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Direct Loan Basics: Awarding, Limits, and Eligibility Criteria

Learn about awarding Direct Loans, annual and aggregate limits, interest rates, eligibility requirements, and payments. Understand Subsidized and Unsubsidized Loans, PLUS loans, and loan calculation methods.

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Direct Loan Basics: Awarding, Limits, and Eligibility Criteria

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  1. Session 40 Foreign Schools: Awarding Direct Loans David A. Bartlett and Craig Rorie | Nov-Dec. 2016 U.S. Department of Education 2016 FSA Training Conference for Financial Aid Professionals

  2. DL Basics – Loan Types • Direct Subsidized Loans • Only for undergraduates • Made to eligible students who demonstrate financial need • Direct Unsubsidized Loans • For undergraduates, graduates and professional students • Students do not have to demonstrate financial need to be eligible • Direct PLUS Loans (unsubsidized) • For graduate/professional students and parents of dependent students • May replace EFC • Do not have Annual/Aggregate Limits • Borrowers must have no adverse credit • School must offer Sub and Unsub before awarding PLUS • Amounts cannot exceed Cost of Attendance (COA) – Estimated Financial Assistance (EFA)

  3. DL Basics – Interest Rates

  4. DL Basics – Sequestration

  5. All general Title IVstudent eligibility requirements apply DL Basics - General Loan Requirements 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 Student must: • Be enrolled at least half-time • Meet eligibility requirements, except for: • Preparatory coursework • Teacher certification coursework

  6. DL Basics - General Loan Awarding Principles • Students are subject to annual and aggregate loan limits • Student may notbe eligible to borrow the full amount due to other aid in the student’s aid package • School must award Subsidized before awarding Unsubsidized • Annual Loan Limit includes the Base Amount and Additional Unsubsidized

  7. DL Basics – 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 loans eligibility before eligibility for unsubsidized loans

  8. DL Basics – 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 in packaging • Borrower is responsible for interest • May be paid or may allow to capitalize • School determines eligibility AFTER awarding subsidized loans

  9. DL Basics – PLUS Eligibility • Parent & Graduate PLUS loans are not need-based • COA – EFA = Eligibility (Not to exceed COA) • May replace EFC • Repayment begins immediately or it may be deferred (interest will capitalize) • No adverse credit history for borrower • School must offer subsidized and unsubsidized before awarding PLUS

  10. LOAN LIMIT $3,500 Please borrow safely Direct Loan Limits

  11. Direct Loan - Annual Loan Limits

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

  13. Direct Loan - Base Amounts and Annual Loan Limit • 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 Amount

  14. Calculating a Loan

  15. Awarding Loans Calculation Not Available for FS Not Available for FS

  16. Awarding Subsidized Loan • First-Year Dep. Student • COA = 17,000 • EFC = 5865 • Scholarship = $7,000 17,000 - 5,865 - 7,000 4,135 17,000 5865 Not Available for FS 7,000 7,000 7,000 4,135

  17. Awarding Subsidized Loan • First-Year Dep. Student • Annual Base Amount:$3,500 – 1st Year$4,500 – 2nd Year$5,500 – 3rd Year and beyond 3,500 3,500

  18. Awarding Unsubsidized Loan • COA = $17,000 • Estimated Financial Assistance (EFA)Scholarship = $7,000Subsidized Loan = $3,500 17,000 Not Available for FS 7,000 3,500 10,500 10,500 6,500

  19. Awarding Unsubsidized Loan 6,500 • First-Year Dep. Student • Annual Loan Limits:$5,500 – 1st Year$6,500 – 2nd Year$7,500 – 3rd Year and beyond 5,500 3,500 2,000 2,000

  20. Payment Period

  21. Payment Period - Defined A distinct amount of instructional time for which Title IV funds are disbursed.

  22. Payment Period – Mandatory Requirements • Determine program’s payment periods • Term-based programs • Nonterm credit-hour programs • Clock-hour programs • For term-based, credit-hour programs, generally the term is the payment period • For clock-hour and credit-hour non-term programs, payment periods are based on course work and weeks completed, with no more than two payment periods in the lesser of the program, the academic year or the remainder of the program • Must credit student’s ledger account with Title IV funds during the current payment period

  23. Payment Period – FSA HandbookVolume 3 – Chapter 1

  24. Academic Year

  25. Academic Year - Defined The academic year is used to measure the amount of course work a student is scheduled to complete or should complete during a set period of time. Schools must define the academic year for each program of study. To be eligible for Title IV financial aid, a school's defined academic year must meet minimum requirements stated in the General Provisions regulations (34 CFR 668.3).

  26. Academic Year – Statutory Definition

  27. Academic Year - Scheduled Academic Year (SAY) Attributes: • Fixed period of time, usually corresponds to school’s official academic calendar • Generally begins at same time each year • Example – fall/winter/spring or fall/spring • Summer term may be either a “header” or “trailer” • Summer mini-sessions may be treated as single term or individual terms

  28. Academic Year - Scheduled Academic Year (SAY) Attributes: • Loan period may include only portion of SAY • Programs offered in SAY may; • Use BBAY • Alternate between SAY and BBAY provided academic years do not overlap • Once SAY has passed, student is eligible for new annual loan limit

  29. Academic Year - Borrower-Based Academic Year (BBAY) Attributes: • 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

  30. Academic Year - Who Can Use either and/or Both SAY & BBAY? • 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

  31. Scheduled Academic Year (SAY): Standard Term-based Program Fall Spring Fall Spring 2nd SAY 1st SAY $3,500* $4,500* 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 and student advances to next grade level

  32. SAY Eligibility for New Annual Loan Limit: Example 1 Fall Fall Spring Spring 1st SAY 2nd SAY $3,500* $3,500* Loan Period 1 Loan Period 2 • *Student in this example is a first-year dependent student who chooses to borrow only the base amount. • Student does not advance to next grade level.

