An Introduction to US Student Loans

1. An Introduction to US Student Loans Presented by: Erich McElroy

2. Agenda Terms and Players The Life of a Direct Loan Certification Basics Disbursement Rules Refund Calculations Administrative briefing Other Funds Available Resources Questions/ Making the Process Work for You

3. Players in the Process • Borrower • Student • Department of Education (ED) • Institution • No longer involved in the same way • Lenders • Guarantors • Servicers

4. Key Terms for Today Title IV Federal Family Education Loan Program (FFELP) Direct Loans Stafford Subsidized (Unsubsidized) PLUS Dependent Independent MPN – Master Promissory Note

5. Additional Terms for Today FAFSA – Free Application for Student Aid COA – Cost of Attendance EFC – Expected Family Contribution EFA – Estimated Financial Assistance SAR – Student Aid Report ISIR – Institutional Student Information Report

6. What Programs Can We Use Overseas? • Stafford Loans • Borrower is always student • Loans can be • Subsidized: Based on need and no interest or payments while student is at least half-time in-school or other eligible status • Unsubsidized: Not based on need and does have interest but no payments required while borrower is at least half time in school or other eligible status • Current interest is set at 4.5% and 6.8% • Repayment typically begins six months after borrower ceases to be enrolled at least ½ time. • Origination fee of 1% for loans, but there is a .5% rebate.

7. What Programs Can We Use Overseas? • PLUS Loan • Borrower could be parent of Undergraduate student OR student in Postgraduate studies • Loan is always unsubsidized and is not need based • Interest is fixed at 7.9% • Repayment begins: • Parents – 60 days after final disbursement – Unless extended • Students - Automatically deferred until graduation. Can then be extended 6 months after less than ½ time • Origination fee of 4.0%, with a 1.5% rebate

8. Your Responsibilities • Meeting and maintaining loan-program participation requirements; • Establishing borrower eligibility; • Originate loan program loans; • Disbursing loan program proceeds; • Counseling students; • Notifying the Department of changes to borrower information; and • Reporting borrower enrollment information to the U.S. Department of Education’s (ED’s) National Student Loan Data System (NSLDS). (SSCR)

9. New Process of Direct Loans

10. Change begins 1 July 2010 Federal Family Education Loan Program (FFELP) Ends The loan types received remain the same, but the source of funds has changed

11. What’s the same? • Types of aid: • Subsidized Loan • Unsubsidized Loan • Parent PLUS • Graduate PLUS

12. Eligibility Requirements There is no significant changes to the eligibility requirements Still require FAFSA, ISIRs (formally SAR) Institution still reviews eligibility and sets award levels

13. Direct Loans – The Benefits • Single source of funds • Single application site and process • Single Entrance and Exit Portal • One website - studentloans.gov

14. Direct Loans – New Opportunities No more paper cheques Funding delivered electronically Must be maintained following specific rules Requires reconciliation

15. Direct Loans – Other differences • Process simplified • Borrower • University • Department of Education • Via servicers/contractors • Will include Sallie Mae • No more guarantor or bank

16. Process with DL • Initial process with the student is the same • Student submits FAFSA • Institution receives SAR/ISIR • Institution determines award • Award Letter • Borrower completes MPN • For ‘Foreign Schools’ must be done each year • New borrowers do Entrance Counseling • Timeline for this process is set by institution

17. Establishing Eligibility

18. Establish Borrower Eligibility Is the student enrolled as a “regular” student? Possibly some changes to programs leading to a degree (foundation eligibility in new regs) Is the student academically qualified? Can now accept student who has completed at least 6 credits or is home schooled Is the student enrolled appropriately? Is the student making satisfactory academic progress? Have you received a VALID ISIR or SAR?

19. Cost of Attendance • COA includes: • Tuition and fees • Living expenses such as room and board • Books and supplies • Personal expenses such as the renting or purchase of a personal computer • Transportation costs

20. Expected Family Contribution (EFC) • Based on student and (for dependents) parents assets • Estimated by ED and supplied on ISIR and SAR • 9 month EFC given • Can be adjusted by school only • And only by adjusting the factors • For longer or shorter periods, EFC must be prorated

21. A Valid ISIR/SAR Must have 00000 or number If ‘C’ Comment code listed must be resolved Must evaluate all tranactions Other issues on a case by case basis

22. Estimated Financial Aid (EFA) • Amount of aid student will receive for the loan period • Can include • Loans • Grants • Scholarships • Work awarded based on enrollment • Will no longer include VA benefits as of July 1, 2010.

