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USA Funds University
Federal Direct Loans: The Basics
Summer Webcast Series
July 22, 2014
Special Note
These materials are for the benefit of financial aid professionals and other campus administrators. They are
intended to provide current facts and information and are not intended to be legal advice. These materials
contain information related to Federal Title IV student aid programs and have neither been reviewed nor
approved by the U.S. Department of Education. You are encouraged to seek your own competent legal
counsel in connection with the topics covered in these materials. USA Funds® disclaims all responsibility for
any claim arising from reliance on the information provided.
© Copyright 2014 United Student Aid Funds, Inc. All Rights Reserved.
Questions regarding the content of this publication should be addressed to USA Funds University, P.O. Box
6028 Indianapolis, IN 46206-6028 or by calling (317) 806-0208.
www.usafunds.org
Federal Direct Loans: The Basics
To help cover the costs of higher education, more students and families depend upon Title IV education loans than any
other type of financial assistance. As reported in the College Board's Trends in Student Aid 2013, during the 2012-2013
award year, nearly two out of every three dollars of federal financial assistance for postsecondary education were federal
loans.
Source: College Board Trends in Student Aid 2013, Table 1.
Significant changes have occurred since 1965 when the Guaranteed Student Loan program was first introduced, under
which loan capital was provided by private lenders, facilitated by a federal guarantee. Lenders were allowed to begin
offering PLUS and Consolidation loans in 1980. The GSL program was renamed the Stafford Loan program in honor of
Senator Robert Stafford of Vermont in 1988. Four years later, all of these loan programs were combined together under
the Federal Family Education Loan program. This helped distinguish it from the William D. Ford Federal Direct Loan
Program, which was implemented on July 1, 1994, under which loan funds are paid directly from the U.S. Treasury.
The Health Care and Education Reconciliation Act of 2010 eliminated the ability for FFELP participants to originate,
guarantee or disburse loans, requiring all schools to use DL beginning July 1, 2010. Guarantors and lenders continue to
service existing Federal Family Education Loan Program loans to help ensure successful repayment.
The following information applies to provisions of both the Federal Family Education Loan Program and the William D.
Ford Federal Direct Loan Program, unless specified otherwise. These provisions do not apply to:
u
Federal Perkins loans.
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Loans made under programs administered by the U.S. Department of Health and Human Services.
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Loans made under programs administered by the U.S. Department of Veterans Affairs.
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Private education loans.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
FFEL and Direct Loan Players
While legislative changes which became effective July 1, 2010, eliminated the role of lenders and guarantors in the
origination, guarantee or disbursement of new loans, they continue to service existing loans. Direct loans are serviced by
loan servicers under the supervision of the U.S. Department of Education.
Player
Responsibility
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Federal
Government
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Schools
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Guarantors
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Lenders
Servicers
Secondary
Markets
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Borrowers
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Congress periodically reviews the Higher Education Act of 1965, as amended, and determines if
changes are necessary and authorizes funding for the Title IV programs.
U.S. Department of Education administers and regulates all Title IV aid programs, including the
federal education loan programs.
ED monitors program compliance.
Determine student and parent eligibility, originate loans, and provide loan counseling.
Disburse loan funds, process refunds and conduct other loan-related transactions.
Monitor and report students’ enrollment statuses.
Provide required consumer information.
Participate in financial education and default prevention efforts.
Support schools with policy advice and assistance.
Assist borrowers to resolve payment problems and avoid default on FFEL loans.
Provide a guarantee of payment to lenders if borrowers fail to repay FFEL loans.
Maintain a reserve of funds to pay lender claims.
Recover, on behalf of federal taxpayers, amounts owed by FFEL borrowers in default on their
loans.
Monitor school and FFEL lender compliance with the HEA, federal regulations and guarantor
policies.
Provide servicing to existing FFEL borrowers.
Deliver customer service to borrowers and school financial aid offices.
Manage FFEL and Direct loans on behalf of ED, guarantors, lenders and secondary markets.
Serve as point-of-contact for borrowers, schools, loan holders and guarantors.
Purchase FFEL loans from lenders, which transfers ownership of the loans.
Service FFEL loans while a borrower is in repayment.
Be aware of their rights and responsibilities under the terms and conditions of their loans and
repay the loans according to the repayment plan they selected.
Keep their loan holders informed of their contact information and any information pertinent to
their ability to repay their loans.
Trainer’s Tidbit
The National Student Loan Data System is a centralized database that stores information on all U.S. Department of
Education loans and grants. NSLDS also contains servicer information for each of a borrower's federal student loans.
Using their Federal Student Aid PIN, borrowers can access this information online at: http://www.nslds.ed.gov/.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Interest Subsidy Limit
Direct Subsidized and
Unsubsidized Loans
HEA Sec. 455(q).
34 CFR 668.32(a).
34 CFR 685.200.
34 CFR 685.203.
Dear Colleague Letter GEN-13-13.
34 CFR 682.
34 CFR 685.
First-time borrowers on or after July 1, 2013, may receive
Direct Subsidized loans for a period of time not to exceed
150 percent of the published length of the student’s
current educational program. Students subject to this
limitation cannot receive Direct Subsidized loans beyond
this timeframe, unless the student enters a longer
educational program.
Students enrolled at least half time in a postsecondary
degree or certificate program may qualify to borrow
federal education loans to help pay for their educationally
related expenses. Unsubsidized loans are available to both
undergraduate and graduate students; subsidized loans
are available only to undergraduate students.
Direct Subsidized Loans
Exceptions are made for students who:
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HEA Sec. 428.
HEA Sec. 451.
34 CFR 682.300.
2014-2015 Federal Student Aid Handbook, Vol. 3.
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Direct Subsidized loans are need-based loans for
undergraduate students.
Enroll in certain coursework or special admission degree
programs:
– Teacher certification coursework.
– The six-month grace period before repayment begins.
– Selective admission associate degree programs.
– Authorized periods of deferment.
– Bachelor's degree completion programs.
– Undergraduate and graduate preparatory coursework.
Once borrowers reach the 150 percent limitation and have
not completed their program of study, eligibility for the
interest subsidy ends for all outstanding Subsidized loans.
At that time, interest on the previously borrowed loans
may begin to accrue in the same manner as interest on
Direct Unsubsidized loans if the borrower continues
enrollment beyond the 150 percent threshold.
Note: The Consolidated Appropriations Act of 2012
temporarily eliminates the interest subsidy during the grace
period on Direct Subsidized loans first disbursed between
July 1, 2012, and June 30, 2014. Any unpaid interest that
accrues during this period will be capitalized.
The following calculation for the applicable loan period
determines eligibility:
The Department determines which students are affected
based on the school’s reporting of key data elements, and
notifies schools using comment codes and C-flags.
Eligibility information also appears in the borrower’s
NSLDS record. Students may not appeal the Department’s
150 percent limitation but may identify errors in previously
reported loan periods and/or academic years. The school or a previous school - may be required to enter necessary
corrections to ensure the student’s continued eligibility for
Direct Subsidized loans.
Cost of Attendance
− Expected Family Contribution
− Estimated Financial Assistance
= Direct Subsidized Loan Eligibility
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Enroll less than full time.
The borrower is not responsible for the interest on these
loans while in school at least half time and during:
– Certain periods of repayment under the income-based
repayment and Pay As You Earn repayment plans.
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Borrow the full annual loan limit in a period shorter than
a full academic year.
If an undergraduate student demonstrates $200 or less of
financial need for a Direct Subsidized loan, financial aid
administrators may decline to originate the subsidized
portion if the unused subsidized eligibility can be added
to the student’s unsubsidized loan eligibility. The
student’s file should be documented when this option
has been exercised.
Trainer’s Tidbit
The 150 percent limitation has no effect on Direct
Unsubsidized or PLUS loan eligibility.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Direct Unsubsidized Loans
Borrower Eligibility
HEA Sec. 428H.
HEA Sec. 451.
2014-2015 Federal Student Aid Handbook, Vol. 3.
34 CFR 668.32.
34 CFR 682.201.
34 CFR 685.200.
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Direct Unsubsidized loans are non-need-based.
A student-borrower of Direct Loans must meet certain
eligibility requirements before a loan may be originated:
Borrowers are responsible for the interest on these loans
from the date of disbursement until they are paid in full,
which includes:
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– The six-month grace period before repayment begins.
– Authorized periods of deferment.
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– Certain periods of repayment under the income-based
repayment and Pay As You Earn repayment plans.
