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Basics of Direct Loans: Credit-Hours and Standard Terms

Learn the fundamentals of Direct Loans - types, eligibility, interest rates, loan limits, and awarding principles. Discover Subsidized & Unsubsidized Loans, PLUS Loans, and loan limits requirements.

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Basics of Direct Loans: Credit-Hours and Standard Terms

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  1. Session 4 Basics of Direct Loans: Credit-Hours and Standard Terms Craig D. Rorie | Dec. 2014 U.S. Department of Education 2014 FSA Training Conference for Financial Aid Professionals

  2. Agenda • Direct Loan Basics • Awarding Loans • Academic Year • Prorating Annual Loan Limits • Transfer Students • Resources

  3. Direct Loan Basics

  4. Direct Loan Basics • William D. Ford Federal Direct Loan Program (“Direct Loan” or “DL”) • Loan types: • Subsidized Stafford - Only for undergraduates • Unsubsidized Stafford - For undergraduates, graduates, and professional students • PLUS Loan for Graduate and Professional Students (unsubsidized) • PLUS Loan for Parents (unsubsidized) - For parents of dependent students • Regulations at 34 C.F.R.§685 (link from IFAP)

  5. Reminder: All general Title IV student eligibility requirements also apply General Direct Loan Requirements Student must: • Be enrolled at least half-time • Meet eligibility requirements, except for: • Preparatory coursework • Teacher certification coursework School must: • Determine Pell eligibility before loans • Determine loan eligibility • Subsidized eligibility before Unsubsidized • No Adverse Credit history for PLUS borrowers • Aggregate limits • Other Title IV eligibility requirements

  6. Direct Loan Interest Rates – 2014-15 Direct Loans first disbursed on or after July 1, 2014 but before July 1, 2015: • Undergrad Subsidized and Unsubsidized – 4.66% (cap 8.25%) • Grad Unsubsidized – 6.21% (cap 9.5%) • PLUS – 7.21% (cap 10.5%) • Consolidated Loans – weighted average of underlying loans rounded up to the next higher one-eighth of one percent withno cap

  7. Annual Loan Limits

  8. Aggregate Loan Limits *Also for dependent students whose parents are unable to obtain a PLUS loan.

  9. Awarding Loans

  10. General Loan Awarding Principles • Students are subject to annual and aggregate loan limits • Student may not be eligible to borrow the full amount due to other aid in the student’s aid package • Must award subsidized before awarding unsubsidized • Base Amount may be all subsidized, all unsubsidized, or a combination • Subsidized amount may not exceed the Base Amount • Annual Loan Limit includes the Base Amount and Additional Unsubsidized

  11. Subsidized Stafford Loan Eligibility Subsidized loans are need-based COA – EFC – EFA = Loan Eligibility (Up to the Annual Subsidized Amount) • Interest is subsidized during: • In-School • Grace periods • Deferments • School must determine subsidized eligibility before eligibility for unsubsidized loans

  12. Direct Subsidized Loan Limit • Limits how many years a “first-time borrower” may receive subsidized loans • Applies to first-time borrowers on or after July 1, 2013. A first-time borrower is one who: • Has no balance on any FFEL or Direct Loan on July 1, 2013, or • Receives first Direct Loan (any type) on or after July 1, 2013 • When student has received Direct Subsidized loans for a period of time that is equal to 150% of the published length of the student’s current academic program. The student may not receive additional subsidized loans for enrollment in that program or any program of equal or lesser length

  13. Determining When 150% Limit is Met Maximum Eligibility Period Total Subsidized Usage Periods Remaining* Eligibility Periods • *Met when Remaining Eligibility Period equals 0 or < 0. • For more information, check out these sessions: • GS4 – Overview of Direct Subsidized Loan Limits • 27 – 150% - A Life Cycle View

  14. Unsubsidized Stafford Loan Eligibility Unsubsidized loans are not need-based COA – EFA = Unsubsidized Loan Amount (Not to exceed the annual loan limits) • May replace EFC • Borrower responsible for all interest • Eligibility determined after awarding subsidized loans • Students can only receive an Unsubsidized loan (base or additional) for a loan period if awarded the full amount of eligibility for a Subsidized loan • Students who are not awarded full Subsidized eligibility may not receive any Unsubsidized loans for the same loan period

  15. Unsubsidized Loan Flexibility • Dependent Undergraduates whose parents are unable to borrow PLUS may receive additional Unsubsidized loans (same amount as Independent Undergraduate) • FAA may use Professional Judgment to award Unsubsidized loans to dependent students without parental data: • Parent must certify cessation of support and refusal to complete the FAFSA • School must document both items • Not a Dependency Override (D/O)

  16. PLUS Loans • Mayreplace EFC • Have no Annual/Aggregate limit • Borrower must have no Adverse Credit • School must offer Subsidized and Unsubsidized before awarding PLUS • Amounts may not exceed COA – EFA • For: • Parents of dependent undergraduates • Graduate/professional students

