National Association of Student Financial Aid Administrators Presents … © 2013 NASFAA Federal Direct Loans: Reviewing Program Requirements and Calculating Loan Amounts Module 10A

Slide 10A-2 © 2013 NASFAA Definition: Subsidized Loan Subsidized loans are need-based Limited to undergraduate students Interest does not accrue when student is: – Enrolled at least half-time; – In grace period (certain loans); or – In deferment status

Slide 10A-3 © 2013 NASFAA Definition: Unsubsidized Loan Unsubsidized loans are not need-based Student is responsible for interest payments during in-school, grace, and deferment periods Student may opt to: – Pay interest; or – Have interest capitalized Repayment begins six months after student graduates or ceases half-time enrollment

Slide 10A-4 © 2013 NASFAA Definition: PLUS PLUS loans are not need-based Two types of borrowers: –Parents of dependent students –Graduate and professional students May borrow up to cost of attendance (COA) minus estimated financial assistance (EFA)

Slide 10A-5 © 2013 NASFAA Definition: PLUS Borrower is responsible for all interest payments Based upon favorable credit history Repayment begins within 60 days of date loan is fully disbursed

Slide 10A-6 © 2013 NASFAA Interest rates effective 7/1/13 Creates a fixed-variable solution T-bill % undergraduate T-bill % graduate T-bill % Parent/Grad PLUS Interest rates will be calculated every year, but once the loan is made, the interest rate will remain for the life of the loan

Slide 10A-7 © 2013 NASFAA Interest Rate Continues Interest Rates for Undergraduates Stafford: 3.86% Graduate Stafford:5.41% Parent and Graduate PLUS: 6.41% Interest Rates Caps Undergraduates Stafford: 8.25% Graduate Stafford:9.50% Parent and Graduate PLUS: 10.50%

Slide 10A-8 © 2013 NASFAA School may use professional judgment (PJ) authority to offer unsubsidized loan to student whose parents: –No longer financially support student –Will not support student in future –Refuse to complete FAFSA Student must complete and submit FAFSA containing all required student information School must confirm parental financial support has ended and will not resume in future, and refusal to complete FAFSA Direct Loan Application Process

Slide 10A-9 © 2013 NASFAA A Direct Loan Master Promissory Note (MPN) is a binding agreement between a borrower and the U.S. Department of Education (ED) Borrower completes and signs paper MPN, or may choose to complete and sign electronic MPN via StudentLoans.gov if school participates in electronic MPN process Direct Loan MPN

Slide 10A-10 © 2013 NASFAA Multi-year feature allowed for most schools Must sign more than one MPN if: –Student transfers to school that is not eligible or chooses not to use multi-year feature; –Borrower chooses not to use existing MPN for new loans; or –Borrower previously borrowed only through Federal Family Education Loan (FFEL) Program Direct Loan MPN

Slide 10A-11 © 2013 NASFAA Parent definition: –Biological or adoptive mother or father –Stepparent if biological or adoptive mother or father remarried at time FAFSA is filed Legal guardian is not considered parent unless also adoptive parent Parent PLUS

Slide 10A-12 © 2013 NASFAA Parent PLUS / Graduate PLUS Dependent student for whom parent borrows must file FAFSA and meet all Title 4 eligibility requirements Parent must meet same SSN, citizenship, default, and overpayment criteria as student Graduate or professional student borrower must: –Submit FAFSA –Have unsubsidized Direct Loan eligibility determined and be notified of that eligibility before borrowing PLUS –Be an eligible student –Have repaid any Title IV funds obtained fraudulently, if applicable

Slide 10A-13 © 2013 NASFAA More than 90 days delinquent on account; or During 5 years preceding credit report date: –Default determination; –Bankruptcy discharge; –Foreclosure, repossession, tax lien, or wage garnishment; or –Title IV debt write-off PLUS—Adverse Credit History

Slide 10A-14 © 2013 NASFAA Allows denied PLUS applicant opportunity to appeal denial with credit-worthy endorser Endorser assumes responsibility for loan payments if borrower unable to repay PLUS—Endorser

Slide 10A-15 © 2013 NASFAA PLUS MPN Parent borrower must complete separate MPN for each dependent student If different parents want to borrow for same dependent student, each must complete separate MPN Graduate or professional student must complete for graduate PLUS

Slide 10A-16 © 2013 NASFAA PLUS MPN Multi-year feature cannot be used when: An endorser is used School or borrower chooses to use new MPN

Slide 10A-17 © 2013 NASFAA Direct Loan Confirmation Two types of confirmation: Active—Direct Loan borrower affirmatively responds to accept proposed loan type and amount; or Passive—Direct Loan borrower is notified of loan type and amount but need not respond except to decline or reduce proposed loan amount