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Have a high school diploma, or its equivalent, or have
been determined to have the ability to benefit.
Note: Under the provisions of the Consolidated
Appropriations Act of 2012, students who first enroll in an
eligible program of study on or after July 1, 2012, are
eligible for Title IV funds only if they have a high school
diploma or its equivalent, or complete a home-schooling
curriculum.
Students have the option to pay the interest during
school or postpone payment. If payment is postponed,
the interest is added to the principal balance of the loan.
This addition of interest to the principal balance is known
as capitalization.
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The following calculation for the applicable loan period
determines eligibility:
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Cost of Attendance
− Estimated Financial Assistance
− Direct Subsidized Loan Eligibility, if any
= Direct Unsubsidized Loan Eligibility
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Be a U.S. citizen or eligible noncitizen.
Note: Students who are residents of Federated States of
Micronesia, Republic of Marshall Islands or the Republic of
Palau are ineligible for federal education loans.
Neither law nor regulation specifies a minimum Direct
Unsubsidized loan amount.
Provide a valid Social Security number.
Be enrolled at least half time in an eligible program or
course of study leading to a degree or certificate at a
participating institution of higher education.
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Make satisfactory academic progress.
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Not be in default on a federal student loan.
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Not owe an overpayment on a federal grant or loan.
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Have registered with the Selective Service (if required).
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Not be incarcerated.
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Not pled guilty or no contest to, or been convicted of, a
crime of fraud in obtaining Title IV financial aid (unless
the borrower repays in full the funds obtained
fraudulently).
Not been convicted of certain drug offenses while
enrolled and receiving Title IV assistance.
NOTES
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Annual Direct Loan Limits
34 CFR 685.203.
The regulations place limits on the amount of Direct Loans students may borrow for an academic year. Students who
borrow the maximum loan amount cannot obtain additional loan funds until they either begin a new academic year (as
defined by the school) or progress to a grade level with higher annual loan limits in the same academic year.
Loan limits are based on dependency status, current grade level and the length of the program of study (or remaining
period of study). All undergraduate loan limits are subject to proration if students are completing a program that is less
than one academic year in length, or are completing a program that is one academic year or longer during a period that
is less than one academic year in length. Students who borrow in excess of annual or aggregate limits are ineligible for
additional Title IV aid of any kind until the situation is resolved.
Direct Loan Limits
Annual Limits
Subsidized
Total
(Subsidized and Unsubsidized)
First Year
$3,500
$5,500
Second Year
$4,500
$6,500
Third and Subsequent Years
$5,500
$7,500
Teacher Certification*
$5,500
$5,500
First Year
$3,500
$9,500
Second Year
$4,500
$10,500
Third and Subsequent Years
$5,500
$12,500
Teacher Certification*
$5,500
$12,500
$0
$20,500
Dependent Undergraduates
Independent Undergraduates**
Graduate Students
Any level
* Limits apply to students with a prior baccalaureate degree enrolled in coursework leading to state-required teacher
certification. Dependent undergraduates enrolled in teacher certification coursework do not qualify for any additional
unsubsidized loan eligibility, unless a parent is unable to borrow under the Direct PLUS loan program.
** Limits apply to both independent undergraduate students and dependent undergraduate students whose parents are
unable to borrow under the Direct PLUS loan program.
Adapted from the U.S. Department of Education’s FY 2013 Budget Request Student Loans Overview.
NOTES
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Annual Loan Limits for Preparatory Coursework
34 CFR 685.203(a)(6).
Some schools allow students to take coursework that prepares them for enrollment in a degree or certificate program.
Students pursuing this type of coursework may obtain federal student or parent loans for up to 12 consecutive months,
beginning on the first day of the first loan period. Different annual loan limits apply to student loans depending on
whether the coursework leads to enrollment in an undergraduate or graduate program. Dependent students taking
preparatory coursework cannot qualify for additional unsubsidized loan eligibility, unless a parent is unable to borrow
under the Direct PLUS loan program. These limits are not subject to proration, however, since these students are not yet
enrolled in an eligible program.
Direct Loan Limits for Preparatory Coursework
Annual Limits
Subsidized
Total
(Subsidized and Unsubsidized)
For undergraduate programs
$2,625
$2,625
For graduate programs
$5,500
$5,500
For undergraduate programs
$2,625
$8,625
For graduate programs
$5,500
$12,500
Dependent Undergraduates
Independent Undergraduates*
* Limits apply to both independent undergraduate students and dependent undergraduate students whose parents are unable
to borrow under the Direct PLUS loan program.
Adapted from the U.S. Department of Education’s FY 2013 Budget Request Student Loans Overview.
Annual Loan Limits for Health Professions Students
34 CFR 668.14(b).
Students enrolled at least half time in certain health professions graduate level programs qualify for increased annual
loan limits. The program must approved by specific accrediting agencies.
Direct Loan Limits for Health Professions Students
Annual Limits
Health Professions Programs
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Graduate in Public Health.
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Doctor of Pharmacy or Chiropractic.
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Doctoral Degree in Clinical Psychology.
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Masters or Doctoral Degree in Health Administration.
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Doctor of Dentistry, Veterinary Medicine, Optometry, Allopathic
Medicine, Osteopathic Medicine, Podiatric Medicine,
Naturopathic Medicine, or Doctor of Naturopathy.
Unsubsidized
Additional
Unsubsidized*
Total
(Unsubsidized)
$20,500
$12,500
$33,000
$20,500
$20,000
$40,500
* When a program’s academic year is greater than nine months in length, additional unsubsidized loan limits are prorated by
dividing the nine-month amount by nine and multiplying the result by the number of months in the academic year.
Adapted from the 2014-2015 Federal Student Aid Handbook, Vol. 3, Ch. 5, p. 3-96.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Example: Student Loan Eligibility Calculations
Kevin and his older sister, Karen, enroll at the same school during the academic year. Kevin is a fourth-year, dependent
undergraduate student. Karen went to work full time after graduating from high school and has decided to quit her job
and begin working on an associate’s degree. She will be a first-year independent undergraduate student.
As full-time degree-seeking students, they have the same Cost of Attendance; however, their Expected Family
Contributions are different. The school awards each of them the gift aid for which they qualify before calculating
eligibility for federal loans.
Subsidized and Unsubsidized Loan Eligibility
Kevin: Fourth-Year, Dependent Undergraduate
Subsidized
COA
EFC
Unsubsidized
−
$15,000
5,000
Need
$10,000
Merit Aid
State Aid
Scholarship
− $2,000
− $4,000
− $1,000
Unmet Need
$3,000
Subsidized Loan
$3,000
COA
Merit Aid
State Aid
Scholarship
Subsidized Loan
−
−
−
−
$15,000
$2,000
$4,000
$1,000
$3,000
Unmet COA
$5,000
Unsubsidized Loan
$4,500
Subsidized and Unsubsidized Loan Eligibility
Karen: First-Year, Independent Undergraduate
Subsidized
COA
EFC
Need
Unsubsidized
−
$15,000
7,000
$8,000
Scholarship
− $2,000
Unmet Need
$6,000
Subsidized Loan
$3,500
COA
Scholarship
Subsidized Loan
$15,000
− $2,000
− $3,500
Unmet COA
$9,500
Unsubsidized Loan
$6,000
NOTES
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Aggregate Direct Loan Limits
34 CFR 682.204(b) and (e).
34 CFR 685.203(d)-(e).
Aggregate loan limits restrict the total amount students can have outstanding during their entire undergraduate and
graduate careers. A student’s outstanding FFELP and Direct Loan amounts — including any subsidized and unsubsidized
loan principal that is part of a Consolidation loan — must be compared to the applicable aggregate loan limit before
originating any additional amount of subsidized or unsubsidized loan funds. Borrowers may qualify for new aggregate
loan limits as a result of a change in the student's status, such as an undergraduate student enrolling in a graduate
degree program.
Once the aggregate limit is reached, the student must repay some loan funds or have the funds discharged, canceled or
forgiven before being eligible to borrow more. Any student whose cumulative total of FFELP and Direct Subsidized or
Unsubsidized loans exceeds the aggregate limit immediately loses eligibility for federal financial aid from any Title IV
program.
Direct Loan Limits
Aggregate Limits
Subsidized
Total
(Subsidized and Unsubsidized)
Dependent Undergraduates*
$23,000
$31,000
Independent Undergraduates**
$23,000
$57,500
Graduate/Professional Students***
$65,500
$138,500
* Limits also apply to dependent students with a baccalaureate degree enrolled in coursework leading to a state-required
certification.