23. Professional Judgment • Schools are allowed by law to, on a case by case basis, adjust the following: • Student’s COA • A data element used to calculate the EFC • Dependency status

24. Professional Judgment If a school administrator uses professional judgment, he or she must follow these guidelines: Professional judgment is performed on a case-by-case basis. The reason for the professional judgment must be documented in the student’s file, and it must relate to the student’s special circumstances. A school administrator can only perform a dependency override from dependent to independent. Professional judgment cannot be used to waive student eligibility requirements or circumvent the intent of U.S. law and regulations. Examples of special circumstances listed in the law include elementary or secondary tuition, medical or dental expenses not covered by insurance, unusually high child care costs, recent unemployment of a family member… New! A school may offer the additional unsubsidized Stafford if it can verify the parent does not provide financial support and refuses to file a FAFSA. Recommend testing this via documentation.

25. Loan Periods and Amounts

26. Academic Year • Student loans are based on the academic year rather than the calendar year • Can now be longer than 12 months • Two types: • Scheduled academic year (SAY) • Borrower based academic year (BBAY) • Clock hour and non-term credit hour schools must use BBAY

27. SAY • Fixed period of time • Generally starts and ends at same time each year • Normally corresponds to schools academic year or published calendar • Summer terms are part of the SAY • Trailer • Header • Can be standard or program by program

28. BBAY Not a set period of time Based on students enrollment and progress Can be alternated with SAY but one cannot overlap the other Begins when the student enrolls Ends when student has completed hours or semester requirements

29. BBAY • Term based BBAY must include same number of terms as the SAY • Excluding summer sessions • Term based must be at least 30 weeks in length • Unless includes summer term • Clock hour based must be at least 30 weeks (900 clock hours) in length • Including summer sessions

30. Loan Limits and Amounts

31. Annual Amounts as of July 1 2008

32. Annual Amounts as of July 1 2007 • Graduate Students • $8,500 subsidized • $12,000 unsubsidized (was $10,000-before 01/07/07) *Note that all amounts given in United States dollars

33. Aggregate • Dependant undergraduate • $23,000 Sub maximum – but up to $31,000 in total • Dependant undergraduate where parent has been denied PLUS • $57,500 • No more than $23,000 can be subsidized • Graduate students • $138,500 • No more than $65,500 can be subsidized • Consolidation calculations

34. Determining the Amount • COA – EFC – EFA = need • Need = Subsidized eligibility • Remainder annual loan limit can be awarded in unsubsidized funds • Dependant or Independent? • Grade Level? • Aggregate? • Borrower requested amount

35. PLUS • No annual or aggregate limits • Amount can be no higher than the lesser of: • COA – EFA • Borrower requested amount • Lender approved amount • Borrower can have multiple loans for multiple dependants for same academic year

36. COA Calculation Worksheet

37. Disbursements

38. Key terms • Disbursement – Date funds are credited to the student’s account at the institution • Delivery – Date excess funds are given to the student • Origination – Process formally known as ‘certification’ • Booked – When a loan is set in the DL system

39. Key terms - continued • COD – Common Origination & Disbursement System • In place of systems such as ASA Direct or OpenNet (might still use for private loans) • G5 – Government site to manage funds from US Treasury • Reconciliation • Process of balancing internally and with the ED

40. The biggest changes… Funds will be deposited directly into an account you designate Payment is triggered after disbursement is set Funds are drawn down by institution Funds are not delivered by specific borrower

41. The earliest scheduled disbursement date is the 10days before the start of term. This is new guidance for Foreign Schools which has not been put into writing yet. Determining Disbursements

42. Disbursements for first time, first year borrowers must be delayed until the borrower completes 30 days of the program. Subsequent disbursements may be made as usual without the 30 day delay. Determining Disbursement – First Time Borrowers

43. COD Tool • The Department has designed a new system just for Foreign Schools • Originate Loans • Set first disbursement • Calculate Cost of Attendance • Using your institutions information

44. Getting the funds When you originate you will set pending disbursment Seven days prior to disbursement you can make a disbursement active

45. Active Disbursement • An active disbursement (sent in a batch) will total to an amount of US Dollars • Example First Batch is for a total all students $100,000

46. Active Disbursement cont. The $100,000 is processed and accepted (or rejected) Money is authorized to be drawn down Draw down will occur in G5.

47. G5 With in a few days $100,000 should be available in G5 and you request the funds Funds will be deposited into your account in a few days

48. What happens when funds arrive? When the funds arrive in your account you have three local business days to credit the student’s institutional account or initiate a return of the funds

49. Adjust Disbursment Date If the actual disbursement date changed you need to go back into COD and update the record The disbursement triggers the date interest begins to accrue

50. Options • Most schools in the U.S. post a ledger transaction to the student’s account before receiving the G5 funds. • Benefits mean there is no three day rush • Drawback – You don’t have the money yet