School Certification of the Loan

  • In certain scenarios, a financial-aid administrator knows that the student’s parent is not going to be eligible for a PLUS loan. In what circumstances may the school make a determination to certify additional unsubsidized Stafford-loan funds without first obtaining a lender’s credit denial? What documentation must the school have in these cases?
    As in the private-lending world, it is best to allow the lender to make the decision regarding the parent’s credit status. In the case of an “adverse-credit” determination for PLUS loans, the lender will provide the necessary notices of denied credit. In limited circumstances, however, Federal Family Education Loan Program rules permit the school to certify additional unsubsidized Stafford funds without having first obtained a lender notice of credit denial for the parent. These circumstances include the following scenarios:

    • The dependent student’s parent is incarcerated.
    • The whereabouts of the parent is unknown.
    • The family income is limited to public assistance or disability benefits, and the student’s family is unable to provide the Expected Family Contribution.
    • The dependent student’s parent is prohibited from borrowing a PLUS loan because the parent is not a U.S. citizen or eligible noncitizen.
    • The dependent student’s parent has filed a bankruptcy petition and provided the school with an official letter from the bankruptcy court confirming that the parent filed for bankruptcy and is prohibited from incurring additional debt.
    • The dependent student’s parent is prohibited from borrowing a PLUS loan because the parent is in default on a federal Title IV loan.

    Because each circumstance is unique, it is not possible to define a standard for documentation to support the school’s decision. USA Funds® advises schools to obtain from the student and retain appropriate documentation regarding the extenuating circumstances surrounding the school’s decision.

  • I know the annual loan limits are increasing effective July 1, 2007. But I’ve not seen very much about how these new limits affect the aggregate amount of Stafford-loan funds that a student may borrow. How much did the aggregate loan limits increase?

    Although the Higher Education Reconciliation Act of 2005 increased annual loan limits, it did not change the long-standing applicable aggregate limits. Aggregate loan limits remain as follows:

    Student Classification

    Loans Included

    Aggregate Loan Limit

    Dependent undergraduate.

     

    • Combined subsidized and unsubsidized Stafford-loan funds.


    • The outstanding balance of SLS and Direct Stafford loans.


    • Any portion of a Consolidation loan attributable to one of the above types of loans.

    $23,000.

    Independent undergraduate, or dependent undergraduate whose parents are unable to borrow a PLUS loan.

    $46,000.

    No more than $23,000 of this amount may be subsidized Stafford-loan funds.

    Graduate or professional.

    $138,500.

    No more than $65,500 of this amount may subsidized Stafford-loan funds.
  • I’ve read that the U.S. Department of Education changed the way that schools can certify the new, higher loan amounts that are effective in July 2007. But I still don’t understand how they apply. Can you clarify which loans and/or borrowers are eligible for the new, increased loan amount?
    According to federal regulations 34 CFR 682.204(a) and (d), effective July 1, 2007, Stafford loans to first-year, dependent undergraduate students may be made at a maximum of $3,500. For second-year, dependent students, the maximum annual loan amount increases to $4,500. Keep in mind that the annual loan amount is the sum of the subsidized and unsubsidized Stafford funds delivered to the student in each academic year; that sum may not exceed the new limits.

    Stafford-loan limits for first- or second-year, independent, undergraduate students also will change. Independent borrowers may receive subsidized and unsubsidized Stafford loans whose combined amount does not exceed $7,500 in the first academic year, and $8,500 for the second academic year. The subsidized portion of these loans cannot exceed $3,500 for first-year students and $4,500 for second-year students.

    For students enrolled in preparatory course work prior to entering a graduate program, and for teacher-preparation and certification course work, the additional unsubsidized Stafford-loan limit increases to $7,000. The additional unsubsidized Stafford-loan limit for graduate and professional students increases to $12,000.

    The Department has noted that the school may certify Stafford loans for these new loan amounts provided that both of the following parameters apply:
    • The loan is made for a loan period that includes July 1, 2007, or that begins after that date.
    • The loan is first disbursed on or after July 1, 2007.

    If the school certifies a loan for a loan period that includes July 1, 2007, but has a first disbursement date prior to July 1, 2007, then on or after July 1 the school may certify a new loan up to the applicable new annual maximum loan limit.

    To access the federal regulations, you will need Adobe Acrobat Reader.

  • When are students who previously had been mobilized to active military duty considered veterans, and therefore independent for financial-aid purposes?
    Students who have served on active duty who have been discharged from service — including members of the National Guard or Reserves who served on active duty in response to a presidential order in a capacity other than "training," — are considered veterans for purposes of determining Title IV dependency.

    Students who served in active duty need not have served any minimum amount of time, but if they have been discharged, that discharge must be under circumstances other than "dishonorable."

    Chapter two (Application and Verification Guide) of the 2006-2007 Federal Student Aid Handbook provides detailed guidance on this issue.
  • If a student is enrolled in classes that are required to continue their teacher certification, should the school prorate a loan obtained for those classes?
    No. In the Federal Student-Aid Handbook for 2006-2007 (volume 3, chapter 4), the U.S. Department of Education provides guidance regarding the proration of loans to students enrolled in programs of study related to professional certifications.