** Limits apply to both independent undergraduate students and dependent undergraduate students whose parents are
unable to borrow under the Direct PLUS loan program. Limits also apply to independent students with a baccalaureate
degree enrolled in coursework leading to a state-required certification.
*** Graduate and professional students enrolled in certain health professions programs may borrow up to $224,000, no more
than $65,500 of which may be subsidized.
Adapted from the U.S. Department of Education’s FY 2013 Budget Request Student Loans Overview.
Trainer’s Tidbit
34 CFR 682.204.
34 CFR 685.203.
Some items do not count toward the aggregate loan limit, such as:
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Capitalized interest.
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Capitalized collection costs.
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PLUS loans borrowed by the student or student’s parents.
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A TEACH grant that has been converted to a Direct Unsubsidized Loan.
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Amounts that are repaid, refunded, returned, prepaid, canceled, discharged or forgiven.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Trainer’s Tidbit
2014-2015 FSA Handbook, Vol. 3, Ch. 5, p. 3-124.
2014-2105 ISIR Guide, p. 47.
NSLDS Newsletter 11.
For borrowers with Consolidation loans, ED has stated that unallocated funds are not included when determining
remaining eligibility and schools are not required to identify the source of unallocated amounts reported in NSLDS.
Instead, schools should rely on Aggregate Outstanding Principal Balance amounts for subsidized and unsubsidized
loans. These amounts also are combined to create the “Calculated Combined Agg. OPB” for comparison to aggregate
loan limits.
Direct PLUS Loans
HEA Sec. 428B.
HEA Sec. 451.
34 CFR 685.201(b).
When college costs exceed financial aid and family resources, students and families can turn to PLUS loans to fill the
funding gap. Parents of dependent undergraduate students and graduate/professional students may borrow Direct PLUS
loans.
Eligibility for Parents of Dependent Students
34 CFR 685.200(c).
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The Free Application for Federal Student Aid must be filed prior to awarding parent PLUS loan funds.
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The parent-borrower must be the biological or adoptive parent of the dependent student.
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u
u
u
The parent-borrower may be the stepparent of the dependent student, if the stepparent’s income and assets would
have been taken into account when calculating the EFC.
A natural or adoptive parent of a dependent student who was not required to provide income and asset information on
the student's application for financial aid can borrow a PLUS loan to help meet that student's educational expenses.
More than one eligible parent-borrower may obtain Direct PLUS loans for the same dependent student for the same
period of enrollment, as long as the student's total financial assistance does not exceed the student's Cost of
Attendance.
The qualifying dependent student must be enrolled at least half time, making satisfactory progress towards a degree or
certificate at an eligible institution and meet all other eligibility criteria.
Eligibility for Graduate/Professional Students
34 CFR 685.200(b).
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Graduate/professional students must file a FAFSA.
The school must determine the student’s maximum subsidized and unsubsidized loan eligibility prior to the student
receiving a Direct PLUS loan; however, the student is not required to borrow Direct Subsidized and Unsubsidized loan
funds.
Before originating a PLUS loan, the school must determine whether the student has requested the maximum
subsidized and unsubsidized loan amount. If not, the school is required to notify the student of the terms of both loan
types and give the student an opportunity to request the maximum subsidized and unsubsidized loan amount. This
notification must include a comparison of all of the following:
– Maximum interest rates.
– Periods when interest accrues.
– When repayment begins.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Borrower Eligibility
34 CFR 685.200(b)-(c).
34 CFR 668.
A parent or student borrower must meet the following criteria to qualify for a PLUS loan:
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Be a U.S. citizen or eligible noncitizen.
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Have a valid Social Security number.
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Not be in default on a federal student loan.
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Not owe an overpayment on a federal grant or loan.
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Not pled guilty or no contest to, or been convicted of, a crime of fraud in obtaining Title IV financial aid.
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Meet standards for Direct PLUS loan approval by either:
– Not having adverse credit.
– Applying with an endorser without adverse credit.
Having no credit history is not considered the same as having adverse credit and does not prevent an applicant from
qualifying for a Direct PLUS loan.
The school may make a determination that the parent of a dependent student cannot borrow. For example, a parent who
is a foreign national and not an eligible non-citizen is not an eligible Direct PLUS loan borrower. Rather than ask the
parent to apply and be denied, the school can document the reason that the parent cannot borrow Direct PLUS loan
funds.
Additional Loan Eligibility for Dependent Students Whose Parent Cannot
Obtain a Direct PLUS Loan
In the event that a parent-borrower is denied a PLUS Loan or is unable to obtain a PLUS loan because of exceptional
circumstances, the student may be eligible to borrow additional Direct Unsubsidized loan funds up to the amount for
which they would be eligible if they were independent. The student’s aggregate loan limit is increased by the additional
unsubsidized amount the student received due to the parent’s inability to obtain parent PLUS loan funds. For a
dependent student to qualify for additional unsubsidized loan eligibility, only one parent need apply and be denied.
Trainer’s Tidbit
ED has stated that “...if one of a dependent student's parents is denied a PLUS loan, it is not necessary for the other
parent to also apply and be determined ineligible for a PLUS loan.” However, if a parent subsequently applies for the PLUS
loan and is determined to be eligible, the dependent student immediately becomes ineligible for any further
unsubsidized Stafford loan disbursements.”
NOTES
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Example
Lesley is a dependent undergraduate student enrolled in an associate degree program. Her COA is $12,000. During her
second year, she changed her major and now she must enroll full time for a third full year of coursework. For her third
year in this two-year program, the maximum subsidized and unsubsidized loan amount for which she could qualify is
$6,500, no more than $4,500 of which may be subsidized.
To help with the costs of an additional year of coursework, Lesley’s father applies for a Direct PLUS loan. Due to adverse
credit history, however, her father does not qualify to borrow a PLUS loan. Even though her mother does not apply, Lesley
now qualifies for an additional $4,000 of unsubsidized loan. As a result, the maximum subsidized and unsubsidized loan
amount for which she could be eligible increases to $10,500, no more than $4,500 of which may be subsidized.
Trainer’s Tidbit
34 CFR 685.200(c)(1)(vii).
StudentLoans.gov.
Direct Loan regulations state that PLUS loan applicants are considered to have adverse credit history if they either:
u
u
Are 90 or more days delinquent on any debt.
Have been the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage
garnishment, or write-off of a Title IV debt during the five years preceding the date of the credit report.
Additional information and samples of acceptable documentation for appealing adverse credit decisions are
available at: https://studentloans.gov/myDirectLoan/whatYouNeed.action?page=credit.
Direct PLUS Loan Amounts
HEA Sec. 428B.
34 CFR 685.102(b)(viii)(4).
34 CFR 685.200(e).
PLUS loans are non-need-based and do not qualify for a federal interest subsidy. Borrowers are responsible for all interest
that accrues from the date the applicable loan is disbursed until the date it is paid in full.
The following calculation for the applicable loan period determines eligibility:
Cost of Attendance
− Estimated Financial Assistance
− Direct Subsidized Loan Eligibility, if any
− Direct Unsubsidized Loan Eligibility
= Direct PLUS Loan Eligibility
Direct PLUS Loan Limits
34 CFR 685.203(f)-(g).
Parents and graduate/professional students can borrow annually up to the student’s total COA, less any other financial
aid. There is no aggregate loan limit for Direct PLUS loans.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
The Cost of Borrowing
Debt comes at a cost. Federal education loans have certain terms and conditions that usually result in repayment of a
larger amount than the loan principal borrowed. Schools, loan servicers, lenders and guarantors help borrowers
understand these terms and conditions so students and parents are able to make informed decisions about which loans
to borrow and develop strategies for successful repayment.
Federal Education Loan Fees
34 CFR 685.202(c).
DL Bulletin DLB-00-48.
Part of the cost of borrowing Direct Subsidized and Unsubsidized and PLUS loans is an origination fee deducted prior to
each disbursement. As a result, the borrower receives disbursements for slightly less than the amount borrowed. Over
time, the full amount borrowed — disbursed amounts plus fees — will be repaid.
Federal Education Loan Origination Fees
First Disbursement Made
on or After...
Direct Subsidized and
Unsubsidized Loans
Direct PLUS Loans
Oct. 1, 2014
1.073%
4.292%
Dec. 1, 2013
1.072%
4.288%
Trainer’s Tidbit
For students or parents borrowing through the federal Direct Loan Program, schools must include in the COA any fees
deducted from loan proceeds. Fees deducted from private education loans borrowed by the student also may be
included in the COA.
