Federal Student Loan Programs:- Under the William D. Ford Federal Direct Loan Program (Direct Loan Program), the U.S. Department of Education (the Department) makes loans to help students and parents pay the cost of attendance at a postsecondary school. This volume of the Federal Student Aid Handbook provides information to assist schools in determining student and parent eligibility for Direct Loans, counseling student borrowers, and awarding Direct Loans.

Apply Online for Federal Student Loan Programs 2024

Will you need a loan to attend college?

If you need a loan to help cover the cost of a college or career school education, think federal student loans first. Both federal and private student loans are borrowed funds that you must repay with interest, but federal student loans usually offer lower interest rates and have more flexible repayment terms and options than private student loans.

What is a federal student loan

A federal student loan is a type of financial aid provided by the U.S. government to help students pay for their education expenses, such as tuition, books, and living costs. These loans are typically offered at lower interest rates and more favorable terms compared to private loans. There are two main types: subsidized loans, where the government covers the interest while the student is in school, and unsubsidized loans, where interest accrues during school. Federal student loans offer various repayment plans and may qualify for loan forgiveness programs, making them a common choice for financing higher education in the United States.

What is a private student loan?

A private student loan is a nonfederal loan made by a private lender, such as a bank or credit union. The terms and conditions of private student loans are set by the lender, not the federal government. If you’re not sure whether you’re being offered a private loan or a federal loan, check with the financial aid office at your school.

Why are federal student loans usually a better option for paying fora college or career school education?

Federal student loans offer many benefits that don’t typically accompany private loans. These include fixed interest rates, income-based repayment plans, loan cancellation for certain types of employment, deferment (postponement) options, and interest rate reduction based on repayment method. Also, private loans usually require a credit check, while most federal loans for students do not. For these reasons, students and parents should always exhaust federal student loan options first before considering a private loan.

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How much should I borrow?

You can determine whether you need a loan and how much you need to borrow by adding up the total cost of your education (tuition, fees, room and board, etc.) and subtracting the amount of scholarships, grants, and savings you have to contribute to those costs. You should borrow only what you need, and consider the earning potential in your chosen profession to determine how easily you’ll be able to repay your debt. You can find salary estimates for various occupations in the U.S. Department of Labor’s Occupational Outlook Handbook at https://www.bls.gov/ooh. Your student loan payments should be only a small percentage of your salary after you graduate.

Significant changes for 2024

We have established a standard format for examples and numbered the examples sequentially within Volume 8, so that any example can be easily referenced by its number. In addition, we have simplified the examples by eliminating the use of fictitious school and student names.

In Chapter 1, in the section on “Exceptions to the ‘regular student’ requirement for Direct Loans,” we have added guidance on Direct Loan eligibility for students enrolled in teacher certification coursework. The guidance on exceptions to the regular student requirement that was previously in Volume 1, Chapter 5 covered the exception for students enrolled in preparatory coursework, but did not cover the other exception for teacher certification coursework. We also added a section on ineligible borrowers to replace a reference to the ineligible borrower provision that was previously in Volume 4, Chapter 3.

Guidance previously in Volume, 3, Chapter 5 under the heading “Resolving conflicting information in NSLDS” has been moved to Volume 1, as this topic is a general student eligibility issue that is not specific to the Direct Loan Program.

Volume 1, Chapter 5 and Volume 3, Chapter 5 of the 2022-2023 FSA Handbook included text explaining that prior regulations under which members of certain religious orders were considered to have no financial need for Direct Loans had been eliminated through a regulatory change, and that a statutory change had repealed the 150% time limit on borrower eligibility for Direct Subsidized Loans. Because these changes have now been in effect since 2021, we do not see a need to continue noting the regulatory and statutory amendments in the FSA Handbook and therefore have not included the prior text in new Volume 8.

In Chapter 2, we have updated the “Annual student loan acknowledgement” section (previously in Volume 2, Chapter 6) to reflect the most recent guidance issued by the Department.

