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Student Loans FAQs
Direct Student Loan Changes
Direct Subsidized Loans are not eligible for an interest subsidy during the six-month grace period.
- Subsidized loans are loans for which the borrower is not responsible for the interest while the student is enrolled in college on at least a half-time basis, or if eligible periods of deferment. This provision eliminated the interest subsidy provided during the six-month grace period for subsidized loans for which the first disbursement was made on or after July 1, 2012, and before July 1, 2014. If you receive a subsidized loan during this time frame, you are responsible for the interest that accrues while your loan is in the grace period. You do not have to make payments during the grace period (unless you choose to), but the interest will be capitalized (added to the principal amount of your loan) when the grace period ends. This provision does not eliminate the interest subsidy while the borrower is in school or during eligible periods of deferment.
Federal Subsidized Student Loan Borrowing Limitations
As of July 1, 2013, a first-time Federal Subsidized Student Loan borrower is no longer eligible for the Subsidized Student Loan program if he or she exceeds 150% of the published length necessary to graduate.
In addition, a borrower reaching the 150% limit becomes ineligible for the interest subsidy benefits on all Federal Subsidized Loans disbursed to the borrower on or after July 1, 2013.
Congress wants to encourage students to obtain undergraduate degrees within in a reasonable time frame. Students who change majors multiple times or, drop classes excessively or retake classes excessively are most likely to be affected by Public Law 121-141.
Congress no longer wants to provide interest rate deferments for students taking an exceptional amount of time to obtain an undergraduate degree. The interest rate expense is now passed to the student in such cases.
Based upon available information from the U.S. Department of Education, the interpretation of the 150% rule is actual credit hours completed versus credit hours attempted. If different information becomes available, this web site will be updated.
Effective Date, Affected Borrowers & Reporting/Tracking Responsibility
Q: When does the law limiting the subsidy on Direct Loans go into effect?
A: July 1, 2013
Q: Which borrowers are impacted by the new limit on subsidized Direct Loans?
A: The limit on subsidized Direct loans affects new borrowers, or “first-time” borrowers. A new borrower is defined as a student who has no outstanding principal balance on a Direct Loan (DL) Program or FFEL Program loan on July 1, 2013, or on the date the borrower obtains a Direct Loan after July 1, 2013. A student who had paid off all outstanding balances on DL or FFEL loans as of July 1, 2013, is a new borrower for this purpose.
Q: What data will my institution be responsible for reporting?
A: Your institution will be responsible for reporting the following to the Common Origination and Disbursement (COD) system and National Student Loan Data System (NSLDS) beginning in 2014-15:
- The Classification of Instructional Program (CIP) Code for the program in which the borrower is enrolled;
- The credential level for the borrower’s program;
- The length of the borrower’s program;
- The borrower’s enrollment status at the time of loan disbursement; and
- If applicable, an indication that the loan is for preparatory coursework for an undergraduate or graduate program or for teacher certification coursework.
Q: What will ED be responsible for?
A: ED will be responsible for the following:
- Determining whether a loan applicant is a new borrower for subsidy limit purposes;
- Tracking borrowers’ subsidized loan borrowing in greater detail;
- Informing schools of the number of periods a borrower has received subsidized loans;
- Informing borrowers when they exceed the eligibility limit and become responsible for accruing interest.
Part-time and Part-year Attendance
Q: How is part-time or part-year attendance calculated?
A: ED has determined that the following calculation will be used to determine both remaining and used eligibility: Number of days in the borrower’s loan period for a Direct Subsidized Loan / Number of days in the academic year for which the borrower receives the Direct Subsidized Loan.
The fraction represents the “subsidized usage period” and will be rounded down to the nearest quarter of an academic year. For a student who attends for the entire academic year, the fraction is one—one year’s worth of subsidy has been used.
If the student attends less than full-time, the fraction is adjusted accordingly. For a student attending three-quarter-time, the usage fraction is multiplied by .75, and for a student attending half-time, it is multiplied by .5.
If a student borrows the full annual loan limit for a period that is less than the full academic year (for example, just one term), the subsidized usage period for that loan is one year, and no adjustment is made for less than full-time enrollment status. The usage period for a student whose eligibility for a subsidized loan is less than the full annual limit would not be subject to this rule.
Q: Does a transfer student “reset” his or her eligibility when they transfer?
A: In general, a student who transfers between programs does not reset his or her eligibly. Loans borrowed for the previous program will count against the student’s current limit. For example, a student receives three years of subsidized loans for a two-year program, then transfers into a four-year program. For the four-year program, the student’s maximum eligibility period is six years, but she has already used up three years of eligibility, so she has three years of subsidized eligibility remaining while in the four-year program.