NOTES
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Interest Charges
When money is borrowed, the lender expects the borrower to repay an additional amount in exchange for the use of the
funds. Known as interest, this additional amount is expressed as an annual percentage rate. Interest charges are
calculated as a percentage of the unpaid principal amount of the loan. Higher interest rates result in higher costs.
The frequency with which interest is calculated – daily, monthly, quarterly or annually – also affects the overall cost of
borrowing. The interest on federal education loans is calculated daily.
Subsidized and Unsubsidized Loan Interest Rates
34 CFR 682.202.
34 CFR 685.202.
Electronic Announcement, Aug. 9, 2013.
The way in which interest is charged on federal education loans has changed over time. Subsidized and unsubsidized
loans currently accrue interest at a fixed rate, meaning that the rate of interest accrual stays the same over the life of the
loan. Some loans made in prior years have variable interest rates that change annually. A chart of interest rates on loans
issued between 1998 and 2014 appears in the Appendix.
Fixed-Rate Loans
The fixed interest rates that apply depend on the rules in effect as of the date of the first disbursement of each loan, as
specified in the applicable Master Promissory Note. The fixed rate of interest that applies to each new loan remains in
effect for the life of that loan.
Effective for loans first disbursed on or after July 1, 2013, Congress redefined the way in which annual interest rates will be
determined. Fixed rates for new loans will be based on the high yield of the 10-Year Treasury Note auctioned prior to July
1 of each year, plus an “add-on” defined in the law. For subsidized and unsubsidized loans, the add-on is 2.05 percent for
undergraduate borrowers and 3.60 percent for graduate/professional student borrowers. The resulting rates for the 20142015 award year appear in the table below.
Interest on Fixed-Rate Subsidized and Unsubsidized Loans
Undergraduate Borrowers
First Disbursement
Graduate Borrowers
Subsidized
Unsubsidized
Subsidized
Unsubsidized
7/1/2014 - 6/30/2015
4.66%
4.66%
N/A
6.21%
7/1/2013 - 6/30/2014
3.86%
3.86%
N/A
5.41%
7/1/2012 - 6/30/2013
3.4%
6.8%
N/A
6.8%
7/1/2011 - 6/30/2012
3.4%
6.8%
6.8%
6.8%
7/1/2010 - 6/30/2011
4.5%
6.8%
6.8%
6.8%
7/1/2009 - 6/30/2010
5.6%
6.8%
6.8%
6.8%
7/1/2008 - 6/30/2009
6.0%
6.8%
6.8%
6.8%
7/1/2006 - 6/30/2008
6.8%
6.8%
6.8%
6.8%
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Variable-Rate Loans
Variable federal education loan interest rates depend on the rules in effect as of the date of the first disbursement of each
loan, as specified in the applicable promissory note. The variable rate is based on the sale of the 91-day Treasury Bill at the
end of May. For some loans, higher rates apply during repayment than during enrollment, grace or deferment. By July 1 of
each year, ED announces the new rates that borrowers of variable rate loans will pay for the next 12 months. Interest rates
may increase or decrease each year, but the variable rate will never exceed 8.25 percent, under current rules.
Interest on Variable-Rate Stafford Loans
July 1, 2014 to June 30, 2015
In-School, Grace and Deferment Periods
Repayment
First Disbursement
Subsidized
Stafford
Unsubsidized
Stafford
Subsidized
Stafford
Unsubsidized
Stafford
7/1/1998 - 6/30/2006
1.73%
1.73%
2.33%
2.33%
PLUS Loan Interest Rate
34 CFR 682.202(a)(2).
34 CFR 685.202(a)-(b).
PLUS loans disbursed on or after July 1, 2006, have a fixed interest rate during in-school, deferment and repayment
periods. Interest rates for PLUS loans disbursed prior to July 1, 2006, will continue to be variable and will be adjusted each
July 1.
Effective for loans first disbursed on or after July 1, 2013, Congress redefined the way in which annual interest rates will be
determined. Fixed rates for new loans will be based on the high yield of the 10-Year Treasury Note auctioned prior to July
1 of each year, plus an “add-on” defined in the law. For PLUS loans, the add-on is 4.60 percent. The resulting rates for the
2014-2015 award year appear in the table below.
Interest on PLUS Loans
First Disbursed
July 1, 2014 to June 30, 2015
Fixed or Variable Rate
7/1/2014 - 6/30/2015
7.21%
Fixed
7/1/2013 - 6/30/2014
6.41%
Fixed
7/1/2010 - 6/30/2013
7.9% (DL)
Fixed
8.5% (FFELP)
7/1/2006 - 6/30/2010
Fixed
7.9% (DL)
7/1/1998 - 6/30/2006
3.13%
NOTES
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Variable, capped at 9.0%
Interest Accrual
As described in the Master Promissory Note signed by each recipient of federal education loan funds, interest accrues
unless:
u
u
The borrower qualifies for an interest subsidy.
The borrower qualifies for relief from interest accrual during a period when that borrower is serving active duty in the
U.S. in a location that qualifies the borrower for special pay.
The borrower of an unsubsidized or PLUS loan may choose to make payments of interest during any period in which
interest would normally accrue. This includes when the student-borrower or student-beneficiary is enrolled at least half
time and during periods of grace, deferment or forbearance.
Interest Accrual
Federal Education
Loan Program
In-School
Grace Period
Repayment
Deferment
Forbearance
Subsidized
No
No
Yes
No
Yes
Unsubsidized
Yes*
Yes*
Yes
Yes**
Yes
PLUS
Yes*
Yes*
Yes
Yes**
Yes
* The borrower may choose to pay accruing interest.
** The lender must advise the student-borrower of the option to pay interest charges that are accruing.
NOTES
15
© 2014 United Student Aid Funds, Inc. All rights reserved.
Interest Capitalization
Any unpaid interest that accrues on federal education loans during periods when payments of loan principal are not due
is added to the loan’s principal balance, a process known as capitalization. Subsequent interest charges are based on the
new loan balance, which increases the cost of the loan. In most cases, unpaid interest on federal educations loans is
capitalized when:
u
The loan initially enters repayment.
u
A deferment or forbearance period ends.
u
u
A borrower on an income-based repayment plan no longer demonstrates a partial financial hardship or no longer
wishes to makes payments under IBR.
The loan is in default.
Interest Benefits for Service Members
While serving in the military, FFEL and Direct borrowers may qualify for an interest rate cap of 6 percent on Direct
Subsidized and Unsubsidized and PLUS loans obtained before entering military service. Additionally, the Higher
Education Opportunity Act of 2008 extended provisions for Direct Loan borrowers serving on active duty or performing
qualifying National Guard duty during a war or other military operation or other emergency, and serving in an area of
hostilities qualifying for special pay to qualify for a waiver of interest charges for up to 60 months on Direct Loans first
disbursed on or after Oct. 1, 2008. The borrower must contact the loan servicer to request these benefits.
Loan Repayment
34 CFR 682.209.
34 CFR 685.207.
For borrowers of subsidized and unsubsidized loans, repayment of the loan principal and any accrued interest begins six
months after the student ceases to be enrolled at least half time, or at the end of the qualifying period of enrollment if the
student already has used the six-month grace period. Unless repayment is delayed or deferred, the first loan payment is
due within 60 days.
For parent and student PLUS loan borrowers, repayment of loan principal and any accrued interest begins on the date the
loan is finally and fully disbursed. PLUS loans do not have a grace period, though some borrowers qualify for a postenrollment deferment period. Unless repayment is delayed or deferred, the first loan payment is due within 60 days of the
final disbursement of the PLUS loan.
Trainer’s Tidbit
The PLUS MPN permits the enrolled parent or student borrower to request in-school deferment at the time the borrower
is completing the MPN, based on the borrowers's own qualifying enrollment. The MPN also allows the student PLUS loan
borrower to request post-enrollment deferment while completing the form.
The MPN does not facilitate requests for:
u
u
In-school deferment for the parent PLUS borrower who is not enrolled and is requesting deferment based on the
enrollment status of the student beneficiary.
Post-enrollment deferment for the parent borrower that follows either the parent’s or the student’s qualifying
period of enrollment.
These borrowers must contact their servicers to request in-school deferment based on the students’ enrollment and any
period of post-enrollment deferment.
16
© 2014 United Student Aid Funds, Inc. All rights reserved.