Slide 10A-18 © 2013 NASFAA Direct Loan Active Confirmation Examples Borrower loan amount/type confirmation may be: Signed and returned award letter; Secure website using personal identification number (PIN); School request form; or Documented telephone response

Slide 10A-19 © 2013 NASFAA Direct Loan Amount Direct Loan amount which may be originated is lesser of: Maximum amount for which borrower is eligible; or Loan amount requested by borrower

Slide 10A-20 © 2013 NASFAA Denial or Reduction of Direct Loans Denial or reduction of eligibility allowed using professional judgment (PJ) only: –In unusual circumstances –On case-by-case basis Use of PJ must be documented in student’s file Reason for denial or reduction must be provided in writing to loan applicant

Slide 10A-21 © 2013 NASFAA Denial or Reduction of Direct Loans Exceptional circumstances are not specified in statute or regulation Examples used by financial aid administrators include: –High debt burden –Demonstrated unwillingness to repay

Slide 10A-22 © 2013 NASFAA Loan period COA EFC (undergraduates) EFA Annual loan limits Aggregate loan limits Enrollment pattern/frequency of borrowing Projected program completion date (for proration) Factors for Determining Loan Amounts

Slide 10A-23 © 2013 NASFAA Loan Period The period of enrollment to which the loan applies COA, EFC, and EFA correspond to loan period

Slide 10A-24 © 2013 NASFAA Academic Year (AY) Measures the amount of academic work in credit or clock hours to be completed over a period of weeks. Undergraduate credit-hour program minimums: –30 weeks of instructional time; and –24 semester/trimester or 36 quarter credit hours Undergraduate clock-hour program minimums: –26 weeks of instructional time –900 clock hours

Slide 10A-25 © 2013 NASFAA Educational costs student is expected to incur for loan period Usually covers full AY If loan period is greater than or less than AY, COA must be adjusted accordingly Cost of Attendance

Slide 10A-26 © 2013 NASFAA Used to calculate amount of undergraduate student’s Direct Subsidized Loan eligibility Not used to calculate Direct Unsubsidized Loan or PLUS eligibility Must correspond to length of loan period Expected Family Contribution

Slide 10A-27 © 2013 NASFAA Estimated amount of assistance student expects to receive from federal, state, institutional, or other sources Does not include family’s own resources Estimated Financial Assistance

Slide 10A-28 © 2013 NASFAA If prior loans were borrowed during same AY, include in EFA: All Direct Subsidized Loan funds attributable to loan period Direct Unsubsidized Loan and/or PLUS funds exceeding EFC applicable to loan period Estimated Financial Assistance

Slide 10A-29 © 2013 NASFAA If at least one parent is ineligible for PLUS: School must allow student to borrow under same higher undergraduate annual Direct Loan limits as for undergraduate independent students Other parent does not have to borrow Parent Cannot Borrow PLUS

Slide 10A-30 © 2013 NASFAA Exceptional circumstances include but are not limited to parent: Who is incarcerated; Whose whereabouts are unknown; Who is not U.S. citizen or eligible noncitizen and is unable to prove he or she is in U.S. on nontemporary basis with intent to become citizen or permanent resident; Parent Cannot Borrow PLUS

Slide 10A-31 © 2013 NASFAA Exceptional circumstances include but are not limited to parent: Receiving only public assistance or disability benefits and school documents as unable to repay PLUS; Who has filed for bankruptcy and provides court documentation prohibiting additional debt; or School documents as unable to repay PLUS due to debt burden or income-to-debt ratio Parent Cannot Borrow PLUS

Slide 10A-32 © 2013 NASFAA Upper limit for total of borrower’s loans over course of education Capitalized interest does not count toward aggregate balance Aggregate Loan Limits

Slide 10A-33 © 2013 NASFAA Frequency of Borrowing Annual Loan Limits Two academic year concepts are used to establish frequency with which students may borrow annual loan limits: Scheduled academic year (SAY) Borrower-based academic year (BBAY)

Slide 10A-34 © 2013 NASFAA Calculating Graduate Direct Unsubsidized Loan Eligibility Cost of attendance –Estimated financial assistance =Maximum Direct Unsubsidized Loan eligibility for loan period (up to $20,500)

Slide 10A-35 © 2013 NASFAA Cost of attendance –Estimated financial assistance =Maximum parent or graduate PLUS eligibility for loan period Calculating PLUS Eligibility

Slide 10A-36 © 2013 NASFAA Prior school grade level 1 loan = $3,500 –Loan 1 ($2,000): 9/3/13 to 12/20/13 –Loan 2 ($1,500): 1/13/14 to 5/16/14 –Loan period = 9/3/13 to 5/16/14 Prior school loan period ends on later of: –30 weeks after 9/3/13—4/1/14 –Last day of prior loan period—5/16/14 Transfer Student Example

Slide 10A-37 © 2013 NASFAA