1. 1 Everything you ever wanted to know about Student Loans … and a few things you’ll wish you never HAD to know

2. 2 Everything you ever wanted to know about Everything you ever wanted to know about …  THE LANGUAGE  BORROWER ELIGIBILITY  LOAN PROGRAMS  ANNUAL LOAN LIMITS  AGGREGATE LOAN LIMITS  PLUS LOANS  BEHIND THE SCENES  DEFAULTED LOANS  TOTAL AND PERMANENT DISABILITY

3. 3 THE LANGUAGE OF FINANCIAL AID “If we spoke a different language, we would perceive a somewhat different world.” Ludwig Wittgenstein, 20 th century German Philosopher ACRONYMISH

4. 4 THE LANGUAGE OF FINANCIAL AID * FAFSA*CPS*SAR*TPD*AGI *PELL*EFC*COA*DL*EIC *MPN*COD*USDE*ISIR*AYR *FFEL *PJ*PLUS*ATOM “…language manifests itself… in my work because I understand short attention spans.” Barbara Kruger, contemporary American artist.

5. 5 GENERAL ELIGIBILITY REQUIREMENTS General Eligibility Requirements must be satisfied for all Title IV aid Which of the following are NOT required for Title IV eligibility? A valid Social Security Number Satisfactory Academic Progress Simultaneous enrollment in a secondary school Agreement to serve in the military High School diploma or equivalent

6. 6 GENERAL ELIGIBILITY REQUIREMENTS Collected from the FAFSA Citizenship Valid SSN Selective Service Registration Default & Overpayment Drug offenses/convictions Statement of Educational Purpose Incarceration

7. 7 GENERAL ELIGIBILITY REQUIREMENTS Collected & Monitored by the School Enrollment as a regular student in an eligible program High school diploma or equivalent Borrowing in excess of annual and aggregate loan limits Satisfactory academic progress Financial need Enrollment in high school

8. 8 ELIGIBILITY REQUIREMENTS Willingness to Repay Perkins Loan - Student must be willing to repay the loan -Prior failure to meet repayment obligation indicates unwillingness to repay, unless special circumstances exist Stafford & PLUS -Willingness to repay is not a specific eligibility criterion -School may use PJ to refuse to certify or originate a loan, or to certify or originate it for a reduced amount.

9. 9 ENROLLMENT REQUIREMENTS Can a student enrolled for less than half time receive a Stafford Loan? Is a PLUS available to parent of a student enrolled less than half time? Is there a loan available for students enrolled less than half time?

10. 10 ENROLLMENT REQUIREMENTS Stafford and PLUS programs require at least half-time enrollment Federal Perkins Loan program does not have enrollment requirements (i.e., eligible if enrolled less than half time), except for teacher certification programs

11. 11 LOAN PROGRAMS What two types of student Stafford loans are made under both the FFEL and Direct Loan programs? Are Parent Loans available under both programs?

12. 12 LOAN PROGRAMS Subsidized Stafford Loans Unsubsidized Stafford Loans Parent “PLUS” loans available under each program.

13. 13 LOAN PROGRAMS Subsidized Loans What is a subsidized loan? Are subsidized loans need based?

14. 14 Definition: Subsidized Student Loans USDE pays interest while student is: In school In grace period In deferment Once in repayment, the student is responsible for interest and principal payments. School determines PELL eligibility first To receive a subsidized loan, a student must have demonstrated financial need.

15. 15 Definition: Demonstrated Need “Demonstrated Need?” COA - EFC - Other Aid = NEED Demonstrated financial need establishes the exact amount that a student can borrow in a subsidized loan, subject to loan limits

16. 16 LOAN PROGRAMS Unsubsidized Loans What is an unsubsidized loan? Are unsubsidized loans need based?

17. 17 Definition: Unsubsidized Loans Interest begins to accrue upon disbursement. Student responsible for interest payments during in-school, grace, & deferment periods. No interest covered by federal government Eligibility for subsidized loan determined first Student may opt to: Pay interest; or Have interest capitalized(accrued interest added to principal)

18. 18 LOAN PROGRAMS Unsubsidized Loans “Not need based” COA – All Other Aid = Unsubsidized eligibility (the amount a student can borrow in an unsubsidized loan, subject to loan limits)

19. 19 ANNUAL LOAN LIMITS Two Components to definition: Base Annual Loan Limits Additional Unsubsidized Loan Limits Student’s dependency status determines how much can be borrowed during a loan period

20. 20 ANNUAL LOAN LIMITS Base Annual Loan Limits for Dep.Students: Represents maximum amount that a student may borrow in a combined subsidized/unsubsidized Stafford loan for an Academic Year at a specific grade level.