Repayment Options
34 CFR 682.209.
34 CFR 682.215.
34 CFR 685.208.
34 CFR 685.209.
34 CFR 685.210.
34 CFR 685.221.
Several repayment options are available to borrowers of subsidized and unsubsidized for PLUS loans. Borrowers may
change repayment plans as often as they wish, as long as they are eligible for the plan selected. A publication describing
student loan repayment options appears in the Appendix.
Trainer’s Tidbit
Repayment calculators are available to help borrowers compare repayment options, including:
u U.S. Department of Education Calculators and Interest Rates (www.ed.gov/offices/OSFAP/DirectLoan/calc.html).
u U.S. Department of Education Repayment Comparison Calculator (http://studentaid.ed.gov/repayloans/understand/plans/standard/comparison-calculator).
u USA Funds Loan Repayment Calculator (http://calculator.usafunds.org/).
Loan Counseling
Entrance Counseling
At or prior to the disbursement of the first federal education loan installment, schools must ensure that first-time studentborrowers of Direct Subsidized, Unsubsidized or PLUS loans receive simple and understandable information about the
loan terms and conditions and the student's responsibilities.
Some schools consider entrance counseling to be a continual process and provide information to students throughout
their enrollment. Ongoing communication about their loans enables students to make informed borrowing decisions
and remain aware of their overall loan debt and the implications of that debt upon repayment.
Exit Counseling
Financial aid administrators are required to conduct exit interviews or exit counseling for every student at the school who
borrowed a subsidized or unsubsidized loan, and effective Aug. 14, 2008, for every student who obtains a Grad PLUS loan,
shortly before the student ceases to be enrolled at least half-time, even if the student does not graduate. Schools must
ensure that exit counseling is provided to students who leave the school without officially withdrawing. Counseling may
be provided by interactive electronic means or by mailing exit counseling materials within 30 days after learning the
students have withdrawn or failed to complete exit counseling.
Trainer’s Tidbit
34 CFR 685.304.
Electronic Announcement, May 16, 2013.
Loan counseling for first-time borrowers on or after July 1, 2013, must include information related to the interest subsidy
limitation. Specific requirements are outlined in the Appendix.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Trainer’s Toolkit
The Trainer’s Toolkit is a listing of terms, websites and reference material directly related to Federal Direct Loans: The
Basics.
References, Resources and Websites
Federal Legislation or Regulations
Final Regulations: Direct Loans — 150% Subsidized Loan Limit
79 FR 3108-3120.
Jan. 17, 2014.
www.ifap.ed.gov/fregisters/FR011714.html.
Final Rule for the Title IV Student Loan Programs
78 FR 65767-65842.
Nov. 1, 2013.
www.ifap.ed.gov/fregisters/FR110113FinalRulefortheTitleIVStudentLoanPrograms.html.
FY 2014 Department of Education Justifications of Appropriation Estimates to Congress:
Student Loans Overview
www2.ed.gov/about/overview/budget/budget14/justifications/s-loansoverview.pdf.
Smarter Solutions for Students Act of 2013
P.L. 113-28.
Aug. 9, 2013.
http://thomas.loc.gov.
Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford
Federal Direct Loan Program
Federal Register, Vol. 77, No 212.
http://ifap.ed.gov/fregisters/FR110112FinalRule.html.
MAP-21
P.L. 112-141.
July 6, 2012.
http://thomas.loc.gov.
Budget Control Act of 2011
P.L. 112-25.
Aug. 2, 2011.
www.gpo.gov/fdsys/pkg/PLAW-112publ25/html/PLAW-112publ25.htm.
Consolidated Appropriations and Access Act, 2012
P.L. 112-74.
Jan. 5, 2011.
www.gpo.gov/fdsys/pkg/BILLS-112hr2055enr/pdf/BILLS-112hr2055enr.pdf.
Program Integrity Final Rules
Oct. 29, 2010.
www.ifap.ed.gov.
Health Care and Education Reconciliation Act of 2010
P.L. 111-152.
March 30, 2010.
http://thomas.loc.gov.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Higher Education Act Technical Corrections Bill of 2009
P.L. 111-39.
July 1, 2009.
http://thomas.loc.gov.
Higher Education Opportunity Act (HEOA) of 2008
P.L. 110-315.
Aug. 14, 2008.
http://thomas.loc.gov.
College Cost Reduction and Access Act of 2007
P.L. 110-84.
Jan. 4, 2007.
www.gpo.gov/fdsys/pkg/BILLS-110hr2669enr/pdf/BILLS-110hr2669enr.pdf.
U.S. Department of Education
2014-2015 ISIR Guide
Oct. 18, 2013.
http://ifap.ed.gov/isirguide/attachments/20142015ISIRGuide.pdf.
2014-2015 Federal Student Aid Handbook
Application and Verification Guide.
Volume 1: Student Eligibility.
Volume 3: Calculating Awards and Packaging.
Volume 4: Processing Aid and Managing Federal Student Aid Funds.
www.ifap.ed.gov.
2013-2014 Federal Student Aid Handbook
Volume 4: Processing Aid and Managing Federal Student Aid Funds.
www.ifap.ed.gov.
150 Percent Direct Subsidized Loan Limit Information
Provides information and updates related to the 150 Percent Loan Limit.
www.ifap.ed.gov/150PercentDirectSubsidizedLoanLimitInfo/index.html.
150% Direct Subsidized Loan Limit —Frequently Asked Questions
http://ifap.ed.gov/150PercentDirectSubsidizedLoanLimitInfo/FAQ.html.
FFEL Variable Interest Rates
Subject: Federal Stafford, Federal PLUS, Federal SLS, and Federal Consolidation Interest Rate Calculations for the Period
July 1, 2014-June 30, 2015.
May 28, 2014.
http://ifap.ed.gov/ffelvarrates/053014FFELVarInterRatePeriodJuly1June30.html.
Dear Colleague Letter GEN-14-10
Subject: FY 2015 Sequester Required Changes to the Title IV Student Aid Programs.
May 2, 2014.
http://ifap.ed.gov/dpcletters/GEN1410.html.
Dear Colleague Letter GEN-13-22
Subject: FY 2014 Sequestration Changes to the Title IV Student Aid Programs (Updated October 25, 2013).
Oct. 17, 2013.
http://ifap.ed.gov/dpcletters/GEN1322.html.
Dear Colleague Letter GEN-13-13
Subject: Reporting of Academic Year and Loan Period to COD for Direct Loans.
May 10, 2013.
http://ifap.ed.gov/dpcletters/GEN1313.html.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Dear Colleague Letter GEN-12-01
Subject: Changes Made To The Title IV Student Aid Programs By The Recently Enacted Consolidated Appropriations
Act, 2012.
Jan. 18, 2012.
http://ifap.ed.gov/dpcletters/GEN1201.html.
Dear Colleague Letter GEN-11-07
Subject: Guidance on Participation in the William D. Ford Federal Driect Loan (Direct Loan) Program.
March 22, 2011.
http://ifap.ed.gov/dpcletters/GEN1107.html.
Dear Colleague Letter 96-L-186
Subject: Clarification and interpretative guidance on certain provisions in the Federal Family Education Loan (FFEL)
Program regulations published on Dec. 18, 1992.
March 1, 1996.
http://ifap.ed.gov/dpcletters/doc0628_bodyoftext.htm.
Electronic Announcement
Subject: Interest Rates for Direct Loans First Disbursed between July 1, 2014 and June 30, 2015.
May 15, 2014.
http://ifap.ed.gov/eannouncements/051514IntRatesForDLFirstDisbBtwnJuly12014June302015.html.
Electronic Announcement
Subject: 150% Direct Subsidized Loan Limit Electronic Announcement #8 — Final Regulations Published.
Jan. 17, 2014.
www.ifap.ed.gov/eannouncements/011714RevisedFinalRegulationsPublished150PercentEANum8.html.
Electronic Announcement
Subject: Update: Impact of Sequestration on the Title IV Student Aid Programs.
April 5, 2013.
http://ifap.ed.gov/eannouncements/040512UpdateImpactOffSequestrationOnTitleIVPrograms.html.
Electroinc Announcement
Subject: Update: Impact of Sequestration on the Title IV Student Aid Programs.
March 15, 2013.
http://ifap.ed.gov/eannouncements/031513SequestrationTitleIVStudentFinancialAssistance.html.
Electronic Announcement
Subject: Packaging and Repackaging of Title IV Student Aid.
