National Association of Student Financial Aid Administrators Presents …

© 2013 NASFAA

Federal Direct Loans: Reviewing Program Requirements and Calculating Loan Amounts

Module 10A

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Definition: Subsidized Loan

• Subsidized loans are need-based

• Limited to undergraduate students

• Interest does not accrue when student is:

– Enrolled at least half-time;

– In grace period (certain loans); or

– In deferment status

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Definition: Unsubsidized Loan

• Unsubsidized loans are not need-based• Student is responsible for interest payments

during in-school, grace, and deferment periods• Student may opt to:

– Pay interest; or– Have interest capitalized

• Repayment begins six months after student graduates or ceases half-time enrollment

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Definition: PLUS

• PLUS loans are not need-based

• Two types of borrowers:– Parents of dependent students

– Graduate and professional students

• May borrow up to cost of attendance (COA) minus estimated financial assistance (EFA)

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Definition: PLUS

• Borrower is responsible for all interest payments

• Based upon favorable credit history

• Repayment begins within 60 days of date loan is fully disbursed

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Interest rates effective 7/1/13

• Creates a fixed-variable solution• T-bill + 2.05% undergraduate• T-bill + 3.60% graduate• T-bill + 4.60% Parent/Grad PLUS

• Interest rates will be calculated every year, but once the loan is made, the interest rate will remain for the life of the loan

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Interest Rate Continues

Interest Rates for 2013-2014• Undergraduates Stafford: 3.86% • Graduate Stafford: 5.41%• Parent and Graduate PLUS: 6.41%

Interest Rates Caps• Undergraduates Stafford: 8.25% • Graduate Stafford: 9.50%• Parent and Graduate PLUS: 10.50%

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• School may use professional judgment (PJ) authority to offer unsubsidized loan to student whose parents:– No longer financially support student – Will not support student in future– Refuse to complete FAFSA

• Student must complete and submit FAFSA containing all required student information

• School must confirm parental financial support has ended and will not resume in future, and refusal to complete FAFSA

Direct Loan Application Process

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• A Direct Loan Master Promissory Note (MPN) is a binding agreement between a borrower and the U.S. Department of Education (ED)

• Borrower completes and signs paper MPN, or may choose to complete and sign electronic MPN via StudentLoans.gov if school participates in electronic MPN process

Direct Loan MPN

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• Multi-year feature allowed for most schools

• Must sign more than one MPN if:– Student transfers to school that is not eligible or

chooses not to use multi-year feature;

– Borrower chooses not to use existing MPN for new loans; or

– Borrower previously borrowed only through Federal Family Education Loan (FFEL) Program

Direct Loan MPN

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• Parent definition:

– Biological or adoptive mother or father

– Stepparent if biological or adoptive mother or father remarried at time FAFSA is filed

• Legal guardian is not considered parent unless also adoptive parent

Parent PLUS

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Parent PLUS / Graduate PLUS • Dependent student for whom parent borrows must file

FAFSA and meet all Title 4 eligibility requirements• Parent must meet same SSN, citizenship, default, and

overpayment criteria as student• Graduate or professional student borrower must:

– Submit FAFSA

– Have unsubsidized Direct Loan eligibility determined and be notified of that eligibility before borrowing PLUS

– Be an eligible student

– Have repaid any Title IV funds obtained fraudulently, if applicable

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• More than 90 days delinquent on account; or

• During 5 years preceding credit report date:– Default determination;

– Bankruptcy discharge;

– Foreclosure, repossession, tax lien, or wage garnishment; or

– Title IV debt write-off

PLUS—Adverse Credit History

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• Allows denied PLUS applicant opportunity to appeal denial with credit-worthy endorser

• Endorser assumes responsibility for loan payments if borrower unable to repay

PLUS—Endorser

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PLUS MPN• Parent borrower must complete separate

MPN for each dependent student

• If different parents want to borrow for same dependent student, each must complete separate MPN

• Graduate or professional student must complete for graduate PLUS

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PLUS MPN

Multi-year feature cannot be used when:

• An endorser is used

• School or borrower chooses to use new MPN

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Direct Loan Confirmation

Two types of confirmation:• Active—Direct Loan borrower affirmatively

responds to accept proposed loan type and amount; or

• Passive—Direct Loan borrower is notified of loan type and amount but need not respond except to decline or reduce proposed loan amount