In Chapter 3, we have added a section on determining the minimum loan period when a standard term is combined with an intersession based on guidance that has been provided to schools in Federal Student Aid training presentations.

In Chapter 4, we have added longstanding guidance on annual loan limits for associate’s degree programs that require more than two academic years of study for a full-time student to complete.

Also in Chapter 4, we have removed the definitions of “undergraduate student” and “graduate or professional student” and the discussion of Title IV aid eligibility for students enrolled in programs that lead only to a graduate or professional degree, but that may admit students who do not meet the regulatory requirements to be considered graduate or professional students. This content (previously in Volume 3, Chapter 5) has been moved to Volume 1, as it pertains to general student eligibility and is not specific to the Direct Loan Program.

In Chapter 5, we have added examples to the section on “Proration of the annual loan limit for students who graduate early from a clock-hour program” (previously in Volume 3, Chapter 5) to better illustrate the principles discussed in the text.

COVID-19 Guidance and Exemptions 2024

The Department of Education recognizes that the ongoing COVID-19 pandemic has created many unique challenges for postsecondary institutions. The Department has provided a variety of special guidance and regulatory flexibilities due to the President’s declaration of the COVID-19 national emergency on March 13, 2020. In addition, Congress has passed legislation offering relief from certain statutory requirements related to the Title IV, HEA programs.

The end of the COVID-19 national emergency and public health emergency will cause most COVID-19 waivers to sunset during the 2023-24 award year. For guidance on the sunset of the COVID-19 waivers and flexibilities and other COVID-19 related guidance, please see the following webpages and Electronic Announcements:

Student and Parent Eligibility for Direct Loans

To be eligible for Direct Loans, a student must be enrolled on at least a half-time basis at a school that participates in the Direct Loan Program, and students and parents must meet the general federal student aid eligibility requirements covered in Volume 1 of the Federal Student Aid Handbook. This chapter discusses other eligibility requirements that are specific to the Direct Loan Program.

Direct Subsidized Loans and Direct Unsubsidized Loans

Only students who have financial need may receive Direct Subsidized Loans. The federal government does not charge interest on Direct Subsidized Loans while the borrower is enrolled on at least a half-time basis, during the grace and deferment periods, and during certain other periods (for example, during certain periods of repayment under certain repayment plans that determine the required monthly payment amount based on the borrower’s income and family size).

If a student has received a determination of need for a Direct Subsidized Loan in an amount of $200 or less, a school may choose not to originate a Direct Subsidized Loan and may instead include that amount as part of a Direct Unsubsidized Loan.

Financial need is not an eligibility requirement to receive a Direct Unsubsidized Loan. The federal government generally charges interest on Direct Unsubsidized Loans during all periods, with limited exceptions (for example, during periods of deferment for cancer treatment).

To be eligible to receive a Direct Subsidized Loan or Direct Unsubsidized Loan, an undergraduate student attending a school that participates in the Pell Grant Program must first have received a determination of their Pell Grant eligibility for the period of enrollment for which the student is requesting a loan.

No minimum age to receive a Direct Loan

Students who are minors may receive Direct Loans, but they may not refuse to repay the loans based on a “defense of infancy” (that is, by claiming that they were too young to enter into the contract of signing the promissory note).

Requirement to offer both subsidized and unsubsidized loan

Direct Subsidized and Direct Unsubsidized Loans are two components of a single loan program. A school may not choose to make only Direct Subsidized Loans or only Direct Unsubsidized Loans available to its eligible students. For more information, see the discussion under “Direct Subsidized Loans and Direct Unsubsidized Loans” in DCL GEN-11-07.