  17. Subsidized Eligibility - Tom Tom is a 1st year Dependent Student (Annual Loan Limit =$5,550) COA $15,000 - EFC $1,200 - EFA $11,080 =Subsidized $2,720 Direct Loan COA – EFC – EFA = Need Subsidized Loan can be up to $3,500 of $5,500, but cannot exceed need • EFA is: • Pell of $4,580 • Scholarship of $6,500 • Remaining Need = $2,720

  18. Unsubsidized Eligibility - Tom COA – EFA = Eligibility Tom is a 1st year Dependent Student (Annual Loan Limit =$5,550) COA $15,000 - EFA $13,800 =Unsubsidized $1,200 Direct Loan Unsubsidized Loan can be up to $2,780 ($5,550 - $2,720 in sub), but total aid cannot exceed COA • EFA is: • Pell of $4,580 • Scholarship of $6,500 • Sub Loan of $2,720 • Remaining Eligibility = $1,200

  19. Laura's Parent PLUS Eligibility COA – EFA = Eligibility • Loan limit = COA-EFA • EFA now includes • $4,000 Pell • $3,500 Subsidized loan • $2,000 Unsubsidized loan • EFC not considered • Laura's parents may borrow $10,500 Laura - 1st year Dependent student: COA $20,000 • EFA $9,500 =PLUS eligibility $10,500

  20. Laura's Increased Unsubsidized Eligibility* COA – EFA = Eligibility Laura - 1st year student (loan limit $9,500) COA $20,000 • EFA $7,500 = Remaining Need $12,500 EFA includes: • $4,000 Pell • $3,500 Subsidized loan • EFC not considered • Laura may borrow the lesser of: • COA – EFA = $12,500 , or • $9,500 - $3,500 = $6,000 (Annual Loan Limit-Sub Limit = Eligibility) In an Unsubsidized loan *If Laura’s parents denied PLUS or if she were Independent

  21. Academic Year

  22. Scheduled Academic Year (SAY) • Fixed period of time, usually corresponds to school’s official academic calendar • Generally begins at same time each year – Fall/Winter/Spring or Fall/Spring • Loan period may include only portion of SAY • Programs offered in SAY may Borrower-Based Academic Year (BBAY) or alternate between SAY and BBAY provided academic years do not overlap • Once SAY has passed, student is eligible for new annual loan limit • Summer term may be either a “header” or “trailer” • Summer mini-sessions may be treated as single term or individual terms

  23. Borrower-Based Academic Year (BBAY) • Does not have fixed beginning and ending dates • “Floats” with student’s attendance and progression • BBAY must be used for any program that does not meet definition of program allowed to use SAY

  24. Fall Spring Fall Spring 2nd SAY 1st SAY $3,500* $4,500* Scheduled Academic Year: Standard Term-Based Program 2-Year Semester-Based Credit-Hour Program Academic year = 24 Credits and 30 Weeks * Student in this example is a first-year dependent student who chooses to borrow only the base amount 25

  25. Fall Fall Spring Spring 1st SAY 2nd SAY $3,500 $3,500 Eligibility for New Annual Loan Limit: Example 1 Loan Period 2 Loan Period 1 $3,500* $3,500* 1st year student attends Fall and Spring Year 1: No loan in Fall; $3500 Loan in Spring. No Summer attendance. Fall Year 2 begins new Scheduled Academic Year: Student regains eligibility for new loan at appropriate grade level. In this example, the student did not advance to the next grade level and was eligible to borrow only at the Year 1 level.

  26. Loan Period 3 Loan Period 1 Loan Period 2 $3,500* $1,000* $5,500* Fall Fall Spring Spring Summer 2nd SAY 1st SAY $5,500 $4,500 Eligibility for New Annual Loan Limit: Example 2 2nd Year Student – Summer Trailer Loan Period 1: Fall/Spring -$1,000 Fall only loan. Loan Period 2: Summer (trailer to Fall/Spring) – $3,500 loan in Summer loan. Loan Period 3: Fall/Spring – Loan Period 3 begins a new SAY and student regains eligibility for new loan at new grade level.

