Loan Proration Term and Non-Term When, Why and How NYSFAAA 2014

Quick Review of the Basics

Academic Year Requirements Term Based Standard terms are generally semesters trimesters quarters In all cases, full-time is defined as 12 credits A standard award period must have at least 30 weeks of instructional time

Determining Eligibility for Loans Term Based Must be attending on at least half-time (6 or more credits) basis and matriculated in an approved program of study Of course, must meet all other eligibility rules including: Needs analysis Standards of Progress SULA Regulations Etc.

Determining Eligibility for Loans Term Based (continued) Ensure that the loan is tied into an appropriate loan period: SAY - Standard BBAY - Borrower Based

Academic Year Requirements Non-Term Based Loan Period (Period of Enrollment): Non-term and clock hour programs Academic year: minimum of 900 clock hours and 26 weeks or 24 credit hours and 30 weeks Length of program if the program is less than an academic year The remaining portion of the student’s program that is less than one full academic year in length, when the program exceeds one academic year

Determining Eligibility for Loans Non-Term Based Must be attending on at least a half-time basis Clock Hours Programs: Minimum of 12 clock hours/week Non-Term Credit Hours: Minimum of 6 credit hours/payment period Loan Period/Academic Period: Must be tied to a borrower period of academic attendance In clock hour/non-term program: minimum loan period is the academic year Unless transfer student with credit for previous enrollment

Direct Loan Specific Rules Term and Non-Term For single term loans: Must make 2 equal payments of loan proceeds around the midpoint of the loan period Required of all schools except those that meet the low cohort default rate exemption For any remaining portion of a program that is half of an academic year or less, the remaining portion is treated as a single payment period

Disbursing by Payment Period Clock hour and non-term credit hour programs Direct loans: payment period is ½ the hours and ½ the weeks of instructional time in the loan period Student must successfully complete required clock hours and weeks in payment period prior to receiving subsequent disbursement Successful completion - means that the student has earned a passing grade or otherwise received credit for the credits or clock-hours in the payment period Excused absences may be included when determining clock hours completed

Excused Absences - Clock Hours Absences must be ones that student does not have to make up School must have written policy that permits excused absences Number of excused absences may not exceed the lesser of: Allowed excused absences per accrediting agency Allowed excused absences per state agency 10% of the clock hours in the payment period

Disbursement Examples

Clock Hour Example 1 900 Clock hour program, 26 weeks, 2 payment periods of 0-450/13 weeks, and 451-900/13 weeks Student successfully completes 450 clock hours in week 10, school may not make second disbursement of direct loan until start of week 14 900 Clock Hour Program and 26 weeks PP1 0-450 & 13 weeks PP2 451-900 & 13 weeks Student finishes 450th clock hour at week 10 Must wait until start of week 14 for 2nd disbursement

Clock Hour Example 2 900 Clock hour program, 26 weeks, 2 payment periods of 0-450/13 weeks, and 451-900/13 weeks Student 2 successfully completes 450 clock hours in week 15. Since the weeks component has already elapsed, once the student successfully completed the hours, the school may make the second disbursement of direct loans. 900 Clock Hour Program and 26 weeks PP1 0-450 & 13 weeks PP2 451-900 & 13 weeks Student finishes 450th clock hour at week 15 School may make the 2nd disbursement now

When The annual maximum loan amount an undergraduate student may receive must be prorated when the borrower is: Enrolled in a program that is shorter than a full academic year; or Enrolled in a program that is one academic year or more in length, but is in a remaining period of study that is shorter than a full academic year

When Not Loan limits are not prorated based on a student’s enrollment status, such as when a student is enrolled less than full-time. Direct Loan limits are not prorated for students enrolled in graduate or professional level programs. Loan proration requirements also do not apply to loans made to students taking preparatory coursework or coursework necessary for teacher certification.

What if a student graduates early unexpectedly?

What if a student graduates early unexpectedly? (continued) Proration is required only when it is known in advance that a student will be enrolled for a final period of study that is shorter than an academic year. If a student originally enrolls for a final period of study that is a full academic year in length, but completes the program early in less than a full academic year, it is not necessary to retroactively prorate the annual loan limit.

Simple Proration Formula Term Based Take total number of credits the student is taking for the remaining period left in his/her degree. Example – student needs 20 credits to graduate in a semester school Divide by the minimum full-time class load per pay period Example in a semester school that would be 12 credits per term for 2 terms = 24 Proration = 20/24 = .83333333333333333333333333333333333 = ?

