan, discretionary income is calculated as income above what percentage of the federal poverty guideline?
- 100%
- 150%
- 225% (Correct answer)
- 250%
Correct answer: 225%
The SAVE plan defines discretionary income as income above 225% of the federal poverty guideline, reducing payments compared to other IDR plans.
Question 3: A graduate student borrowed $60,000 in Graduate PLUS Loans. Under Public Service Loan Forgiveness (PSLF), what is the minimum number of qualifying payments required before forgiveness can be granted?
- 60
- 84
- 120 (Correct answer)
- 240
Correct answer: 120
PSLF requires exactly 120 qualifying monthly payments, equivalent to 10 years of service with a qualifying employer.
Question 4: Which of the following scenarios would make a borrower ineligible for the interest subsidy benefit under the SAVE plan?
- Being enrolled in a graduate degree program
- Having an unsubsidized loan balance only
- Earning income above 400% of the federal poverty guideline (Correct answer)
- Having more than $30,000 in federal student loan debt
Correct answer: Earning income above 400% of the federal poverty guideline
The SAVE interest subsidy covers any remaining interest after the monthly payment, but very high earners may not benefit if their payment covers all accruing interest.
Question 5: A borrower consolidates their defaulted federal loans through a Direct Consolidation Loan. Which condition must they agree to in order for the consolidation to resolve the default?
- Make three consecutive payments before consolidation is approved
- Agree to repay under an income-driven repayment plan (Correct answer)
- Pay all outstanding fees and interest in full at closing
- Complete a one-time financial counseling session
Correct answer: Agree to repay under an income-driven repayment plan
To resolve a default through consolidation, the borrower must agree to repay the new consolidation loan under an income-driven repayment plan.
Question 6: In the context of student loan counseling, what does 'capitalization' of interest mean and why is it significant?
- Converting accrued interest into principal, increasing the total balance on which future interest is calculated (Correct answer)
- Paying off accrued interest before it can affect the principal balance
- The government subsidizing interest during periods of deferment
- A fee charged by servicers when transferring a loan between plans
Correct answer: Converting accrued interest into principal, increasing the total balance on which future interest is calculated
Capitalization adds unpaid interest to the principal balance, meaning future interest accrues on a larger amount and total repayment cost increases.
Question 7: A borrower with federal student loans becomes permanently disabled. Which discharge program should a financial counselor first explore on their behalf?
- Closed School Discharge
- Borrower Defense to Repayment
- Total and Permanent Disability (TPD) Discharge (Correct answer)
- False Certification Discharge
Correct answer: Total and Permanent Disability (TPD) Discharge
Total and Permanent Disability Discharge is the appropriate program for borrowers who cannot work due to a severe, permanent disability.
FiCEP Student Loan Counseling 5
A client has both federal and private student loans and is struggling financially.
Which debt should a financial counselor generally prioritize for repayment protection first?