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AwardYear: 1998-1999 EnterChapterNo: 10 EnterChapterTitle: Federal Family Education Loan Program SectionNumber: 1 SectionTitle: Borrower and Institutional Eligibility PageNumbers: 3-10 In general, a student must be enrolled at least half time as a regular student in an eligible program and must meet the school's satisfactory academic progress standards to be eligible for a Federal Stafford or to benefit from a Federal PLUS Loan (that is, for his or her parents to receive a PLUS Loan). Chapter 2 covers in detail the student eligibility requirements that are common to all Student Financial Assistance (SFA) programs, and Chapter 3 covers in detail the institutional eligibility requirements of the SFA programs. Only those borrower and institutional eligibility requirements that are specific to the Federal Family Education Loan (FFEL) Program are noted here. STUDENT ELIGIBILITY CRITERIA -------------------------------- To receive a Stafford Loan or to benefit from a PLUS Loan, a student must meet the general eligibility criteria for all SFA programs (explained in Chapter 2). There are three exceptions to the general SFA eligibility requirement that a student be enrolled or be accepted for enrollment in a degree or certificate program. [[Coursework necessary to enroll in degree or certificate program]] - An otherwise eligible student may apply for a Stafford Loan for a single consecutive 12-month period if the school has determined and documented that the coursework is necessary in order for the student to enroll in a degree or certificate program and if the student is enrolled at least half time. This category of students may borrow at the first-year undergraduate loan level. Loan limits are explained in the chart on page 10-22. [[Coursework necessary to enroll in graduate or professional program]] - An otherwise eligible student may apply for a Stafford Loan for a single consecutive 12-month period if the school has determined and documented that the coursework is necessary in order for the student to enroll in a graduate or professional program and if the student is enrolled at least half time. This category of students may borrow at the fifth-year undergraduate loan level. The school that certifies a student's loan application using this exception must document that the coursework is needed before the student can be admitted into a degree or certificate program. [[Non-degree teacher certification programs]] - A student enrolled at least half time in a program required by a state for teacher certification or recertification at the elementary or secondary level may apply for a Stafford Loan without being enrolled as a regular student. The school's records must indicate that the courses taken are required by the state where the student will be teaching. As noted previously, such students may borrow at the fifth-year undergraduate loan level. [[Medical internships and residencies]] A student is ineligible to receive a Stafford Loan or a Federal Perkins Loan (see Chapter 6) while in a medical internship or residency program, unless the internship is part of the school's degree program. This restriction does NOT apply to students in dental internship programs. Need for subsidized Federal Stafford Loan = Cost of Attendance - Expected Family Contribution - Estimated Financial Assistance As stated in Chapter 2, a student who owes a refund on an SFA grant or is in default on an SFA loan is ineligible for additional SFA funds. Note that the parents of such a student may not receive a PLUS Loan for the student's benefit. FINANCIAL NEED ----------------- To qualify for a subsidized1 Stafford Loan, a student must have financial need. A borrower unable to qualify for a need-based Stafford Loan may apply for an unsubsidized Stafford Loan. Also, a student able to qualify for only a part of his or her subsidized Stafford Loan limit may apply for an unsubsidized Stafford Loan to cover the difference between his or her loan limit and the subsidized amount for which he or she is eligible. Basically, a student's need for a subsidized Federal Stafford Loan is his or her cost of attendance (COA) minus his or her Expected Family Contribution (EFC) minus his or her estimated financial assistance (EFA). 1 A subsidized loan qualifies for a federal interest subsidy during in-school status, grace periods, and authorized deferment periods. An unsubsidized loan does not qualify for a federal interest subsidy during any period. The student's EFA is the amount of other aid he or she will receive for the enrollment period covered by the loan. See Chapter 2, Section 2 for more information on determining a student's financial need. Section 2 of this chapter provides information on loan limits. An unsubsidized Stafford Loan is not need-based, but it cannot exceed the student's cost of attendance less the total of EFA, which includes the borrower's subsidized Stafford Loan eligibility. A student does not have to demonstrate financial need to benefit from a PLUS Loan his or her parents borrow. Because an independent student's parents may not obtain a PLUS Loan on the student's behalf, an independent student has unsubsidized loan borrowing limits in addition to the subsidized limits. The student does not need to demonstrate financial need to receive this additional amount. See Chapter 2 for information on determining dependency. If, due to circumstances such as an adverse credit history (see page 10-7), a dependent undergraduate student's parents are unable to borrow a PLUS Loan, the school may allow the student to obtain an unsubsidized Stafford Loan under the independent student borrowing limits. Again, the student does not need to demonstrate financial need to receive this additional amount. As explained in Chapter 2, because students who are members of certain religious organizations are considered to have no financial need for SFA program purposes, such a student is not eligible for need-based SFA funds. He or