Loan: Proration Formula Non-Term Based Prorating loans required when: Student is enrolled in a program that is shorter than full academic year Proration is lesser of: Number of credit or clock hours enrolled Number of credits or clock hours in academic year OR Number of weeks enrolled Number of weeks in academic year

Loan: Proration Formula Non-Term Based (continued) Loan Proration - Example Clock hour program shorter than an academic year First year independent student enrolled in 600 clock hour program over 50 weeks. School defines academic year as 900 clock hours and 26 weeks. Determine Proration Factor Hour (600/900) Weeks (50/26) Compare Factors: 50/26 = 1.93; 600/900 = .67 Loan is prorated @ .67 x $3,500 = $2,345; .67 x $6,000 = $4,020

Loan: Proration Formula Non-Term Based (continued) Proration of loans required when Student/borrower is enrolled in a program that is one academic year or more in length but student is in a remaining period of study that is shorter that a full academic year. Proration factor is: Number of credit or clock hours enrolled Number of credit of clock hours in academic year

Loan: Proration Formula Non-Term Based (continued) Proration of loan- Example Clock hour program over one academic year, but shorter than two academic years First year independent student enrolled in 1,500 clock hour program over 50 weeks. School defines academic year as 900 clock hours and 30 weeks. Clock hour program AY1= full academic year: eligible for maximum annual loan limits AY2: Determine proration factor based on hours: 600/900 Proration= .67 X annual loan limit 2nd year level Subsidized = $3,015 Unsubsidized= $4,020

To Round or not to Round Percentages That is a Question

DO NOT ROUND UP

If your policy is to round, then ALWAYS ROUND DOLLARS DOWN MAKE SURE YOU HAVE A CONSISTANT POLICY

Simple Proration Formula Term Based Take total number of credits the student is taking for the remaining period left in his/her degree Example – student needs 20 credits to graduate in a semester school Divide by the minimum full-time class load per pay period Example in a semester school that would be 12 credits per term for 2 terms = 24 Proration = 20/24 =.833333333333333333333333 = 83% if policy is to round or = 83.33% if policy is not to round (regulations specify how many decimals)

Unsub? Regulations require the school to exhaust full Sub eligibility before packaging Unsub. So what happens when you prorate the Sub and don’t exhaust it? The prorated amount is the full eligibility. In our example, the rounded 83% would apply to both Sub and Unsub loans.

Result Independent Student Sub $5,500 x 83% = $4,565 Unsub $7,000 x 83% = $5,810

What if the student is taking less than 6 credits in one of the terms? Let’s stay with semesters for now. Student needs 16 credits to graduate and is taking 12 credits in Fall and 4 in Spring. You can originate a full loan for the Fall (assuming the student’s budget can handle it).

A Quarter Example Student has 33 credits left to graduate. Quarters are built on 3 terms with 12 credits being full time for a total of 36 credits. Proration = 33/36 = .91333333333333333333333333333333337 = 91% if policy is to round or = 91.33% if policy is not to round (regulations specify how many decimals)

What if the student is taking less than 6 credits in one of the terms? Let’s use quarters In the quarter system, there is Summer/Fall/Winter and Spring of which 3 make for a student BBAY. If the student is expected to graduate in 2 or less quarters you must prorate. Student needs 16 credits to graduate and is taking 12 credits in Fall and 4 in winter. You can originate 12 + 4 = 16 (44%) loan for a Fall only loan (assuming the student’s budget can handle it).

Can it be true? Let’s use quarters If the student is expected to graduate in 2 or less quarters you must prorate. (?) Student registers for 36 credits – 18 in Fall and 18 in winter. 36/36 = 100% YOU DON’T HAVE TO PRORATE

Transfer Students Examples

Transfer Students in Non-Term Programs Did new school grant credit from the previous school? If no and no overlap: Student is eligible for maximum annual loan limits. Prorated if less than academic year If yes: School may originate new loan for the remainder of the loan period that existed at the previous school at the new school. Once student completes that loan period new academic year begins.

Transfer Students Example 1 Student began 24 credit hour/30 weeks program at School A March 1, 2014 – September 27, 2014. Student received 1st disbursement of Sub ($1,750) and Unsub ($3,000) loans. Student withdrew and will begin new program at School B on June 1, 2014 (also 24 credit hours taught over 30 weeks). Student received credit for 10 credit hours toward program at the new school. Loan overlap exists: <30 weeks between loan period begin dates and start date in prior to end date of previous loan.

Transfer Students Example 1 (continued) At new school, academic year 24 hours/30 weeks School may originate a new loan for the period June 1, 2014 - September 27, 2014 the beginning of attendance at School B through the date the academic year would have ended at School A $1,750 Sub & $3,000 Unsub At end of loan period student is again eligible for maximum annual loan limits Subject to proration if less than one academic year remains in the program

Transfer Students Example 2 Student began 1,500 clock hour/50 weeks program at School A October 5, 2013 – May 13, 2014. Student received 1st disbursement of Sub ($1,750) and Unsub ($3,000) loans. Student withdrew and will begin new program at School B on January 15, 2014 (also 1,500 clocks hours taught over 50 weeks). Student transfers 450 hours to your program: New loan January 15, 2014 – May 13, 2014 Received $1,750 Sub and $3,000 Unsub loans Old loan October 5, 2013 – May 13, 2014

Transfer Students Example 2 (continued) Originate new Loan for remaining eligibility until overlap has ended: $1,750 Sub & $3,000 Unsub Loan period January 15, 2014 – May 13, 2014 (Overlap period) Originate new loan for hours remaining May 13, 2014 - end of academic year/program

Need to contact us? VP FA Berkeley College/2nd VP NYSFAAA Howard Leslie VP FA Berkeley College/2nd VP NYSFAAA hdl@berkeleycollege.edu 973-368-9857 Gregory Rinderle Manager, McClintock & Associates, P.C. grinderle@mcclintockcpa.com 412-319-6144