Q: What happens to transfer students who enter into a program of study that is shorter than his or her previous program?
A: Under the interim final rule, this student might not have remaining subsidized eligibility in some cases. For example, a student who completed a four-year program having borrowed each year and then returns to school for a two-year program would have no remaining subsidized eligibility since he received subsidies for four full years already.
Treatment of Undergraduate Preparatory Coursework
Q: Does preparatory coursework for undergraduate programs increase a borrower’s subsidized loan eligibility?
A: No. While a student can receive subsidized loans for preparatory coursework, the preparatory coursework is subsumed into the program to which the student is applying for admission for purposes of the subsidy limit. Further, the 150 percent limit does not increase the maximum period of 12 consecutive months that currently applies to loan eligibility for coursework.
For example, if a student is enrolled in preparatory coursework for a four-year undergraduate degree program and utilizes subsidized loan one year and then enrolls in a four-year program, he or she will only have five years remaining eligibility.
Treatment of Graduate Preparatory Coursework
Q: Is there a limit for subsidized loan eligibility for graduate preparatory coursework?
A: Yes, for graduate preparatory coursework the limit on subsidized eligibility is equal to the maximum eligibility period for the undergraduate program for which the borrower most recently received a subsidized loan. Therefore, for example, a student who used all remaining eligibility for his or her undergraduate program would not have any remaining eligibility for their preparatory coursework.
Q: What changes do I need to make to my entrance counseling?
A: Beginning on July 1, 2013, schools are required to include new information about the 150 percent subsidized loan limit in entrance counseling for first-time borrowers. See 685.304 in the interim final rules.
Schools are encouraged, but not required, to include new information about the 150 percent subsidized loan limit in entrance counseling for first-time borrowers performed prior to July 1.
Beginning June 28, 2013, entrance counseling materials on StudentLoans.gov will include information regarding the 150 percent subsidized loan limit.
Q: If this rule only affects new borrowers, am I correct in assuming that all continuing students can keep on borrowing subsidized loans for years and years until they reach the aggregate loan limit, regardless of whether they switch programs or schools?
A: Borrowers who do not meet the definition of “first-time borrower” in the interim final rule can continue to borrow as long as they meet satisfactory academic progress requirements and all other student eligibility criteria, until they hit applicable aggregate loan limits. For these borrowers, the number of years they remain enrolled at any institution does not affect their eligibility for interest subsidies.
Note that this does not necessarily encompass all continuing students. No matter what year a student is in, if he has never borrowed, or has repaid all previous loans prior to a certain time, then he is a new borrower subject to the limitation.
Q: Please respond to this scenario as it applies to a good number of applicants to our programs: A student enrolls at XYZ University in a 4-year program and subsequently drops after receiving two years of subsidized loans. The student then enrolls at ABC Career College in an 1800 clock hour program (two years). Does this student have any subsidized loan eligibility left to use in the 1800 clock hour program?
A: The student’s subsidized loan eligibility is based on length of the program in which the student is currently enrolled. A student enrolled in a two-year program has three years of eligibility. Loans taken in the program from which the student transferred count against that limit. Thus, a student who received subsidized loans for two years in a previous program (regardless of that program’s length) has one year of subsidized loan eligibility remaining upon entering the two-year program.
Note that only periods of enrollment for which the student received a subsidized loan count. If this student does not take a loan for the first year of his new program (or qualifies only for an unsubsidized loan), he still has subsidized loan eligibility for his second year in the program. However, once he does exhaust his subsidized eligibility, any further enrollment triggers the end of subsidies on his existing loans, including loans taken for a program which he did not complete.
So, for example, the student withdraws from a four-year program having attended only two years, then begins a new two-year program. None of the coursework he took in the first program transfers to the second. He has one year of subsidized eligibility remaining. If he took his remaining subsidized loan for the first year of his new program, he will have exhausted his eligibility for the subsidy at the end of that first year. Once he begins attending his second year, he may borrow only unsubsidized loans, and his subsidies end (i.e., interest begins to accrue but may be capitalized) on all his outstanding loans. If, however, he took no loan for his first year, he could take a subsidized loan for his second year. If he completes the program at the end of that second year, his subsidies are preserved and run their normal course.
Q: What if a student is enrolled for three years in a two-year program and takes out no loans. The student then transfers to a four-year program. Does she have only three years left, or a full six years since she never took out a Subsidized Stafford Loan in the previous program?
A: She has six years of subsidized loan eligibility remaining. Only periods for which a subsidized loan was taken count toward the aggregate 150% limit.