Sept. 11, 2012.
www.ifap.ed.gov/eannouncements/110912PackagingandRepackagingTitleIVStudentAid.html.
Electronic Announcement
Subject: Direct Loan Interest Rates and Changes to Student Eligibility for the Direct Subsidized Loans.
July 10, 2012.
http://ifap.ed.gov/eannouncements/071012InterestRateFinal.html.
Electronic Announcement
Subject: Origination Fee and Up-Front Interest Rebate Reductions for Direct Subsidized Loans and Direct Unsubsidized
Loans.
Feb. 4, 2010.
www.ifap.ed.gov/eannouncements/020410OrgFeeUpFrontIRRDLD.html.
NSLDS Newsletter
Newsletter 11: Consolidation Loans and Aggregate Calculations.
Feb. 9, 2006.
www.ifap.ed.gov/nsldsmaterials/NSLDSNewsletter11.html.
21
© 2014 United Student Aid Funds, Inc. All rights reserved.
Direct Loan Bulletin
New Repayment Incentive Benefits – First Question & Answer Document. DLB-00-48.
October 2000.
www.ifap.ed.gov/dlbulletins/doc0276_bodyoftext.htm.
USA Funds
Federal Student Loan Interest Rate Update
www.usafunds.org/USAFunds%20ResourceLibrary/InterestRateChart.pdf.
Federal Student Loan Interest Rates for Loans Issued 1998-2014
www.usafunds.org/USAFunds%20ResourceLibrary/ExpandedInterestRateChart.pdf.
Student Loan Repayment: Four Steps to Take Now
www.usafunds.org/USAFunds%20ResourceLibrary/StudentLoanRepayment.pdf.
Annual Aggregate Loan Limit Chart
www.usafunds.org/USAFunds%20ResourceLibrary/AnnualAggregateLoanLimits.pdf.
Webcast Recording Archives
www.usafunds.org/TrainingPolicySupport/Pages/WebcastArchives.aspx.
Other Resources
The College Board
Trends in Student Aid 2013.
http://trends.collegeboard.org/student-aid.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Appendices
Appendix A
Parent PLUS Loan Denial Issues
Appendix B
Federal Student Loan Interest Rates for Loans Issued 1998-2014
Appendix C
Student Loan Repayment: Four Steps to Take Now
Appendix D
Entrance Counseling Requirements
Appendix E
Exit Counseling Requirements
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Appendix A
Parent PLUS Loan Denial Issues
Parent PLUS Loan Denial Issues
34 CFR 685.203(c)
Dear Colleague Letter 96-L-186
A dependent student’s eligibility for unsubsidized Stafford loan funds increases when a parent is unable to obtain PLUS loan funds. The increased
unsubsidized Stafford loan eligibility may result from:
‹
Denial of a parent PLUS loan due to adverse credit.
‹
Exceptional circumstances such as:
– The parent is incarcerated.
– The parent’s whereabouts are unknown.
– A bankruptcy action prevents the parent from incurring additional debt.
– The parent demonstrates an inability to repay the loan due to income limitations.
– The parent otherwise is not an eligible PLUS loan borrower. Examples include the parent’s not being a U.S. citizen or not being
a permanent resident.
How long is a PLUS loan credit denial valid?
Per the U.S. Department of Education, the denial applies to the entire academic year.
What loan amount can the school originate for a student whose parent is unable to obtain a PLUS loan?
When a parent is unable to obtain a PLUS loan, the school must treat a dependent student as independent for both annual and aggregate loan
limits. The school may originate additional unsubsidized Stafford loan funds up to the annual loan limit applicable to an independent student
at the same grade level. For example, a grade level-two dependent student who normally would be eligible for $6,500 in Stafford loans instead
would be eligible for up to $10,500, which includes $4,000 in additional unsubsidized Stafford loan funds.
What if a parent originally is unable to obtain a PLUS loan but then is approved later in the academic year?
If a student’s parent is unable to obtain the PLUS loan, but later is approved or another eligible parent is approved for a PLUS loan, the school
again must treat the student as dependent. There are three possible scenarios the school may encounter when it becomes aware of the PLUS
loan approval:
‹ The school has not yet disbursed any of the additional unsubsidized Stafford loan funds awarded due to the PLUS loan denial. The
school must cancel/return all of the additional unsubsidized loan funds.
‹ The school has disbursed some, but not all, of the additional unsubsidized Stafford loan funds awarded due to the PLUS loan
denial. The school must cancel/return the undisbursed additional unsubsidized funds. The student may retain any monies already
disbursed.
‹
The school has disbursed all of the additional unsubsidized Stafford loan funds awarded due to the PLUS loan denial. The student
may retain any monies already disbursed.
Can a school process an additional unsubsidized loan due to a PLUS loan denial and a parent PLUS loan for a student
for the same academic year?
Yes. While a school may not initially originate both loans for the same student for the same academic year, a subsequent denial or approval could
result in the school’s processing both loans for the same academic year. Note, however, that when the school calculates the amount of the new
loan for the same period, it must include as estimated financial assistance any of the additional unsubsidized Stafford or PLUS loan funds that
it disbursed.
25
© 2014 United Student Aid Funds, Inc. All rights reserved.
Consider these scenarios: The parents of the following grade level-two dependent students applied for parent PLUS loans for the academic year
(two payment periods in length). Based on results of each parent’s PLUS loan application, the school must take the following actions:
Payment Period 1
Award $4,000 in additional unsubsidized
loan funds ($2,000 for each payment
period).
‹ Once the PLUS loan is approved,
cancel/return undisbursed unsubsidized
loan funds for the academic year.
‹ Determine the amount of PLUS loan
eligibility for the academic year, counting
any disbursed additional unsubsidized loan
funds as EFA for the period.
Payment Period 2
Student A
Parent PLUS loan denied
for the academic year
but later approved in
payment period 1 for the
entire academic year.
‹
Student B
Parent PLUS loan denied
for the academic year
but later approved for
payment period 2 only.
‹
Award $4,000 in additional unsubsidized
loan funds for the academic year ($2,000 for
each payment period).
‹
Student C
Parent PLUS loan denied
for the academic year
but later approved in
payment period 2 for
the academic year.
‹
Award $4,000 in additional unsubsidized
loan funds for the academic year ($2,000 for
each payment period).
‹
Student D
Parent PLUS loan
approved for payment
period 1, but parent
PLUS loan denied for
payment period 2.
‹
Award parent PLUS loan funds for payment
period 1.
‹
‹
Undisbursed unsubsidized loan funds
already are canceled for the academic year.
Cancel/return undisbursed unsubsidized
loan funds for payment period 2.
‹ Determine the amount of PLUS loan
eligibility for payment period 2.
‹ Unsubsidized loan funds disbursed for
payment period 2 count as EFA for the
period; those not disbursed do not count
as EFA.
Cancel/return undisbursed unsubsidized
loan funds for payment period 2.
‹ Determine the amount of PLUS loan
eligibility for the academic year (retroactive
to payment period 1).
‹ Count disbursed unsubsidized loan funds
as EFA during payment periods 1 and 2.
Determine the amount of unsubsidized
loan eligibility for payment period 2.
‹
No PLUS loan funds count as EFA for
payment period 2; none were disbursed
for the period.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
How do I calculate a dependent student’s aggregate Stafford loan limit?
The increased amounts of unsubsidized funds disbursed due to the parent’s inability to obtain a PLUS loan do not count toward the student’s
dependent aggregate loan limit.
For example, the following dependent student borrowed his maximum amount of Stafford loan funds for each academic year based on his
parent’s PLUS loan status:
Dependent Student
Year 1
PLUS loan approved or denied?
Year 2
Year 3
Approved
Denied
Approved
Base Stafford loan eligibility
$3,500
$4,500
$5,500
Additional unsubsidized Stafford loan eligibility
$2,000
$2,000
$2,000
Additional unsubsidized Stafford loan eligibility for PLUS loan denials
Applicable aggregate loan limit
N/A
$4,000
N/A
$31,000
$57,500
$31,000
Each year the school must compare the aggregate amount borrowed against the student’s applicable aggregate limit.
Year 1: Student borrowed a total of $5,500 for the year. All $5,500 counts toward the student’s $31,000 dependent aggregate loan limit.
Year 2: Student borrowed $10,500 for the year, plus $5,500 from the prior year. All $16,000 counts toward the student’s independent
aggregate limit of $57,500.