Direct Unsubsidized Loans for students whose parents have ended financial support or refuse to file a FAFSA form

If you verify that the parents of a dependent undergraduate student have refused to complete the parental information sections of the Free Application for Federal Student Aid (FAFSA) form or that they have ended financial support for the student, you may make a professional judgment decision to offer the student a Direct Unsubsidized Loan in an amount up to the applicable annual loan limit for a dependent undergraduate. For instance,

under these circumstances a dependent second-year undergraduate could receive up to $6,500 in Direct Unsubsidized Loan funds (see Chapter 4 of this volume for information on annual loan limits). However, the student may not receive Direct Subsidized Loans or aid from any other Title IV programs.

Self-certification from the dependent student is not sufficient to verify that the parents have ended financial support or have refused to complete the FAFSA form. In most cases, this requirement can be met by obtaining a signed and dated statement from one of the student’s parents. For more information, see the discussion under “Dependent students without parent support” in the “Professional Judgment” section of Chapter 5 of the Application and Verification Guide.

Direct PLUS Loans 2024

Direct PLUS Loans are available to graduate and professional students, and to the parents of dependent undergraduate students.

A parent may receive a Direct PLUS Loan only to pay for the education costs of a dependent undergraduate student who meets the eligible student definition. A parent borrower must meet the same citizenship and residency requirements as a student. Similarly, a parent who is in default on a Title IV loan or who owes an overpayment on a Title IV grant is ineligible for a Direct PLUS Loan unless they have made satisfactory arrangements to repay the loan or grant. A parent who had a prior Title IV loan discharged for total and permanent disability must meet the same eligibility requirements outlined for student borrowers in Volume 1, Chapter 3.

Finally, a parent is not eligible for a Direct PLUS Loan if the federal government holds a judgment lien on their property or if the parent is incarcerated. Note, however, that a parent’s ineligibility for a Direct PLUS Loan does not affect the student’s eligibility for other Title IV aid, assuming that the student is otherwise eligible.

Requirement to offer Direct PLUS Loans to both student and parent borrowers

Schools may choose whether to offer Direct PLUS Loans. If your school chooses to participate in the Direct PLUS Loan Program and has both undergraduate and graduate/professional students, you must make Direct PLUS Loans available to both the parents of dependent undergraduate students and to graduate/professional students. You may not limit Direct PLUS Loan borrowing only to parents or only to graduate/professional students. For more information, see the discussion under “Direct PLUS Loans” in DCL GEN-11-07.

Definition of “parent” for Direct PLUS Loan purposes

Assuming that they meet all other Direct PLUS Loan eligibility requirements, the following individuals can borrow Direct PLUS Loans on behalf of a dependent undergraduate student:

The student’s biological parent;
The student’s legal adoptive parent; or
The student’s stepparent (spouse of the student’s biological or legal adoptive parent), but only if the stepparent is considered to be a parent in accordance with the instructions on the FAFSA form for purposes of reporting their income and assets on the FAFSA form.

Grandparents and other family members are not eligible to take out Direct PLUS Loans on behalf of a dependent undergraduate student unless they have legally adopted the student.

In addition to the parent(s) whose resources are taken into account on a student’s FAFSA form, any otherwise eligible biological or legal adoptive parent of the dependent undergraduate student can also take out a Direct PLUS Loan on the student’s behalf, even if that parent’s information is not reported on the FAFSA form.

Note also that more than one parent can take out a Direct PLUS Loan on behalf of the same dependent undergraduate student. For example, if a student’s biological or legal adoptive parents are divorced, they may decide to each take out a Direct PLUS Loan for an agreed upon amount (not to exceed the student’s cost of attendance (COA), minus other EFA) to help pay for the cost of the student’s education.

Requirement for dependent students to file a FAFSA form

In all cases, the dependent student on whose behalf a parent has applied for a Direct PLUS Loan must have filed a FAFSA form and received an Institutional Student Information Record (ISIR) or Student Aid Report (SAR) (see the Application and Verification Guide for information on the ISIR and SAR). This requirement ensures that student eligibility data matches are conducted to verify that the dependent student on whose behalf the parent is borrowing:

Is not in default on a Title IV loan and does not owe an overpayment on a Title IV grant;
Has had their Social Security number verified by the Social Security Administration; and
Has had their citizenship status confirmed by either the Social Security Administration or the Department of Homeland Security.