  33. SAY Eligibility for New Annual Loan Limit: Example 2 Loan Period 2 Loan Period 1 Loan Period 3 $1,000* $5,500* $3,500* Fall Spring Summer Fall Spring SAY SAY $4,500 $5,500 • *Student in this example is a second-year dependent student who chooses to borrow only the base amount. • Student advances a grade level from Summer to Fall and chooses again to borrow only the base amount.

  34. Academic Year - BBAY1Standard Term-based Program Two Year Semester-Based Credit-Hour Program Academic year = 24 Credits and 30 Weeks Spring Summer Fall Spring 1st BBAY 2nd BBAY $3,500 $4,500 • *Student in this example is a first-year dependent student who chooses to borrow only the base amount. • Student advances a grade level from summer to fall by completing enough credits to do so.

  35. Academic Year vs. Grade Level Progression • Completion of credits determines grade level progression • Do not confuse grade level progression with eligibility for a new annual loan limit • Schools may develop own grade level standards but at a minimum must equal the minimum academic year definition • Students in standard or nonstandard SE9W programs who advance to a higher grade level within an academic year may receive additional funds

  36. Grade Level Progression Example • School Defines Academic Year as 24 Semester Credits / 30 Weeks Spring Term 2016–17 (Grade Level 2) Enrolled: 9 credits DL Subsidized: $2,750 DL Unsubsidized: $1,000 End of Term Total: 39 cumulative credits Fall Term 2015–16 (Grade Level 1) Enrolled: 9 credits DL Subsidized: $1,750 DL Unsubsidized: $1,000 End of Term Total: 9 cumulative credits Spring Term 2015–16 (Grade Level 1) Enrolled: 9 credits DL Subsidized: $1,750 DL Unsubsidized: $1,000 End of Term Total: 18 cumulative credits Fall Term 2016–17 (Grade Level 1) Enrolled: 12 credits DL Subsidized: $1,750 DL Unsubsidized: $1,000 End of Term Total: 30 cumulative credits Grade Level 1: Annual Loan Limit  DL Subsidized: $3,500 DL Unsubsidized: $2,000 End of Term Total: 18 cumulative credits Grade Level 2: Annual Loan Limit  DL Subsidized: $4,500 DL Unsubsidized: $2,000 End of Term Total: 39 cumulative credits

  37. Academic Year – Proration Annual loan limits must be prorated when : • The student is enrolled in a program that is shorter than a full academic year. Foreign Schools are prohibited by regulation to enroll students in a program less than a full AY. or • The student is enrolled in a remaining period of study shorter than a full academic year Prohibited for FS

  38. Academic Year – Loan Proration • Prorated loan limits are then used in the awarding process to determine student eligibility • Proration is NOT required for: • PLUS loans • Graduate students • Teacher certification • Preparatory coursework

  39. Academic Year - Prorating Remaining Periods Shorter than an Academic Year Multiply the applicable loan limit by: Hours remaining in program of study Hours required for defined Academic Year

  40. Academic Year – Proration - Periods < AY- SAY Program length is 30 semester credit-hours and 45 weeks Academic year defined as 24 credit-hours and 30 weeks 12 credits 15 weeks 12 credits 15 weeks Year 1 Loan Limits Remaining Portion of program must be prorated 6 credits 15 weeks Year 2 Loan Limits Annual Unsubsidized (above base) $2,000 X 6 = $500 dependent $6,000 X 6 = $1,500 independent Annual Base Amount $4,500 X 6 = $1,125 24 24 24

  41. Academic Year – Single Term Loans • A single term loan is one with a loan period of just one semester, trimester or quarter • Must use COA, EFC, and EFA for only that one term to calculate loan eligibility • Multiple disbursement required unless school is exempt due to low cohort default rates

  42. 150 % Subsidized Loan Limit

  43. 150% Subsidized Loan Limit - Overview Borrower loses eligibility for additional Direct Subsidized Loans when borrower has received Direct Subsidized Loans for 150% of their current academic program If eligibility is lost, borrower still eligible for Direct Unsubsidized Loans Generally measured in time, not dollars

  44. 150% Subsidized Loan Limit – 1st Time Borrower Applies only to first-time borrowers as of July 1, 2013 • Student who has no outstanding balance on a FFEL or Direct Loan when receiving a Direct Loan on/after 07/01/13 Example A Example B

  45. 150% Subsidized Loan Limit - Loss of Interest Subsidy • Triggered by enrollment (1/2 time or above), not by borrowing or requesting aid • Loans remain DL Subsidized, but without further interest benefits • Subsidy loss is permanent; subsidy cannot be later reinstated

  46. 150% Subsidized Loan Limit – Determining Lost Eligibility 150% limit is met and further eligibility is lost when Remaining Eligibility Period is zero (or less)

  47. 150% Subsidized Loan Limit – Maximum Eligibility Period Maximum eligibility period is 150% of published length of borrower’s current or upcoming academic program • Varies by program • Multiply published length of program by 1.5 • Measured in academic years or portions • ED will calculate using school-reported information • Two program exceptions • FSATC Session 15 – 150% Direct Subsidized Loan Limit: Wednesday 11:50AM and Thursday 8:30AM

  48. Questions

  49. Contacts David A. Bartlett U.S. Department of Education Training Officer 816-268-0434 david.bartlett@ed.gov Craig D. Rorie U.S. Department of Education Training Officer 215-656-5916 craig.rorie@ed.gov

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