Year 3: Student borrowed $7,500 for the year, plus $5,500 from Year 1 and $6,500 from Year 2. The total of $19,500 counts toward the
student’s dependent aggregate limit of $31,000. The $4,000 in increased additional unsubsidized Stafford loan funds from Year 2 does
not count toward the student’s dependent aggregate limit.
Amount counted toward aggregate limit
Year 1
Applicable aggregate loan limit
Year 2
$31,000
Year 3
$57,500
$31,000
Year 1 loan amount borrowed
$5,500
$5,500
$5,500
Year 2 loan amount borrowed
N/A
$10,500
$6,500*
+
Year 3 loan amount borrowed
N/A
$5,500
Total counted toward aggregate limit
+
N/A
$16,000
+
$7,500
$19,500
*Note that the additional $4,000 in additional unsubsidized Stafford loan funds from Year 2, obtained due to the PLUS loan denial, do not count
toward the student’s dependent aggregate limit.
www.usafunds.org
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Appendix B
Federal Student Loan Interest Rates for Loans Issued 1998-2014
Federal Student Loan Interest Rates for Loans
Issued 1998-2014
Stafford Loans
When Borrowed*
Loan Type or Status
Borrower
Rate
July 1, 2013-June 30, 2014
Subsidized and Unsubsidized
Undergraduates
3.86%
Graduate/Professional Students
5.41%
July 1, 2011-June 30, 2013
Subsidized
Undergraduates
3.4%
Subsidized
Graduate/Professional Students**
6.8%
Unsubsidized
All Students
6.8%
Subsidized
Undergraduates
4.5%
Subsidized
Graduate/Professional Students
6.8%
Unsubsidized
All Students
6.8%
Subsidized
Undergraduates
5.6%
Subsidized
Graduate/Professional Students
6.8%
Unsubsidized
All Students
6.8%
Subsidized
Undergraduates
6.0%
Subsidized
Graduate/Professional Students
6.8%
July 1, 2010-June 30, 2011
July 1, 2009-June 30, 2010
July 1, 2008-June 30, 2009
Unsubsidized
All Students
6.8%
July 1, 2006-June 30, 2008
Subsidized and Unsubsidized
All Students
6.8%
July 1, 1998-June 30, 2006
In-School, Grace, Deferment
All Students
1.75%***
In Repayment
2.35%***
PLUS Loans
When Borrowed*
Loan Program
Rate
July 1, 2013-June 30, 2014
Direct
6.41%
July 1, 2010-June 30, 2013
Direct
7.9%
July 1, 2006-June 30, 2010
July 1, 1998-June 30, 2006
Direct
7.9%
FFELP****
8.5%
Direct and FFELP
3.15%***
*Date of first disbursement of loan.
**Effective July 1, 2012, graduate and professional students no longer are eligible to borrow subsidized Stafford loans.
***Variable interest rates that may change each year, effective July 1.
****No new FFELP loans issued after June 30, 2010.
A nonprofit corporation, USA Funds® works to enhance postsecondary education preparedness,
access and success by providing and supporting financial and other valued services.
M
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© 2014 United Student Aid Funds, Inc. All rights reserved.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
By taking four simple steps now to prepare
for your first payment, you’ll ensure that
you start off on the right track in repaying
your education loans.
As you plan for life after college, be sure
to include preparations for paying back
the student loans that helped finance
your college experience.
$100 – $125
$133 – $167
$167 – $208
$200 – $250
$233 – $292
$267 – $333
$300 – $375
$333 – $417
$500 – $625
$667 – $833
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$75,000
$100,000
A nonprofit corporation, USA Funds® works to
enhance postsecondary education preparedness,
access and success by providing and supporting
financial and other valued services. USA Funds
is a guarantor of loans in the Federal Family
Education Loan Program.
www.usafunds.org
Range of Affordable
Monthly Loan Payments
Your Annual Income
Maximum affordable monthly payments assume that
payments do not exceed 8 percent to 10 percent of your gross
monthly income.
If your monthly student loan payment exceeds the range of
loan payments listed below for your annual income, explore a
flexible repayment option.
What’s the maximum loan
payment you can afford?
Four steps to take now
Student Loan Repayment
Appendix C
Student Loan Repayment: Four Steps to Take Now
12/12 DPDM-130 © 2012 United Student Aid Funds, Inc. All rights reserved.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Contact your lender if you have any questions about these
four steps to successful student loan repayment or any other
issues regarding your student loan account.
If you have lost track of your paperwork, use the National
Student Loan Data System Student Access website,
www.nslds.ed.gov, to find your lender’s name and contact
information. Contact the lender for detailed and
updated information regarding your loan balance. NSLDS
provides information only for federal student loans. For
private loan repayment information, contact your lender.
Select the plan that provides a monthly payment that you
can afford but also pays back the loan as quickly as possible.
The longer you take to pay off your loan, the more interest
you will pay. In fact, you may prepay your loan principal at
any time, without penalty, to reduce your interest costs.
If you have federal student loans — Stafford and PLUS loans —
you have several repayment plans from which to choose.
See the brief descriptions of each repayment option in the
“Repayment Options” section. To determine which option is
best for you, use the online student loan repayment calculator
at www.usafunds.org to estimate your monthly payment.
Step 3 Choose a repayment plan.
Education lenders usually recommend that student loan
payments not exceed 8 percent to 10 percent of your gross
monthly income. For example, if your starting salary is
$25,000, generally you can afford monthly student loan
payments of no more than $167 to $208. To determine an
affordable monthly student loan payment, see the section
“What’s the maximum loan payment you can afford?”
If you’ve already been hired for your first job, you should
know your starting pay. If you’re still looking for employment,
consult the campus placement office about starting salaries
for jobs in your field or consult the Bureau of Labor Statistics
website at http://stats.bls.gov/bls/blswage.htm.
Step 2 Determine how much you can
afford to pay each month.
If you move after you leave school, notify your school and
lender of changes in your address and telephone number.
Otherwise, you might not receive important information
about your student loan account. If you fail to notify your
school or lender of these changes, you may face additional
charges for missed or late payments and risk severe
penalties for student loan default.
Students often underestimate their outstanding college debt.
Some fail to maintain complete loan records, and others
forget that interest accumulates on their unsubsidized loans
while they attend school. Your lender and campus financial
aid office provided information to you about the amounts you
borrowed, and you should read this paperwork and calculate
the total amount you must repay.
Income-sensitive repayment. Available only for FFELP loans,
your payments can be adjusted up or down annually to account for changes in your income. The minimum
payment must be enough to cover accruing interest. The
repayment period of 10 years can be extended to 15 years
under a special forbearance provision. Total interest costs will
be higher with this option than with standard repayment.
Graduated repayment. Monthly payments start low and
increase over time. Graduated repayment may be a good
choice if you currently have limited income but expect higher
earnings in the future. The maximum repayment term under
this option is 10 years. Total interest costs are higher under
this option than with standard repayment.
Standard repayment. Typically this is the least expensive
option in terms of total interest costs. Also known as the level
repayment plan, this option is the choice of most Stafford and
PLUS loan borrowers. This plan provides a fixed monthly
payment of at least $50 over a period of up to 10 years. If your
monthly payments under this option exceed 8 percent to
10 percent of your gross monthly income, however, consider
one of the following flexible repayment options.
The following options are available only for federal
student loans issued under the Federal Family Education
Loan Program or William D. Ford Direct Loan Program.
Repayment Options
Step 4 Keep in touch.
Step 1 Know what you owe.
Loan consolidation. Consolidation permits you to bundle
all of your federal education loans into a convenient single
monthly loan payment at a fixed interest rate. Depending
on your total outstanding loan balance, you also may be
able to extend your repayment period and lower your
monthly payments. You are likely to pay more total interest,
however, by extending your payment period and making
smaller payments over a longer term.
Pay as You Earn. This repayment plan is similar to
income-based repayment, except payments are limited
to 10 percent of your "discretionary" income, and you may
qualify for loan forgiveness after 20 years of repayment.
The option is available only to Direct Loan borrowers —
except for those with Direct PLUS loans to parents or Direct
Consolidation loans that repaid a parent PLUS loan —
who were new borrowers as of Oct. 1, 2007, and received
a Direct Loan disbursement since Oct. 1, 2011.
Income-contingent repayment. This option is available
for Direct Loans, except Direct PLUS loans to parents.
Your payments are based on your income, family size
and outstanding loan balance. Payments may be less than
the accruing interest. If you haven’t fully repaid your
loan after 25 years, you may qualify to have the unpaid
amount forgiven.