Note that this requirement is for the student to submit a FAFSA form. It is not a requirement for the parent borrower to submit a FAFSA form in the parent’s name, and it does not preclude an otherwise eligible parent whose information is not included on the FAFSA form (sometimes referred to as a “non-custodial” parent) from obtaining a Direct PLUS Loan.

Before originating a Direct PLUS Loan for a parent borrower, schools must review the ISIR or SAR of the dependent student to ensure there are no student eligibility issues that must be resolved before the parent can receive the Direct PLUS Loan.

Adverse credit history

An individual with an adverse credit history is prohibited from obtaining a Direct PLUS Loan unless they meet additional eligibility requirements. The Department obtains a credit report on each student or parent applicant for a Direct PLUS Loan. An applicant is considered to have an adverse credit history if:

They have one or more debts with a total combined outstanding balance greater than $2,085 that are 90 or more days delinquent as of the date of the credit report, or that have been placed in collection or charged off during the two years preceding the date of the credit report; or
During the five years preceding the date of the credit report, they have been determined to be in default on a debt, their debts have been discharged in bankruptcy, or they been the subject of foreclosure, repossession, tax lien, wage garnishment, or write-off of a Title IV debt.

For Direct PLUS Loan eligibility purposes , “charged off” means a debt that has been written off as a loss, but that is still subject to collection action. “In collection” means a debt that has been placed with a collection agency by a creditor or that is subject to more intensive efforts by a creditor to recover amounts owed from a borrower who has not responded satisfactorily to the routine demands of the creditor’s billing procedures.

An applicant cannot be denied a Direct PLUS Loan because they have no credit history. That is, the absence of a credit history is not considered to be adverse credit.

A Direct PLUS Loan applicant with an adverse credit history can qualify for a Direct PLUS Loan by obtaining an endorser who doesn’t have an adverse credit history (an endorser is someone who agrees to repay the Direct PLUS Loan if the borrower doesn’t repay it). For a parent borrower, the endorser may not be the dependent student for whom the parent is borrowing.

As an alternative to obtaining an endorser, an applicant who has been determined to have an adverse credit history may also qualify for a Direct PLUS loan by submitting documentation to the Department showing that there are extenuating circumstances associated with the adverse credit. The Department has the final decision on determining whether extenuating circumstances exist.

A borrower who qualifies for a Direct PLUS Loan by obtaining an endorser or documenting to the satisfaction of the Department that extenuating circumstances exist must also complete PLUS Credit Counseling, as discussed below.

If your school participates in the Direct PLUS program but a student’s parent cannot obtain a Direct PLUS Loan, the student is allowed to borrow additional unsubsidized funds (see “Criteria for dependent students to receive additional Direct Unsubsidized Loan funds” in Chapter 5 of this volume).

Required counseling for Direct PLUS Loan applicants with adverse credit

Any Direct PLUS Loan applicant who has an adverse credit history but who qualifies by obtaining an endorser or documenting that there are extenuating circumstances must also complete PLUS Credit Counseling on the Department’s StudentAid.gov website.

Adverse credit history and default : Apply Online for Federal Student Loan Programs 2024

Although a default on a Title IV loan will generally appear in a student or parent Direct PLUS Loan applicant’s credit record and result in the individual being determined to have an adverse credit history, being in default on a Title IV loan and having an adverse credit history are separate eligibility issues.

A Direct PLUS Loan applicant who is identified through the Department’s National Student Loan Data System (NSLDS) as being in default on a Title IV loan and who has also been determined to have an adverse credit history (due to the default and/or other adverse credit conditions) cannot qualify for a Direct PLUS Loan simply by obtaining an endorser or by providing acceptable documentation of extenuating circumstances.

