Direct Loan Program A NASFAA Authorized Event Presented by Dr Direct Loan Program A NASFAA Authorized Event Presented by Dr. Phillip E. Hawkins Director of Financial Aid, UWG GASFAA Fall Workshop October 19, 2016

Lesson 1: Introduction to Direct Loans

Terminology Subsidized loans Unsubsidized loans PLUS loans Loan origination

Direct Subsidized Loans Need-based Undergraduates only No accrual of interest for most loans during certain periods Repayment begins six months after borrower ceases at least half-time enrollment

Loss of Interest Subsidy on Prior Loans Borrower subject to 150% subsidized loan limitation loses eligibility for subsidy once limit is exceeded and begins enrollment at least half time in: Same undergraduate program Undergraduate program of same or shorter length Shorter undergraduate program when subsidized usage periods greater than program’s maximum eligibility period

Direct Unsubsidized Loans Non-need-based Undergraduate, graduate, and professional students Interest accrues from date of disbursement Repayment begins six months after borrower ceases at least half-time enrollment

Direct PLUS Loans Non-need-based Parents of undergraduate students, and graduate/professional students If adverse credit history, additional eligibility requirements Interest accrues from date of disbursement Repayment begins 60 days after fully disbursed, unless deferred

Direct Loan Interest Rates and Fees Fixed or variable depending on when loan first disbursed Fixed: No change for life of the loan Variable: Rate fluctuates annually

The Application Process School calculates loan eligibility, based on: FAFSA application data Determination of eligibility for other aid Completion of Master Promissory Note Dependency status

The Application Process School may use professional judgment to award dependent student unsubsidized loan only, based on: Parent refusal to complete FAFSA Written documentation that parental support ended Student portion of FAFSA completed

The Master Promissory Note (MPN) Paper or electronic Single- or multi-year feature New MPN required in certain cases Expires automatically after 10 years, or after 1 year if unused Separate PLUS MPN may be required: For more than one dependent student From more than one parent for same student

PLUS Applications FAFSA and MPN required Borrower with adverse credit history may obtain PLUS If obtain PLUS despite adverse credit history, borrower must complete counseling For multi-year use of MPN, borrow must confirm intent to borrow

Professional Judgment School may use professional judgment to deny or reduce Direct Loan to a borrower Case-by-case basis Cannot discriminate Document the decision Communicate the decision in writing

Lesson 2: Factors for Calculating Loan Amounts

Loan Period Period of enrollment to which loan applies Regulations define: Minimum loan period Maximum loan period Cost of attendance (COA), expected family contribution (EFC), and estimated financial assistance (EFA) must match loan period

Undergraduate Program Type Academic Year Minimum Hours Minimum Weeks in a Year Undergraduate Program Type Credit Hours 30 weeks 24 semester or trimester 36 quarter Clock Hours 26 weeks 900 clock

Graduate/ Professional Program Type Academic Year Minimum Hours Minimum Weeks in a Year Graduate/ Professional Program Type Credit Hours 30 weeks Defined by the school Clock Hours 26 weeks Defined by the school

Standard Terms: Enrollment Status Borrower must be enrolled at least half time * Undergraduate standard term example

Nonstandard Terms Anything other than semesters, trimesters or quarters Modules are nonstandard, but may be combined to create a standard term

Minimum Loan Period For standard term credit-hour program and nonstandard credit-hour program with substantially equal terms: the term For all other types of programs, the shortest of: Length of student’s academic program Length of the school’s academic year (AY) Remaining portion of the student’s program

Minimum Loan Period Exceptions Applicable only to: Nonstandard term credit-hour programs with terms not substantially equal or any term less than nine weeks Nonterm credit-hour programs Clock-hour programs Student changes schools or programs and loan periods overlap

Maximum Loan Period Usually one academic year Exception: length of the student’s program, which is longer than one academic year

Cost of Attendance Tuition and Fees Room and board Books and supplies Transportation Miscellaneous personal expenses

Additional Cost Allowances Loan fees Dependent care expenses Study abroad expenses Cooperative education employment costs Cost of obtaining first professional credential Additional program-specific costs, if any

Expected Family Contribution Measure of student’s and family’s ability to pay postsecondary expenses Measure family’s financial strength or wealth Assess a portion of family’s available financial resources

Estimated Financial Assistance Aid the student can reasonably be expected to receive In new calculations, include existing loans covering the same period

Evaluating Financial Need COA COA COA EFC EFC EFA EFA Financial Need Remaining Need Remaining Eligibility

Lesson 3: Direct Loan Amounts and Limits

Annual Loan Limits: Undergraduate Subsidized Loan Unsubsidized Loan Base Annual Loan Limit

Annual Loan Limits: Undergraduate Base Annual Loan Limit Additional Unsubsidized Loan Limit Total Annual Loan Limit

Annual Loan Limits: Graduate Unsubsidized Loan Total Annual Loan Limit

Aggregate Loan Limits $31,000 $57,500 ($23,000 subsidized) $138,500 Undergraduate $31,000 ($23,000 subsidized) $57,500 ($23,000 subsidized) Graduate $138,500 ($65,500 subsidized) $224,000

