Policy Frequently Asked Question: Certifying Additional Unsubsidized Stafford-Loan Funds in Place of PLUS-Loan Funds

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.