The applicant must also separately resolve the default status by one of the means discussed under “Resolving Default Status” in Volume 1, Chapter 3.In some cases, the Direct PLUS Loan credit check may not reveal a default on a Title IV loan, particularly if the default is not recent. If a student or parent Direct PLUS Loan applicant who is identified in NSLDS as being in default on a Title IV loan does not have any other adverse credit issues, the applicant will pass the PLUS credit check.

In this circumstance you cannot assume that the approved credit check result supersedes the information in NSLDS. The default must be resolved before you can disburse Direct PLUS Loan funds or other Title IV aid to the applicant.

Direct PLUS Loan Application 2024

Schools that offer Direct PLUS Loans have the option of requiring parent and graduate/professional student Direct PLUS Loan applicants to complete the Direct PLUS Loan Application (formally known as the “Federal Direct PLUS Loan Request for Supplemental Information”) on the Department’s StudentAid.gov website as the first step in applying for a Direct PLUS Loan. The Direct PLUS Loan Application collects the requested loan amount, the period of enrollment for which the loan is intended, and other information related to processing the requested Direct PLUS Loan.

Use of the Direct PLUS Loan Application on StudentAid.gov is not required. Schools may choose to develop their own processes for obtaining the information needed to originate Direct PLUS Loans.

Although the Department’s Central Processing System (CPS) matches graduate or professional student Direct PLUS Loan applicants against NSLDS to determine if they are in default on a Title IV loan, it does not perform this match for parent Direct PLUS Loan applicants. However, the Department conducts an NSLDS default check on all Direct PLUS Loan applicants (both students and parents) who complete the Direct PLUS Loan Application on StudentAid.gov.

Schools that use the Direct PLUS Loan Application are notified of the result of the NSLDS default check through the Common Origination and Disbursement (COD) System. The result is reported as one of the following values:

“N” = The borrower is not in default on any Title IV loan.
“Y” = The borrower is in default on a Title IV loan.
“E” = Unable to determine if the borrower is in default on a Title IV loan.

If the result is “N,” a parent or graduate/professional student who meets all other Direct PLUS Loan eligibility requirements may receive a Direct PLUS Loan.

If the result is “Y,” the parent or graduate/professional student may not receive a Direct PLUS Loan (or any other Title IV aid) until the default status is resolved. (See “Resolving Default Status” in Volume 1, Chapter 3 for more information.)

A result of “E” may be reported if for some reason it was not possible to conclusively determine that the applicant is not in default (this is most commonly due to temporary systems issues involving the interface between the Direct PLUS Loan Application and NSLDS). In this case, if the

Direct PLUS Loan applicant is a graduate/professional student and the CPS NSLDS match indicates that the individual is not in default, you may rely on the results of that check. If the applicant is a parent, you must separately check NSLDS to confirm that the parent is not in default before originating a Direct PLUS Loan.

IMPORTANT: If you do not require Direct PLUS Loan applicants at your school to complete the Direct PLUS Loan Application, you must check NSLDS for all parent applicants to confirm that they are not in default before originating Direct PLUS Loans for these individuals.

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Ineligible borrowers 2024

The Department may determine that a borrower was ineligible to receive a Direct Loan if, at the time the loan was made and without the knowledge of the Department or the school, the borrower (or the dependent student on whose behalf a parent received a Direct PLUS Loan) provided false information,

was convicted of or pled no contest or guilty to a crime involving fraud in obtaining Title IV funds, or took actions that caused the borrower or student to receive loan funds for which they were wholly or partially ineligible, to receive interest benefits on a loan for which they were ineligible, or to receive loan funds for a period of enrollment for which they were ineligible.

If the Department determines that a Direct Loan borrower was ineligible, the Department sends the borrower a demand letter that requires the borrower to repay some or all of the loan the borrower received, as applicable, within 30 days. If the borrower fails to comply with the letter, the borrower is considered in default on the entire loan.

