Federal Direct Loans: Reviewing Program Requirements and Calculating Loan Amounts

1. Module 10A Federal Direct Loans: Reviewing Program Requirements and Calculating Loan Amounts

2. 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

3. 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

4. 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)

5. 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

6. 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

7. 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%

8. Direct Loan Application Process • 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

9. Direct Loan MPN • 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

10. Direct Loan MPN • 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

11. Parent PLUS • 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

12. 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

13. PLUS—Adverse Credit History • 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

14. PLUS—Endorser • Allows denied PLUS applicant opportunity to appeal denial with credit-worthy endorser • Endorser assumes responsibility for loan payments if borrower unable to repay

15. 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

16. PLUS MPN Multi-year feature cannot be used when: • An endorser is used • School or borrower chooses to use new MPN

17. 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

18. Direct Loan ActiveConfirmation Examples Borrower 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

19. 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

20. 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

21. 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

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

23. Loan Period • The period of enrollment to which the loan applies • COA, EFC, and EFA correspond to loan period

24. 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

25. Cost of Attendance • 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

26. Expected Family Contribution • Used to calculate amount of undergraduate student’sDirect Subsidized Loan eligibility • Not used to calculate Direct Unsubsidized Loan or PLUS eligibility • Must correspond to length of loan period

27. Estimated Financial Assistance • Estimated amount of assistance student expects to receive from federal, state, institutional, or other sources • Does not include family’s own resources

28. Estimated Financial Assistance 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

29. Parent Cannot Borrow PLUS 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

30. Parent Cannot Borrow PLUS 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;

31. Parent Cannot Borrow PLUS 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

32. Aggregate Loan Limits • Upper limit for total of borrower’s loans over course of education • Capitalized interest does not count toward aggregate balance

33. Frequency of Borrowing AnnualLoan Limits Two 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)

34. Calculating Graduate Direct Unsubsidized Loan Eligibility Cost of attendance – Estimated financial assistance = Maximum Direct Unsubsidized Loan eligibility for loan period (up to $20,500)

35. Calculating PLUS Eligibility Cost of attendance – Estimated financial assistance = Maximum parent or graduate PLUS eligibility for loan period

36. Transfer Student Example • 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