Enrollment Patterns and Borrowing Frequency Academic Year Scheduled Academic Year Loan #S1 Borrower-Based Academic Year One Annual Loan Limit Loan #B1 Loan #S2 Loan #B2 Loan #S3 Loan #B3

Enrollment Patterns and Borrowing Frequency Scheduled Academic Year Sequential Standard term programs Nonstandard term programs with substantially equal terms of at least nine weeks

Enrollment Patterns and Borrowing Frequency Borrower-Based Academic Year Floats with the student’s enrollment Must always use a BBAY under certain conditions

150 Percent Direct Subsidized Loan Eligibility Limitation Encourages timely completion Applies to “first-time borrowers” Borrower may lose eligibility for subsidy

150 Percent Direct Subsidized Loan Eligibility Limitation Maximum eligibility period is 150% of the length of the student’s current program Subsidized usage period reflects the borrower’s loan history

150 Percent Direct Subsidized Loan Eligibility Limitation Preparatory coursework Simultaneous enrollment in more than one program Dual degree programs Baccalaureate degree completion programs Selective admission associate degree programs Teacher certification programs

150 Percent Direct Subsidized Loan Eligibility Limitation Days in loan period Days in academic year (SAY or BBAY) Subsidized usage period is a period during which subsidized loans were received Prorated to reflect enrollment level Rounded to nearest tenth of a year

150 Percent Direct Subsidized Loan Eligibility Limitation Remaining eligibility period is the time left before eligibility for subsidy is affected Exception may apply to teacher certification programs

150 Percent Direct Subsidized Loan Eligibility Limitation Direct Unsubsidized Loan eligibility After full amount of Direct Subsidized Loan eligibility received, based on remaining eligibility period calculation Loss of interest subsidy No remaining eligibility period left in current program, but enrolls again at least half time Reaches 150 percent in current program, and enrolls at least half time in another undergraduate program Enrolls at least half time in shorter undergraduate program with subsidized usage period greater than or equal to max eligibility period

Direct Loan Proration Programs shorter than an academic year Programs equal to or greater than an academic year

Lesson 4: Calculating Direct Loan Eligibility

Calculating Direct Subsidized Loan Eligibility Step 1 Calculating Direct Subsidized Loan Eligibility COA EFC EFA Subsidized Loan (eligibility) Remaining Need

Subsidized Loan (eligibility) Step 2 Calculating Direct Subsidized Loan Eligibility Compare: vs. The lower amount is the student’s maximum subsidized loan eligibility Subsidized Loan (eligibility) Base Annual Loan Limit

Subsidized Loan (eligibility) Step 2 Calculating Direct Subsidized Loan Eligibility Compare: vs. vs. The lowest amount is the maximum subsidized loan the school may originate Subsidized Loan (eligibility) Base Annual Loan Limit Requested Loan Amount

150 Percent Direct Subsidized Loan Limit Example—Fernando

Determining Eligibility for Direct Unsubsidized Loan Received all Direct Subsidized Loan funds for which student is eligible? No Student may NOT receive a Direct Unsubsidized Loan Yes Calculate Direct Unsubsidized Loan eligibility

Total Annual Loan Limit Step 3 Calculating Direct Unsubsidized Loan Eligibility—Undergraduate Total Annual Loan Limit Subsidized Loan (eligibility) Unsubsidized Annual Limit Remaining

Calculating Direct Unsubsidized Loan Eligibility—Undergraduate Step 4 Calculating Direct Unsubsidized Loan Eligibility—Undergraduate COA Includes Subsidized Loan amount from Step 2 EFA Unsubsidized Loan (eligibility) Remaining Eligibility

Calculating Direct Subsidized Loan Eligibility Step 5 Calculating Direct Subsidized Loan Eligibility Compare: vs. The lower amount is the student’s maximum unsubsidized loan eligibility Unsubsidized Loan (eligibility) Unsubsidized Annual Limit Remaining

Total Annual Loan Limit Steps 1 & 2 Calculating Direct Unsubsidized Loan Eligibility—Graduate COA EFA Unsubsidized Loan (eligibility) Total Annual Loan Limit Remaining Eligibility vs.

PLUS Loan (eligibility) Steps 1 & 2 Calculating Direct PLUS Loan Eligibility COA Includes student loan eligibility EFA PLUS Loan (eligibility) Remaining Eligibility

Frequency of Annual Loan Limits Scheduled Academic Year and Summer Terms Summer as a header Summer as a trailer

Borrower-Based Academic Year BBAY required BBAY optional

Transfer Students Borrowing frequency apply to students who transfer: Between schools Between academic programs at the same school Academic credit may impact student’s grade level 150 percent Direct Subsidized Loan limitation applies

Programs Measuring Academic Progress by Number of Terms Determining the prior school’s academic year Determining remaining loan amounts and regaining eligibility Summer terms for transfer students Switching Between Scheduled Academic Years and Borrower-Based Academic Years, Trailers and Headers

Programs Measuring Academic Progress by Completion of Hours and Weeks Transfer Between Schools Transfer Between Programs at the Same School

Prorated Loan Limits 1 Is the student enrolled in either a program that is shorter than an academic year or a remaining period of enrollment? 2 If the program is an academic year or longer, is the student’s remaining period of enrollment shorter than an academic year? 3 What portion of the academic year remains to be completed? 4 What portion of the annual loan limit may the student borrow for the remaining period of enrollment?