21. 21 ANNUAL LOAN LIMITS What is the BASE amount a dependent student can borrow during a loan period at these grade levels? Freshman Sophomore Junior Senior

22. 22 ANNUAL LOAN LIMITS Base Loan Limits for full AY for Dep. Students $2,625 – first year undergraduate $3,500 – second year undergraduate $5,500 – third yr & beyond undergraduate Note: fifth-yr undergraduate base loan limits apply to teacher certification programs and graduate preparatory coursework

23. 23 ANNUAL LOAN LIMITS What is the BASE amount an independent student can borrow during a loan period at these grade levels? Freshman Sophomore Junior Senior Graduate/Professional

24. 24 ANNUAL LOAN LIMITS Base Annual Loan Limits for Independent Students $2,625 – first year undergraduate $3,500 – second year undergraduate $5,500 – third yr & beyond undergraduate $8500 – graduate and professional students

25. 25 ANNUAL LOAN LIMITS Additional unsubsidized annual loan limits available to independent students: $ 4,000 – first & second yr. undergraduates $ 5,000 – third yr./beyond undergraduates $10,000 – graduate/professional students

26. 26 ANNUAL LOAN LIMITS “The maximum amount of unsubsidized Stafford loan funds that an independent student may borrow for an academic year cannot exceed the base annual loan limit plus the additional unsubsidized loan limit, minus the amount of the student’s eligibility for Subsidized Stafford Loan funds.” “All true language is incomprehensible…” Antonin Artaud, French Dramatist

27. 27 ANNUAL LOAN LIMITS WHAT?!?*!? Let’s try an example: Bart, an independent sophomore COA $14,300 EFC -11,800 NEED 2,500 = Demonstrated Need (or subsidized Stafford eligibility)

28. 28 ANNUAL LOAN LIMITS Bart, continued: Base annual loan limit $3,500 Additional unsub loan limit +4,000 Total loan limit $7,500 Subsidized eligibility -2,500 Maximum Unsub elig $5,000

29. 29 AGGREGATE LOAN LIMITS Represents the combined total of borrower’s loans over course of his or her education Cannot exceed mandated aggregate maximum applicable to borrower’s dependency status and grade level Capitalized interest does not count

30. 30 AGGREGATE LOAN LIMITS What is the aggregate loan limit for: Dependent students? Independent undergraduate students? Graduate/professional students?

31. 31 AGGREGATE LOAN LIMITS For Dependent Students: The aggregate loan limit for combined subsidized and unsubsidized borrowing: $23,000.

32. 32 AGGREGATE LOAN LIMITS Independent Undergraduate Subsidized……………………$23,000 Combined sub & unsub…….. $46,000 Grad/Professional* Subsidized……………………$65,500 Combined sub & unsub…… $138,500 *Includes amounts borrowed at undergrad level

33. 33 AGGREGATE LOAN LIMITS Dependent Undergrads whose parent cannot borrow PLUS: Subsidized………………………….$23,000 Combined sub & unsub…………….$46,000 If parent later becomes eligible for PLUS, student’s aggregate limit reverts back to the dependent undergrad limit ($23,000) Any unsub borrowed under indep limits ARE NOT counted toward dependent aggregate limit

34. 34 AGGREGATE LOAN LEVELS Example: Jill, a dependent senior Freshman 2,625 Plus denied/unsub 3,000 Sophomore 3,500 Plus denied/unsub 4,000 Junior 5,500 $7,000 Senior 5,500 $17,125 + $7,000 = $24,125 $17,125 + $5,500 = $23,000

35. 35 PLUS LOAN Unsubsidized loan for parents of dependent students Parent may borrow up to cost of attendance minus other aid received for loan period No Aggregate Limit Parent responsible for all loan payments Federal government does not pay interest at any time Repayment begins within 60 days after final disbursement

36. 36 PLUS LOAN For the purpose of applying for a PLUS loan, who qualifies as a parent? Is a FAFSA required to apply for a PLUS? What eligibility factors is the school responsible for verifying?

