Craig D. Rorie | Dec. 2014

U.S. Department of Education

2014 FSA Training Conference for Financial Aid Professionals

Basics of Direct Loans: Credit-Hours and Standard Terms

Session 4

Agenda

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

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Direct Loan BasicsDirect Loan Basics

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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)

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Reminder: All general Title IV student eligibility requirements also apply

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

General Direct Loan Requirements

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Direct Loan Interest Rates – 2014-15Direct 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 with no cap

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Annual Loan Limits

YearDependent

Undergraduate

Independent Undergraduate

And Dep. Undergrad whose parent can’t borrow PLUS

Graduate/ Professional

Student

1st $5,500(maximum $3,500

subsidized)

$9,500(maximum $3,500

subsidized)

Up to $20,500 each academic year

(maximum $8,500 subsidized)

2nd $6,500(maximum $4,500

subsidized)

$10,500(maximum $4,500

subsidized)

3rd and Beyond

$7,500(maximum $5,500

subsidized)

$12,500(maximum $5,500

subsidized)

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Aggregate Loan Limits

Dependent Undergraduate

$31,000 combined sub/unsubNo more than $23,000 in subsidized

Independent Undergraduate*

$57,500 combined subsidized/unsubsidizedNo more than $23,000 in subsidized

Grad/Professional$138,500 combined subsidized/unsubsidizedNo more than $65,500 in subsidized

*Also for dependent students whose parents are unable to obtain a PLUS loan.

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Awarding LoansAwarding Loans

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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

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Subsidized Stafford Loan EligibilitySubsidized 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

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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

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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

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Unsubsidized Stafford Loan Eligibility

Unsubsidized loans are not need-based

COA – EFA = Unsubsidized Loan Amount (Not to exceed the annual loan limits)

•MayMay 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

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Unsubsidized Loan Flexibility• Dependent Undergraduates whose parents are

unable to borrow PLUS may receive additional Unsubsidized loans (same amount as Independent Undergraduate)

• FAA maymay 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)

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PLUS Loans• MayMay replace 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

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Subsidized Eligibility - Tom

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

Tom is a 1st year DependentStudent(Annual Loan Limit =$5,550)

COA $15,000- EFC $1,200- EFA $11,080=Subsidized $2,720 Direct Loan

COA – EFC – EFA = Need

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Unsubsidized Eligibility - Tom

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

Tom is a 1st year DependentStudent(Annual Loan Limit =$5,550)

COA $15,000- EFA $13,800=Unsubsidized $1,200 Direct Loan

COA – EFA = Eligibility

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Laura's Parent PLUS Eligibility

Laura - 1st year Dependent student:

COA $20,000-EFA $9,500=PLUS eligibility $10,500

• 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

COA – EFA = Eligibility

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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

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Academic YearAcademic Year

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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

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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

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Scheduled Academic Year: Standard Term-Based Program

2-Year Semester-Based Credit-Hour Program

Academic year = 24 Credits and 30 Weeks

Fall Spring

1st SAY

$3,500*

Fall Spring

2nd SAY

$4,500*

* Student in this example is a first-year dependent student who chooses to borrow only the base amount

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Eligibility for New Annual Loan Limit: Example 1

Fall Spring

1st SAY

$3,500

Fall Spring

2nd SAY

$3,500

Loan Period 1 Loan Period 2

$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.

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Eligibility for New Annual Loan Limit: Example 2

Fall Spring

2nd SAY

$5,500

Fall Spring

1st SAY

$4,500

Summer

Loan Period 1 Loan Period 2 Loan Period 3

$1,000* $3,500* $5,500*

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.

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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

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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 weeks29

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

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BBAY 1: Standard Term ProgramTwo Year Semester-Based Credit-Hour Program

Academic year = 24 Credits and 30 Weeks

Dependent Student

1st BBAY

$3,500

2nd BBAY

$4,500

Fall–15wks Spring–15wks Summer–10wks Fall–15wks

BBAY 1:

15 Weeks –Fall/Spring -

$3500 loan.

BBAY 2:

Summer (10 Weeks)/Fall 15 Weeks -

Student advances a grade level from Summer to Fall. - $4500 loan.

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BBAY 1: Standard Term ProgramTwo Year Semester-Based Credit-Hour

Program

Academic year = 24 Credits and 30 Weeks

Dependent StudentSpring Summer

1st BBAY

$3,500

Fall Spring

2nd BBAY

$4,500

BBAY 1:

Spring/Summer -

$3500 loan.

BBAY 2:

Fall/Spring -

Student advances a grade level from Fall to Spring. - $4500 loan.

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Prorating Annual Loan LimitsProrating Annual Loan Limits

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Prorating Annual Loan Limits• Proration required Proration required when a student is enrolled in a program that is shorter

than a full academic year• Proration required 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 Proration NOTNOT required for: required for:• PLUS loans• Graduate students• Teacher certification• Preparatory coursework

• Regardless of loan proration, school must not award moremust not award more than student’s loan eligibility

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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

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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

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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

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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 weeks 12 credits and15 weeks Year 1 Loan Limits

6 credits and 15 weeks Year 2 Loan Limits

Remaining portion of

program must be $4,500 x 6/24 = $1,125

prorated $2,000 x 6/24 = $ 500

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Unlike proration for programs shorter than an academic year, only the hours are used

Transfer StudentsTransfer Students

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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

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Transfer Student ExampleOriginal School

9/8/14 5/15/15

Withdraws11/13/14

Sub: $1,750

Unsub: $1,000

Withdrawn

Not Disbursed

Loan Limit $3,500 / $2,000

FALL Spring

Transfer School

11/17/14 5/22/15

Sub: $875

Unsub: $500

Sub: $875

Unsub: $500

Remaining $1,750 / $1,000

Winter Spring

New Loan Limit

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ResourcesResources

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ResourcesFSA 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

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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

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Resources

Research and Customer Care Center800-433-7327fsa.customer.support@ed.gov

Reach FSA855-FSA-4FAA -- 1 number to reach 10 contact centers!

Campus-Based Call Center eZ-AuditCOD School Eligibility Service GroupCPS/SAIG Foreign Schools Participation DivisionNSLDS Research and Customer Care CenterG5 Nelnet Total & Permanent Disability Team

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Questions?Questions?

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