Income-based repayment. You may qualify for this
repayment option if your loan payments during the year
exceed 15 percent of your “discretionary” income. Under
this plan you may limit your payments to 15 percent of your
“discretionary” income. In addition, your payments may
be less than accruing interest, you may qualify to pay back
your loans over a period of up to 25 years, and you may
qualify for forgiveness of any remaining amount you owe
after 25 years of payment.
Under this plan, you may reduce the amount of your
monthly payment by spreading payments over a period
of up to 25 years. You may choose to make payments over
this extended period under a level or graduated schedule.
Because payments are stretched over a longer term, total
interest costs will be significantly higher than under
the other repayment plans.
Extended repayment. This option is available only if you
did not have a balance on a FFELP loan or Direct Loan as
of Oct. 7, 1998, or at the time you received a FFELP loan
or Direct Loan after Oct. 7, 1998. Extended repayment is
available only if your outstanding FFELP loan or Direct Loan
balance is more than $30,000.
Appendix D
Entrance Counseling Requirements
Entrance Counseling Requirements
Entrance Counseling for Stafford and Grad PLUS Loan Borrowers
A first-time Stafford and Grad PLUS loan borrower must complete entrance counseling prior to the disbursement of the student’s first Stafford or
Grad PLUS loan installment. The borrower must be provided with comprehensive information on loan terms and conditions and borrower
responsibilities during an in-person counseling session, on a separate form the borrower must sign and return to the school, or as part of an
online presentation provided the borrower acknowledges receipt of the information.
If entrance counseling is conducted online, the school must ensure the borrower receives the materials and completes the counseling, which
could include completion of interactive testing on the borrower’s understanding of the loan terms and conditions.
Stafford loan entrance counseling must contain information about*:
Use of the Master Promissory Note.
Importance/seriousness of repaying the loan.
Consequences of default (adverse credit, litigation, federal delinquent debt collection procedures, federal offset).
Requirement to repay the loan even if the borrower does not complete his program of study or complete his program within the
normal time frame for completion, can’t find a job or is otherwise unhappy with his school.
Sample monthly payment amounts based on a range of debt of Stafford loan borrowers (or Stafford loan and PLUS loan borrowers,
if borrowers have both loan types) or the average debt of other borrowers in the same program at the same school.
The option to pay interest that accrues on unsubsidized Stafford and Grad PLUS loans while in school, and information
explaining how interest accrues and is capitalized when not paid.
The effect of accepting the loan on the borrower’s eligibility for other types of aid.
The definition of half-time enrollment during regular and summer terms and the consequences of not maintaining at least
half-time enrollment.
The importance of contacting the appropriate school offices if the borrower withdraws so that exit counseling can be provided,
including information on repayment options and loan consolidation.
Information on the National Student Loan Data System and how the borrower can access his information.
The name and contact information the borrower can use to ask questions about loan terms and conditions or rights and
responsibilities.
*Loan counseling for first-time borrowers on or after July 1, 2013, also must contain
information about:
How the Department determines the maximum eligibility period, remaining eligibility period and subsidized usage period.
Limit on eligibility for subsidized Stafford loans to no more than 150 percent of the published length of the program.
Possible loss of eligibility for subsidized Stafford loans if the borrower exceeds the maximum timeframe.
Possible responsibility to pay interest that accrues on subsidized Stafford loan(s) already disbursed if the borrower exceeds
the maximum timeframe.
How accruing interest affects the borrower’s total loan debt.
Possible future accrual of interest may affect prior subsidized Stafford loans and subsidized portions of Consolidation loans
during the in-school and grace periods, periods of authorized deferment and certain periods during which subsidized
Stafford loans are repaid under the income-based and Pay As You Earn repayment plans if the borrower exceeds the
maximum timeframe.
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Grad PLUS entrance counseling must contain information about*:
Sample monthly payment amounts based on a range of debt of Grad PLUS loan borrowers (or PLUS loan and Stafford loan
borrowers, if the borrower has both loan types) or the average debt of other borrowers in the same program at the same school.
The option to pay interest on the PLUS loan while in school.
If the borrower has a prior Stafford loan:
– Maximum interest rate for both loan types.
– Periods when interest accrues for both loan types.
– When repayment begins for both loan types.
If the borrower does not have a prior Stafford loan:
– Use of the MPN.
– Importance/seriousness of repaying the loan.
– Consequences of default (adverse credit, litigation, federal delinquent debt collection procedures, federal offset).
– Requirement to repay the loan even if the borrower does not complete his program of study or does not complete
his program of study within the normal time frame for completion, can’t find a job or is otherwise unhappy with his school.
– The effect of accepting the loan on the borrower’s eligibility for other types of aid.
– Information explaining how interest accrues and is capitalized when not paid and the borrower’s option
to pay interest on unsubsidized Stafford and PLUS loans while enrolled.
– The definition of half-time enrollment during regular and summer terms and the consequences of not maintaining
at least half-time enrollment.
– The importance of contacting the appropriate school offices if the borrower withdraws so that exit counseling can be
provided, including information on repayment options and loan consolidation.
– Information on NSLDS and how the borrower can access his information.
– The name and contact information the borrower can use to ask questions about loan terms and conditions or rights
and responsibilities.
www.usafunds.org
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© 2014 United Student Aid Funds, Inc. All rights reserved.
Appendix E
Exit Counseling Requirements
Exit Counseling Requirements
Exit Counseling for Stafford and Grad PLUS Loan Borrowers
A school must conduct exit counseling before a borrower ceases to be enrolled at least half time. If the borrower fails to complete exit
counseling as scheduled, the school must ensure that the borrower participates in counseling provided via interactive means or it must
mail the exit counseling materials to the borrower’s last known address within 30 days after the school learns the borrower did not complete
the scheduled counseling.
NSLDS to identify which loan servicer is servicing each
outstanding loan, and how NSLDS can be used to obtain loan
status information, and a copy (paper or electronic) of
information the Department of Education makes available
under 485(d) of the Higher Education Act.
Exit counseling must contain information about*:
Use of the Master Promissory Note.
Importance/seriousness of repaying the loan.
Consequences of default (adverse credit, litigation, federal
delinquent debt collection procedures, federal offset).
Information about loan consolidation including:
Requirement to repay the loan even if the borrower does not
complete the program of study or does not complete the
program of study within the normal time frame for completion,
can’t find a job or is otherwise unhappy with the school.
– The effect on interest and fees to be paid and the length of
repayment.
– The effect on the benefits of underlying loans such as
grace periods, deferment, cancellation and forgiveness.
Average monthly payment amount based on the student’s debt
or average indebtedness of Stafford or Grad PLUS loan
borrowers at that school (or borrowers with Stafford and Grad
PLUS loans, if the borrower has both loan types).
All available repayment options and the different features of
each plan, including sample monthly payment amounts and
the difference in interest and total payments under each plan.
– The option to prepay, accelerate payment and change
repayment plans.
Certain tax filers may qualify for tax deductions based on
payment of interest on student loans.
In addition, the school must collect from the borrower:
Debt management strategies that are designed to facilitate
repayment of the loan and explain the borrower’s option to
prepay, pay on a shorter repayment schedule and change
repayment plans.
Name.
Forbearance, deferment and loan discharge information,
including discharge benefits for a Federal Family Education
Loan Program borrower who consolidates into the Federal
Direct Loan Program.
References.
Address.
Social Security number.
Driver’s license number and state.
Expected permanent address.
Address of next of kin.
Ombudsman contact information.
Name and address of expected employer.
Information on the National Student Loan Data System and
how the borrower can access loan information, and how to use
*Loan counseling for first-time borrowers on or after July 1, 2013, also must contain
information about:
How the Department determines the maximum eligibility period, remaining eligibility period and subsidized usage period.
The sum of the student’s subsidized usage periods at the time exit counseling is provided.
The possible loss of eligibility for subsidized Stafford loans.
How the borrower may use NSLDS to determine if he is responsible for accruing interest on a subsidized Stafford loan(s) and if the
borrower has remaining eligibility for subsidized Stafford loans.
The consequences of continued Stafford loan borrowing and enrollment in additional undergraduate programs.
The possible responsibility to pay accruing interest on subsidized Stafford loans and subsidized portions of Consolidation loans
during in-school, grace and deferment periods as well as certain periods of repayment under the income-based or Pay As You Earn
repayment plans.
The impact of accruing interest on total borrower debt.
F
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© 2014 United Student Aid Funds, Inc. All rights reserved.