Example: Nonterm Program Nonterm clock-hour program Academic year is defined as 900 clock hours and 26 weeks Program consists of 600 clock hours and is scheduled to be completed in 13 weeks

Example: Standard Term Program Standard trimester credit-hour program Academic year is defined as 24 trimester credit hours and 30 weeks Program consists of 18 trimester credit hours and is scheduled to be completed in two trimesters or 24 weeks

Proration and the 150 Percent Direct Subsidized Loan Limitation Full-time enrollment Three-quarter-time enrollment Half-time enrollment 1.0 .75 .50

Example: Enrollment Proration of Subsidized Loan Usage Semester based program Scheduled academic year includes fall and spring Enrollment equals half-time for fall and spring

Example: Standard Term Program Semester based program Scheduled academic year includes fall and spring Receives annual loan limit for fall

Lesson 5: Loan Counseling

Entrance Counseling before borrowing Direct Loan for first time Exit Road to Direct Loan Borrowing

Entrance Counseling Formats

Content of Entrance Counseling Subsidized/unsubsidized Direct Loan borrowers: Master promissory note (MPN) Seriousness of repayment Default consequence Obligation to repay full amount Monthly repayment examples Effect of loan on other aid Interest and capitalization Definition of half time enrollment Withdrawing from school NSLDS Contact information

Content of Entrance Counseling First-time borrowers subject to 150 Percent Direct Subsidized Loan limitation: Loss of Direct Subsidized Loan eligibility Maximum eligibility period Remaining eligibility period Subsidized usage period Responsibility for accruing interest Impact of interest on total debt

Content of Entrance Counseling Graduate PLUS borrowers: Sample monthly repayments Option to pay accruing interest Loan comparisons MPN Seriousness of repayment Default consequence Obligation to repay full amount Effect of loan on other aid Interest and capitalization Definition of half time Withdrawing from school NSLDS and contact information

Special Counseling for PLUS PLUS borrowers with adverse credit have additional counseling requirements for each PLUS borrowed Information on all Title IV programs Borrower eligibility Repayment requirements and options Interest rates Repayment calculators

Exit Counseling shortly before ceasing half-time attendance Road to Direct Loan Borrowing

Exit Counseling Formats

Content of Exit Counseling Subsidized, unsubsidized, and graduate PLUS: Average repayment Repayment plans Option to prepay Effects of consolidation Debt management MPN Default consequence Repayment in full Forgiveness/discharge Deferment Forbearance

Content of Exit Counseling Subsidized, unsubsidized, and graduate PLUS: Contact information Copy of HEA 485(d) information FSA Ombudsman availability NSLDS loan status information 150% Direct Subsidized Loan limitation (affected borrowers only) Available tax benefits

Borrower Information Collected by School for Servicer Name Address Social Security Number References Driver’s license number/state Permanent address Next of kin address Employer name & address Loan Servicer Borrower Information Collected by School for Servicer

Lesson 6: Direct Loan & FFEL Repayment Features

Grace Period Enrolled Grace Repayment

Deferments In-school Graduate Fellowship Disability Rehabilitation Unemployment Economic Hardship Military Service Post-Active Duty Student Deferred Interest Accrual

Forbearance Mandatory Mandatory Administrative Administrative

Discharge False Certification or Unauthorized Disbursement by School Death Total and Permanent Disability Bankruptcy School Closure False Certification or Unauthorized Disbursement by School False Certification Due to Identity Theft Unpaid Refunds by School to Loan Holder

Loan Forgiveness Teacher Loan Forgiveness Program Public Service Loan Forgiveness Program Civil Legal Assistance Attorney Student Loan Repayment Program Service in Areas of National Need Loan Forgiveness Program

Consolidation Combine certain student loans to simplify repayment (e.g., single payment, extended repayment period, lower interest rate, etc.) May be used to resolve defaulted loan

Lesson 7: Direct Loan & FFEL Repayment Plans

Direct Loan & FFEL Repayment Plans Repayment plan options are based on the loan type Borrowers may choose between available repayment plans There are advantages and disadvantages with each repayment plan Prepayment without penalty

Direct Loan & FFEL Repayment Plans Standard Graduated Extended Income-Based

Direct Loan & FFEL Repayment Plans Lower monthly payments typically increase overall cost

Direct Loan-Only Repayment Plans Income-Contingent Pay As You Earn (PAYE) Revised Pay As You Earn (REPAYE) Alternative

FFEL-Only Repayment Plan Income-Sensitive