37. 37 PLUS LOAN Definition of Parent : 1. Biological or adoptive mother or father Either may apply even if one parent’s information is not on the FAFSA due to divorce or separation 2. Stepparent If financial data used, or would have been used, to calculate student’s EFC - Legal guardian NOT considered a parent unless also adoptive parent

38. 38 PLUS LOAN FAFSA not required, BUT School has option to require FAFSA …A few good reasons why an institution might consider requiring a FAFSA:

39. 39 PLUS LOAN School is responsible for verifying that student is: U.S. citizen or eligible noncitizen Registered with Selective Service (if applicable) Not in default on a Title IV loan Not responsible for Title IV grant or loan overpayment

40. 40 PLUS LOAN School is responsible for verifying that parent meet same citizenship, default, and overpayment eligibility criteria as student. If a FAFSA is filed, this data will be checked against ED’s database matches for both student & parent

41. 41 PLUS LOAN By certifying or originating a PLUS, school is certifying that both student and parent are eligible to receive Title IV funds Policies and procedures are needed to confirm parent’s and student’s eligibility if no FAFSA is completed

42. 42 PLUS LOAN Lender or COD determines parent credit history Adverse credit indicated by: More than 90 days delinquent on repayment of debt Within 5 years preceding credit report date: Default determination, bankruptcy discharge Foreclosure, repossession Tax lien, wage garnishment Write-off of Title IV debt Lenders may vary in credit standards, some being stricter than others.

43. 43 PLUS LOAN What happens if a dependent student’s parent cannot borrow a PLUS loan? What happens if a dependent student’s parent chooses not to borrow a PLUS loan? If one parent cannot borrow a PLUS, is the other parent required to try?

44. 44 PLUS LOAN If parent does not pass the credit check and cannot borrow PLUS funds: Student allowed to borrow under the independent student loan limits Can apply for the additional unsubsidized loan

45. 45 PLUS LOAN CANNOT VS OPT NOT A parent’s choice not to borrow PLUS on the student’s behalf does not allow consideration of additional unsubsidized loan limits for the student.

46. 46 PLUS LOAN If one parent cannot borrow PLUS, the student does not have to turn to another parent to do so. In cases where one parent cannot borrow, the student can receive the additional unsubsidized loan even if the other parent is reported on the FAFSA. However, if one parent is denied and the other parent does apply and is approved for PLUS, the student is not eligible for the additional unsubsidized loan funds.

47. 47 BEHIND THE SCENES Student School Lender Secondary Market/Servicer Guarantor USDE

48. 48 BEHIND THE SCENES Student: able to finance an education through the loan program School: Calculates loan eligibility Certifies the student’s eligibility Delivers funds to the student Monitors the student’s academic progress Provides entrance and exit counseling

49. 49 BEHIND THE SCENES Lender: Provides the loan funds Is guaranteed against loss when the borrower… Refuses to repay a loan Gives false information to obtain a loan Can’t repay a loan (i.e. death, disability, or bankruptcy Can’t complete program due to school closure Claims false certification

50. 50 BEHIND THE SCENES Secondary Market/Servicer: Contracts to perform loan operations Purchases loans after disbursement Frees up capital so lender can make new loans

51. 51 BEHIND THE SCENES Guarantor: Issues guarantees, insuring a lender against loss on a student loan Reviews claim payment requests Collects on defaulted loans Conducts reviews of schools and lenders to ensure compliance with federal statues and regulations Provides assistance and training to schools and lenders

52. 52 BEHIND THE SCENES U.S. Department of Education (USDE) Regulates the guaranteed student loan programs Administers the Direct Loan Program Conducts on-site program reviews of schools, lenders, and guarantors Distributes rule clarifications via Dear Colleague Letters and Dear Partner Letters

53. 53 DEFAULTED LOANS Begins when a student fails to make a payment on a Title IV loan for 6 months After 6 months, the loan goes into Delinquent status. After an additional 3 months, the loan is considered in Default. Noted with a “C” comment on the ISIR, as a result of database match with NSLDS; therefore, resolution is required