she may, however, be eligible for an unsubsidized Stafford Loan or an unsubsidized Consolidation Loan, or, if dependent, he or she may be eligible to benefit from a PLUS Loan. (PLUS Loans are also unsubsidized.) A school that participates in the Federal Pell Grant Program must determine an undergraduate student's Pell Grant eligibility before certifying a subsidized or unsubsidized Stafford Loan for that student. If the student is eligible for a Pell Grant, the school cannot certify a loan until the student has applied for a Pell Grant for the same enrollment period that will be covered by the loan. In addition, a school cannot certify an unsubsidized Stafford Loan for a student without first determining his or her need for a subsidized Stafford Loan. If a student has need for a subsidized Stafford Loan of less than $200, a school can choose to certify only an unsubsidized Stafford Loan that includes the amount of the student's need, rather than certifying a subsidized loan of less than $200 and an unsubsidized loan for the remainder of the student's borrowing limit. Details on certifying loans are provided in Section 2 of this chapter. [[No need determination necessary for PLUS Loans]] [[Exception--SAR or ISIR necessary for PLUS Loan late disbursement--34 CFR 668.164(g)(2)(i)]] Generally, a school can certify a PLUS Loan for a parent without first determining the benefitting student's Pell Grant and subsidized Stafford Loan eligibility. In fact, calculation of a student's EFC is not required for making a PLUS Loan. There is one exception: A school cannot make a late disbursement of a PLUS Loan unless the school received a Student Aid Report (SAR) or an Institutional Student Information Record (ISIR) for the benefitting student before the date the student graduated, withdrew, was expelled, or dropped below half-time enrollment. The SAR or ISIR must contain an official EFC. Offsetting a Student's Expected Family Contribution (EFC) Loans made on behalf of a student under PLUS, unsubsidized Stafford Loans, loans made by a school to assist the student, and state-sponsored and private education loans all can be used to offset (substitute for) part or all of the student's EFC for Stafford Loans and other need-based SFA rograms. The following example shows how nonfederal aid may be substituted for the EFC in determining a student's financial aid package. Gordon, a student at Bonner's Mill College, has a COA of $7,000 and an EFC of $1,500. Gordon's financial aid includes a Federal Pell Grant of $1,500, an FSEOG of $500, a private scholarship of $500, and a state-sponsored loan of $2,000. Subtracting his EFC (1,500) and his EFA ($4,500) from his COA ($7,000) would appear to leave him with unmet need of $1,000. COA - EFC - EFA = Unmet Need $7,000 $1,500 $4,500 $1,000 The EFC is replaced in the calculation by the EFC offset. The $1,500 of the state-sponsored loan that is used to offset the EFC is no longer considered part of the EFA. Thus, the EFA is reduced to $3,000, and Bonner's Mill may approve Gordon's subsidized Stafford Loan application for $2,500. COA - EFC Offset - Remaining EFA = Unmet Need $7,000 $1,500 $3,000 $2,500 Note that because the $2,000 state loan is greater than the EFC, the remaining $500 of the state loan cannot be counted towards the EFC and must remain part of the EFA. It is very important to note that although the EFC is being offset by a state loan, the EFC itself does not change. The offset causes a reduction in EFA, not in the EFC. Therefore, the student's Pell Grant eligibility is not affected by this offset. See Chapter 2 for more information on EFA and financial need. The financial aid administrator may want to establish need for the subsidized Stafford Loan before other loans are figured into the aid package--and the financial aid administrator must do so in the case of unsubsidized Stafford and PLUS loans--to enable the student to receive the maximum subsidized Stafford Loan amount. ELIGIBILITY CRITERIA SPECIFIC TO PARENT BORROWERS -------------------------------------------------------- [[Definition of parent for PLUS Loan purposes]] For the purpose of determining PLUS Loan eligibility, a parent is a student's natural mother or father, adoptive parent, legal guardian, or the spouse of a parent who has remarried, if that spouse's income and assets would be taken into account when calculating the dependent student's EFC. A parent may receive a PLUS Loan only to pay for the educational costs of a dependent undergraduate student who meets the eligible student definition. A parent must meet the same citizenship and residency requirements as a student. Also, a parent who owes a refund on an SFA grant or is in default on an SFA loan is ineligible for a PLUS Loan. (Note that the parent's ineligibility for a PLUS Loan does not affect the student's eligibility for SFA funds.) See Chapter 2 for more information on these general eligibility criteria. To receive a PLUS Loan, a parent must provide his or her Social Security Number as well as that of the student on whose behalf the parent is borrowing. Like a student borrower, a parent borrower must also submit a Statement of Educational Purpose. He or she does not, however, have to complete a Statement of Selective Service Registration. [[Adverse credit history]] A parent with an adverse credit history is prohibited from obtaining a PLUS Loan. A lender must obtain a credit report on each applicant for a loan from at least one national credit bureau. Unless the lender determines that extenuating circumstances exist, the lender must consider the applicant to have an adverse credit history if - he or she is 90 days or more delinquent on the any debt; or - during the 5 years preceding the date of the credit report, he or she has been determined to be in default on a debt, his or her debts have been discharged in bankruptcy, or he or she has been the subject of foreclosure, repossession, tax lien, wage garnishment, or write-off of an SFA debt. A lender is permitted to establish