federal direct loans: reviewing program requirements and calculating loan amounts
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National Association of Student Financial Aid Administrators Presents …
© 2013 NASFAA
Federal Direct Loans: Reviewing Program Requirements and Calculating Loan Amounts
Module 10A
Slide 10A-2 © 2013 NASFAA
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
Slide 10A-3 © 2013 NASFAA
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
Slide 10A-4 © 2013 NASFAA
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)
Slide 10A-5 © 2013 NASFAA
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
Slide 10A-6 © 2013 NASFAA
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
Slide 10A-7 © 2013 NASFAA
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%
Slide 10A-8 © 2013 NASFAA
• 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
Slide 10A-9 © 2013 NASFAA
• 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
Slide 10A-10 © 2013 NASFAA
• 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
Slide 10A-11 © 2013 NASFAA
• 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
Slide 10A-12 © 2013 NASFAA
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
Slide 10A-13 © 2013 NASFAA
• 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
Slide 10A-14 © 2013 NASFAA
• 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
Slide 10A-15 © 2013 NASFAA
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
Slide 10A-16 © 2013 NASFAA
PLUS MPN
Multi-year feature cannot be used when:
• An endorser is used
• School or borrower chooses to use new MPN
Slide 10A-17 © 2013 NASFAA
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
Slide 10A-18 © 2013 NASFAA
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
Slide 10A-19 © 2013 NASFAA
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
Slide 10A-20 © 2013 NASFAA
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
Slide 10A-21 © 2013 NASFAA
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
Slide 10A-22 © 2013 NASFAA
• 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
Slide 10A-23 © 2013 NASFAA
Loan Period
• The period of enrollment to which the loan applies
• COA, EFC, and EFA correspond to loan period
Slide 10A-24 © 2013 NASFAA
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
Slide 10A-25 © 2013 NASFAA
• 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
Slide 10A-26 © 2013 NASFAA
• 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
Slide 10A-27 © 2013 NASFAA
• 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
Slide 10A-28 © 2013 NASFAA
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
Slide 10A-29 © 2013 NASFAA
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
Slide 10A-30 © 2013 NASFAA
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
Slide 10A-31 © 2013 NASFAA
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
Slide 10A-32 © 2013 NASFAA
• Upper limit for total of borrower’s loans over course of education
• Capitalized interest does not count toward aggregate balance
Aggregate Loan Limits
Slide 10A-33 © 2013 NASFAA
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)
Slide 10A-34 © 2013 NASFAA
Calculating Graduate Direct Unsubsidized Loan Eligibility
Cost of attendance
– Estimated financial assistance
= Maximum Direct Unsubsidized Loan eligibility for loan period (up to $20,500)
Slide 10A-35 © 2013 NASFAA
Cost of attendance
– Estimated financial assistance
= Maximum parent or graduate PLUS eligibility for loan period
Calculating PLUS Eligibility
Slide 10A-36 © 2013 NASFAA
• 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
Slide 10A-37 © 2013 NASFAA
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