54. 54 DEFAULTED LOANS  Servicer begins Due Diligence  Attempts made to contact student  Offers made for payment arrangements  Collection agency involved  Consequences explained  Turned over to Guarantor  Receives 98% of value

55. 55 DEFAULTED LOANS Guarantor begins Due Diligence Intensity increases Wage Garnishment Lien on federal tax refund USDE becomes involved Reimburses guarantor for claims paid to lenders Pays 95% on defaulted or borrower ineligible loans

56. 56 DEFAULTED LOANS Default Resolution Borrower may re-establish Title IV eligibility by:  Full repayment, including compromise agreements or payment through consolidation  Repayment under a satisfactory repayment arrangement with the loan holder  Loan rehabilitation  Discharge through bankruptcy

57. 57 DEFAULTED LOANS Default Resolution: Repayment in Full Complete repayment Voluntary Involuntary* Wage Garnishment IRS tax offset *Involuntary repayment is an indicator of unwillingness to repay, which may preclude a student from borrowing from the Perkins Loan program

58. 58 DEFAULTED LOANS Default Resolution: Repayment in full by Compromise Loan holder agrees to settle defaulted loan for less than the amount due. Due diligence is followed Payment of 90% made Risks, timing, financial stability considered Full payment of agreed amount = payment in full of loan = Default Resolved

59. 59 DEFAULTED LOANS Default Resolution: Repayment in full by Consolidation Allows a borrower to fully repay a defaulted loan with the proceeds from a consolidation loan Does not restore the benefits and privileges of a defaulted loan promissory note Provides limited choice in repayment plans

60. 60 DEFAULTED LOANS Payment Resolution: Satisfactory Repayment Arrangement Agreement between the loan holder and the borrower to reestablish Title IV eligibility Borrower must request the arrangement Title IV eligibility is restored after the borrower has made six full, voluntary, on-time, consecutive monthly payments Loan remains in default

61. 61 DEFAULTED LOANS Payment Resolution: Loan Rehabilitation Requires 12 full, voluntary, on-time, consecutive monthly payments Allowed only once Loan must not be subject to judgment Restores benefits and privileges of original prom note Removes default status from borrower’s credit history

62. 62 DEFAULTED LOANS Payment Resolution: Bankruptcy To reestablish Title IV eligibility, student must: Obtain a judicial determination that the defaulted loan has been discharged; or If the bankruptcy petition is still active, obtain documentation from the holder that the loan is dischargeable in bankruptcy Note: a defaulted loan must be outstanding for seven years before it can be discharged in bankruptcy.

63. 63 DEFAULTED LOANS Default Resolution A borrower’s options for resolving a defaulted loan may be limited if: The loan holder has secured a judgment against the loan; The borrower is subject to wage garnishment The borrower resolved a prior defaulted loan through satisfactory repayment arrangements or rehabilitation; or The defaulted loan is a consolidation loan that has an underlying defaulted loan

64. 64 TOTAL AND PERMANENT DISABILITY DISCHARGES Impact of a Discharged Loan on Eligibility for subsequent loans: Eligibility requirements vary depending upon date of TPD discharge ISIR Codes and Comments specify requirements

65. 65 TPD DISCHARGES Required for all TPD Discharges:  A physician’s certification that the borrower is able to engage in substantial gainful employment  A signed statement acknowledging that new loan cannot be cancelled in the future on the basis of any impairment present when the new loan is made, unless that impairment substantially deteriorates.

66. 66 TPD DISCHARGES Substantial Gainful Activity Ability to earn money above the poverty level. Prior to 2001, referred to borrower’s capability to attend school, complete a program of study, and secure employment

67. 67 TPD DISCHARGES Previous loan discharged between July 2001 and July 2002 and applying for new loan within 3 yrs of TPD: Obtain physicians certification re gainful activity Sign statement re future loan cancellation Reaffirm the discharged loan After 3 years from TPD date only physician certification and borrower acknowledgement required

68. 68 TPD DISCHARGES Previous loan discharged on or after July 1, 2002  If final discharge  Physician’s certification  Statement re future loan cancellation  If “conditional” discharge  Physician’s certification  Statement re future loan cancellation  Borrower acknowledgement that collection activity will resume on conditional loan