    The Common Manual explains that proration is not required for loans certified for a student completing coursework necessary for a professional credential or certification from a state. Proration provisions appear in the Common Manual, subsection 6.11.F.
  • Is it always necessary for a parent to apply for a PLUS loan and be denied before a dependent student may be awarded additional unsubsidized Stafford-loan funds?
    No. Financial-aid administrators may award unsubsidized Federal Stafford-loan funds if they determine that the student's parent likely will be unable to obtain a Federal PLUS loan because of exceptional circumstances, and if the student's family is otherwise unable to provide the student's expected family contribution. In these circumstances, it is not necessary for the parent to apply for a PLUS loan. Financial-aid administrators, however, must document the reason for the exception.

    USA Funds® cautions that, while the practice is not prohibited, financial-aid administrators should be careful in making decisions typically made by the lender, such as determinations of acceptable debt-to-income ratio and ability to repay. In addition, any decisions made by the financial-aid office must be administered consistently and not result in any pattern that might be construed as discriminatory.
  • What are the maximum loan amounts (subsidized and unsubsidized) a dependent undergraduate student can receive in the following scenario:

    -The student's cost of attendance is $16,500
    -EFC is $2,789; grade level is 4
    -The student is not receiving any other aid
    -The student has already borrowed $21,000 in subsidized funds
    In this scenario the maximum subsidized amount would be $2,000. Although the student's COA - EFC - other aid = $13,711, that amount is subject to the annual and aggregate maximums. In this case, the student has already borrowed $21,000 in subsidized funds, so the eligibility is $23,000 - $21,000 = $2,000. As a dependent, the student is not eligible for any unsubsidized funds unless the student's parent is unable to obtain a PLUS loan. If the parent is unable to obtain a PLUS loan in this instance, the student would be eligible for an additional $8,500 in unsubsidized funds (COA - other aid - sub = $14,500, subject to the annual maximum of $10,500 for grade level 4 of the combined subsidized and unsubsidized loans).
  • A fourth-year student is eligible for $5,500 Unsubsidized Stafford Loan for the academic year 2002-2003. The student is requesting a total loan amount of $4,000, and wants it for our first term only. Can we do this?
    We assume that the student's program of study is in a regular credit-hour program, and that it is your anticipation that the student will be enrolled for the full academic year. Based on these premises, you may not schedule the entire $4,000 loan for disbursement in the first term. Loan funds must be disbursed on a payment period basis (see Common Manual subsection 6.3. For an eligible program that offers academic terms in semesters, trimesters, or quarters, and measures progress in credit hours, the payment period is the semester, trimester, or quarter). Loans also must be disbursed in two or more essentially equal installments (Common Manual subsection 6.4.). Based on the information provided and the assumptions noted above, the loan in question should be disbursed in two or more equal installments based on the payment periods applicable to the school's curriculum.
  • A student has a consolidation loan in excess of $30,000 and applies for a loan for the new academic year. How does the school determine whether the student has exceeded applicable aggregate loan limits?
    Portions of a Consolidation loan that are attributed to subsidized and unsubsidized Stafford loans must be included when calculating the student’s aggregate loan balance. The FAA should use the National Student Loan Data System or loan records provided by the student to determine the portion of the Consolidation loan that should be applied to the subsidized Stafford loan limit and the portion that should be applied to the unsubsidized Stafford loan limit  [§682.204(j)].

    The NSLDS identifies the underlying loans of the Consolidation loan and uses those loan amounts to allocate the current outstanding principal balance between subsidized Stafford, unsubsidized Stafford, and combined aggregate Stafford amounts, excluding Perkins and PLUS loans from the aggregate computations. The NSLDS then subtracts the total of the calculated subsidized and unsubsidized outstanding balance amounts from the actual outstanding balance of the Consolidation loan. Any remaining balance is considered to be “unallocated.” Unallocated amounts occur when, with the information that has been provided by data providers, the NSLDS is unable to account for the full amount of the outstanding balance of the Consolidation loan.

    See Common Manual 6.11.G for more information regarding the calculation of the student's aggregate loan limit if the student  has a consolidation loan.
  • At what point can a school no longer certify loans for the entire year (fall and spring) for students who are enrolled for both semesters but who did not receive a loan or full eligibility in the fall?
    The school must certify the loan application before the earlier of the end of the loan period or the date on which the student ceased at least half-time attendance. In addition, the school must receive the Student Aid Report from the student or the Institutional Student Information Report from the U.S. Department of Education with an official Expected Family Contribution calculated by the department. Basically, the school may certify a loan application for a student for the entire loan period up to the last date of the loan period or the last date of at least half-time attendance.
  • We have a graduate student for whom we certified both a subsidized and unsubsidized Stafford loan for the allowable amount for a graduate student for the academic period of 2001–2002. We have found that he graduated from the graduate program in December, and is enrolled in undergraduate classes for the spring semester. He has received both disbursements of both loans and received some credit from his account before this enrollment change was discovered by our office. He has reached his undergraduate aggregate loan limit. When I called the Graduate Studies Office, I was told that he was considered to be in its program. What is this student's remaining loan eligibility?
    This borrower is considered an undergraduate student due to his coursework. Because he's reached his undergraduate aggregate loan limits, no additional FFELP aid should be awarded. He can receive no additional loans until he takes graduate-level courses again. See Common Manual subsection 6.11.B.