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Direct Loan Active Confirmation ExamplesBorrower loan amount/type confirmation may be:• Signed and returned award letter;• Secure website using personal identification

number (PIN);• School request form; or• Documented telephone response

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Direct Loan Amount

Direct Loan amount which may be originated is lesser of:

• Maximum amount for which borrower is eligible; or

• Loan amount requested by borrower

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Denial or Reduction of Direct Loans• Denial or reduction of eligibility allowed

using professional judgment (PJ) only:– In unusual circumstances– On case-by-case basis

• Use of PJ must be documented in student’s file

• Reason for denial or reduction must be provided in writing to loan applicant

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Denial or Reduction of Direct Loans• Exceptional circumstances are not

specified in statute or regulation

• Examples used by financial aid administrators include:

– High debt burden

– Demonstrated unwillingness to repay

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• Loan period• COA• EFC (undergraduates)• EFA• Annual loan limits• Aggregate loan limits• Enrollment pattern/frequency of borrowing• Projected program completion date (for

proration)

Factors for Determining Loan Amounts

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Loan Period

• The period of enrollment to which the loan applies

• COA, EFC, and EFA correspond to loan period

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Academic Year (AY)• Measures the amount of academic work in

credit or clock hours to be completed over a period of weeks.

• Undergraduate credit-hour program minimums:– 30 weeks of instructional time; and– 24 semester/trimester or 36 quarter credit hours

• Undergraduate clock-hour program minimums:– 26 weeks of instructional time– 900 clock hours

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• Educational costs student is expected to incur for loan period

• Usually covers full AY

• If loan period is greater than or less than AY, COA must be adjusted accordingly

Cost of Attendance

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• Used to calculate amount of undergraduate student’s Direct Subsidized Loan eligibility

• Not used to calculate Direct Unsubsidized Loan or PLUS eligibility

• Must correspond to length of loan period

Expected Family Contribution

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• Estimated amount of assistance student expects to receive from federal, state, institutional, or other sources

• Does not include family’s own resources

Estimated Financial Assistance

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If prior loans were borrowed during same AY, include in EFA:

• All Direct Subsidized Loan funds attributable to loan period

• Direct Unsubsidized Loan and/or PLUS funds exceeding EFC applicable to loan period

Estimated Financial Assistance

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If at least one parent is ineligible for PLUS:

• School must allow student to borrow under same higher undergraduate annual Direct Loan limits as for undergraduate independent students

• Other parent does not have to borrow

Parent Cannot Borrow PLUS

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Exceptional circumstances include but are not limited to parent:• Who is incarcerated;

• Whose whereabouts are unknown;

• Who is not U.S. citizen or eligible noncitizen and is unable to prove he or she is in U.S. on nontemporary basis with intent to become citizen or permanent resident;

Parent Cannot Borrow PLUS

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Exceptional circumstances include but are not limited to parent:• Receiving only public assistance or disability

benefits and school documents as unable to repay PLUS;

• Who has filed for bankruptcy and provides court documentation prohibiting additional debt; or

• School documents as unable to repay PLUS due to debt burden or income-to-debt ratio

Parent Cannot Borrow PLUS

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• Upper limit for total of borrower’s loans over course of education

• Capitalized interest does not count toward aggregate balance

Aggregate Loan Limits

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Frequency of Borrowing AnnualLoan LimitsTwo academic year concepts are used to establish frequency with which students may borrow annual loan limits:

• Scheduled academic year (SAY)

• Borrower-based academic year (BBAY)

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Calculating Graduate Direct Unsubsidized Loan Eligibility

Cost of attendance

– Estimated financial assistance

= Maximum Direct Unsubsidized Loan eligibility for loan period (up to $20,500)

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Cost of attendance

– Estimated financial assistance

= Maximum parent or graduate PLUS eligibility for loan period

Calculating PLUS Eligibility

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• Prior school grade level 1 loan = $3,500– Loan 1 ($2,000): 9/3/13 to 12/20/13– Loan 2 ($1,500): 1/13/14 to 5/16/14– Loan period = 9/3/13 to 5/16/14

• Prior school loan period ends on later of:– 30 weeks after 9/3/13—4/1/14– Last day of prior loan period—5/16/14

Transfer Student Example

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