a more stringent definition of adverse credit history than these regulatory criteria. However, a parent cannot be rejected for a PLUS Loan on the basis of having no credit history. The absence of a credit history cannot be construed as an adverse credit history. The Bankruptcy Reform Act of 1994 (enacted October 22, 1994) prohibits a lender from discriminating, on the basis of past bankruptcy filing or discharge only, against a borrower applying for a student loan. However, past bankruptcy can be included as a factor in determining the future creditworthiness of a loan applicant. These provisions are also described in Section 6 of this chapter. A parent with an adverse credit history may secure an endorser without an adverse credit history in order to qualify for a PLUS Loan. The endorser for this purpose may not be the dependent student for whom the parent is borrowing. Instead of securing an endorser, a parent may appeal a determination of adverse credit history to the lender by documenting extenuating circumstances. The lender has the final decision on whether or not to make a loan to the parent. LENDER OF LAST RESORT ------------------------ A student who is otherwise eligible for a subsidized Stafford Loan and, after not more than two rejections, has been unable to find a lender willing to make such a loan, should contact the guaranty agency in his or her state of residence or the guaranty agency in the state in which the student's school is located. The guaranty agency either must designate an eligible lender to serve as a lender of last resort (LLR) or must itself serve in that capacity and must respond to the student within 60 days. An LLR cannot make a loan that exceeds the borrower's need, nor is it required to make a loan for an amount less than $200. The LLR, as with any other lender, may refuse to make the loan if the borrower fails to meet the lender's credit standards. Each guaranty agency is required to develop rules and procedures for its LLR program. INSTITUTIONAL ELIGIBILITY ----------------------------- In order to participate in the FFEL Program, a school must meet the SFA Program eligibility criteria discussed in Chapter 3. Only institutional eligibility issued specific to the FFEL Program are discussed here. Only a school accredited as an institution of higher education offering a graduate-level program may certify FFELs at the graduate level for students unconditionally accepted into a graduate or professional program. A school offering programs exclusively for study by correspondence is not eligible to participate in the FFEL Program. If a school is notified that it has lost its eligibility to participate in the FFEL Program and the school does not intend to appeal the decision, it must immediately inform all current and prospective students of its loss of eligibility. The school must also explain that it can no longer certify FFELs for students. If the school appeals its loss of eligibility within the required time frame, the school may continue certifying FFELs during the appeal process. Once a final decision on the appeal is made, the school must take the appropriate action described in the Department's final appeal decision letter. (See Section 9 for more information about the appeal process.) If a school loses eligibility or decides not to participate in FFEL Program, reinsurance of loans previously disbursed will not be affected, and interest subsidy will continue as long as the student maintains his or her required enrollment status. The student's grace period and eligibility for in-school status and in-school deferment also will not be affected by a school's loss of eligibility. If a school has delivered the first disbursement of a loan to a student before the loss of eligibility, the school may deliver the remaining disbursements. However, if a school loses eligibility before it delivers any loan proceeds to the student, the school is not permitted to deliver the loan proceeds to the student. (See Section 10 for information about how excessive default rates affect school eligibility.) [[Foreign medical schools--34 CFR 600.56(c)]] If a foreign medical school loses eligibility to participate in the FFEL Program, its students who were continuously enrolled at the institution before the loss of eligibility may receive FFELs through the next academic year. If a school plans to withdraw from participation in the FFEL Program, it must provide both the appropriate guaranty agency or agencies and the Department with written notification of its decision. Once the effective date of withdrawal has been established, the school is prohibited from delivering to a student any loan proceeds received from a lender and must return the loan proceeds to the lender within 30 days. To find out more about the procedures required for withdrawal from the FFEL Program, call 202/708-4906. Note that if the first disbursement of a Federal Stafford Loan was delivered to the student or credited to the student's account prior to the school's loss of eligibility or withdrawal from participation, the school may deliver subsequent disbursements of that Federal Stafford Loan to satisfy any unpaid commitment made to a student for the period of enrollment for which the Stafford Loan was made. If a school has never participated in the SFA Programs but wants to be considered an eligible school for deferment purposes only, the school must prove that it meets the Department's definition of an eligible school before the school may certify borrower deferment forms. To find out more about eligibility for deferment purposes, write to the following address: U.S. Department of Education Initial Participation Branch, Room 3915 600 Independence Avenue, SW Washington, D.C. 20202-5244 Applications to request deferment approval should be sent to: U.S. Department of Education Institutional Participation and Oversight Service P.O. Box 44805 L'Enfant Plaza Station Washington, D.C. 20202-4805

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