  27. Who Can Use Either and/or Both? • Credit-hour programs offered in a Scheduled Academic Year • Traditional academic calendar with at least two semesters/trimesters or three quarters in fall through spring, OR • Comparable academic calendar with nonstandard SE9W (substantially equal at least 9 week*) terms • *Difference in length of terms is no more than two weeks

  28. Borrower-Based Academic Year 1 (BBAY1) • Standard term credit-hour programs and comparable academic calendar in nonstandard SE9W*may use BBAY1 • BBAY must include same number of terms as the school’s definition of an academic year • Student becomes eligible for new annual loan limit after BBAY calendar period has elapsed • Floats with student’s enrollment, but student must attend first term of BBAY • Mini-sessions must be combined as single term • If BBAY includes Summer, may be shorter in weeks/hours than statutory academic year definition • Full-time in Summer must be defined as 12 credits • *Difference in length of terms is no more than two weeks

  29. Grade Level Progression • Students in standard or non-standard SE9W programs who advance to a higher grade level within academic year can receive additional funds • Remember: Do not confuse grade level progression with eligibility for new annual loan limit • School can develop own grade level standards but at minimum must equal the school’s defined Title IV academic year

  30. BBAY 1: Standard Term Program Two Year Semester-Based Credit-Hour Program Academic year = 24 Credits and 30 Weeks Dependent Student Fall–15wks Spring–15wks Summer–10wks Fall–15wks 1st BBAY 2nd BBAY $3,500 $4,500 BBAY 2: Summer (10 Weeks)/Fall 15 Weeks - Student advances a grade level from Summer to Fall. - $4500 loan. BBAY 1: 15 Weeks –Fall/Spring - $3500 loan.

  31. Spring Fall Summer Spring 1st BBAY 2nd BBAY $3,500 $4,500 BBAY 1: Standard Term Program Two Year Semester-Based Credit-Hour Program Academic year = 24 Credits and 30 Weeks Dependent Student BBAY 2: Fall/Spring - Student advances a grade level from Fall to Spring. - $4500 loan. BBAY 1: Spring/Summer - $3500 loan.

  32. Prorating Annual Loan Limits

  33. Prorating Annual Loan Limits • Proration required when a student is enrolled in a program that is shorter than a full academic year • Proration required when a student is enrolled in a program that is one academic year or more in length, but is in a remaining period of study shorter than a full academic year • Proration NOT required for: • PLUS loans • Graduate students • Teacher certification • Preparatory coursework • Regardless of loan proration, school must not award more than student’s loan eligibility

  34. Programs Shorter than an Academic Year Multiply the applicable loan limit by the lesser of: Hours enrolled in program Hours in the defined academic year Or Weeks enrolled in program Weeks in the defined academic year

  35. Program Shorter Than an Academic Year Program length is 22 credit-hours and 28 weeks Defined AY is 24 credit-hours and 30 weeks Hours: 22 = .92 Weeks: 28 = .93 24 30 Annual Unsubsidized (above base) Annual Base Amount $2,000 (dependent student) or $3,500 x 22 = $3,208 $6,000 (independent student) 24 Applicable limit = 22 24

  36. Remaining Periods Shorter than an AY Program length is 30 semester credits and 45 weeks Academic year defined as 24 semester credits and 30 weeks 12 credits and15 weeks12 credits and15 weeksYear 1 Loan Limits 6 credits and 15 weeksYear 2 Loan Limits Remaining portion of program must be $4,500 x 6/24 = $1,125prorated $2,000 x 6/24 = $ 500 Unlike proration for programs shorter than an academic year, only the hours are used

  37. Transfer Students

  38. Overlapping Academic Years – Transfer Students • Must adjust for any loans received at previous school if academic year overlaps new school’s academic year • Initially restricted to grade level annual loan limit at transfer school minus funds used at original school • Ineligible for new loan limit until student completes academic year from original school • Student is limited to remaining portion of annual loan limit at new until completion of the academic year from previous. When the student completes previous school’s academic year at new school, new loan period may begin • If new loan period is less than a defined academic year then it must be prorated • Must obtain prior school’s academic year dates

  39. Transfer Student Example Withdraws 11/13/14 Original School 11/17/14 5/22/15 9/8/14 5/15/15 Sub: $1,750 Unsub: $1,000 Sub: $875 Unsub: $500 Sub: $875 Unsub: $500 Withdrawn Not Disbursed Winter Spring FALL Spring Remaining $1,750 / $1,000 Loan Limit $3,500 / $2,000 New Loan Limit Transfer School

  40. Resources

  41. Resources FSA Handbook Volume 3, Chapters 1 and 5 Dear Colleague Letters and Electronic Announcements Federal Register dated May 16, 2013 (FR 28953) Site Links https://studentaid.ed.gov/types/loans https://studentloans.gov

  42. Resources Direct Loan Training on IFAP www2.ed.gov/offices/OSFAP/training/specific.html Clock-Hour Issues recorded webinar www2.ed.gov/offices/OSFAP/training/downloads.html

  43. Resources • Research and Customer Care Center • 800-433-7327 • fsa.customer.support@ed.gov • Reach FSA • 855-FSA-4FAA -- 1 number to reach 10 contact centers! • Campus-Based Call Center eZ-Audit • COD School Eligibility Service Group • CPS/SAIG Foreign Schools Participation Division • NSLDS Research and Customer Care Center • G5 Nelnet Total & Permanent Disability Team

  44. Questions?

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