Direct Loans at multiple schools

A student who is concurrently enrolled and eligible at more than one school may receive Direct Loans at each school. If the student is receiving Direct Subsidized Loans or Direct Unsubsidized Loans, the schools that the student is attending are responsible for coordinating to make sure that the total amount of the loans the student receives does not exceed the applicable annual or aggregate loan limit. In addition, the schools must ensure that there is no duplication of non-institutional costs when determining the student’s COA.

(Note that in this case, which is different than the consortium arrangements discussed in Volume 2, loan funds awarded at one school are not to be included as estimated financial assistance (EFA) by any other school the student is attending when determining the student’s loan eligibility for the same period.)

Exceptions to the “regular student” requirement for Direct Loans

As explained in Volume 1, Chapter 1, one of the eligibility requirements for a student to receive Title IV aid is that the student must be enrolled at an eligible school for the purpose of obtaining a degree or certificate offered by the school. Such a student is known as a “regular student.” However, there are two limited exceptions to this requirement for Direct Loans: preparatory coursework and teacher certification coursework

Preparatory coursework 2024

A student may receive a Direct Subsidized Loan or Direct Unsubsidized Loan (or a parent may receive a Direct PLUS Loan on behalf of a dependent student) for coursework the school has documented is necessary for the student to enroll in an eligible program. The preparatory courses must be offered as part of an eligible program offered by the school, though the student does not have to be enrolled in that program. A school may not award Direct Loans for standalone courses that do not count towards an eligible program and exist solely to serve as preparatory coursework.

A student who is enrolled at least half time in prerequisite courses as described above is eligible to receive loans for a maximum of one consecutive 12-month period (not per program) beginning on the first day of the loan period. If the consecutive 12-month period of preparatory coursework spans more than one academic year, the student may receive more than one annual loan limit.

To be eligible for loans under this exception, the student must be taking classes that are a prerequisite for admission. A student who is only taking courses to raise their grade-point average in order to be admitted would not qualify.

Preparatory coursework at a different school

A student may take the preparatory courses at School A (as long as the courses are part of an eligible program there) that are required for admission into a program at School B. As the awarding school, school A may require documentation from School B that these courses are required for the student’s subsequent enrollment.

EXAMPLE 1: ELIGIBLE PREPARATORY COURSEWORK

A student who previously received a bachelor’s degree with a major in mathematics now wants to enroll in a graduate computer science program. The student needs 12 more semester hours of computer science coursework to meet the admission requirements of the school that offers the program. The student enrolls in courses that are part of one of the school’s undergraduate degree programs,

but is not enrolled for the purpose of receiving a degree and therefore is not a regular student. However, because the coursework is necessary for enrollment in the graduate program, the student may receive Direct s for this coursework (for a maximum of one consecutive 12-month period).

EXAMPLE 2: INELIGIBLE PREPARATORY COURSEWORK

A nursing school offers a 2-year program leading to a diploma. This is the only Title IV eligible program offered by the school. To be admitted to the program, students must have:

Received a high school diploma or GED;
Completed Human Anatomy and Physiology with a minimum grade of “C”;
Completed college level English Composition with a minimum grade of “C”; and
Completed college level Algebra with a minimum grade of “C”.

For applicants who have not successfully completed post-secondary courses in Human Anatomy and Physiology, English Composition, and Algebra, the school offers 8-week courses that upon successful completion qualify applicants for admission. Because the school does not offer a Title IV eligible program that includes its courses in Human Anatomy and Physiology, English Composition, and Algebra, students enrolled in those stand-alone courses are not eligible to receive Title IV funds.

Teacher certification coursework

A student may receive a Direct Subsidized Loan or Direct Unsubsidized Loan (or a parent may receive a Direct PLUS Loan on behalf of a dependent student) for courses that the student must complete to receive a professional credential or certificate from a state that is required for employment as an elementary or secondary school teacher in that state, even though the school where the student takes the courses does not award a degree or other credential upon the completion of that coursework.

Direct Loan eligibility after enrollment status change

If a student who received a disbursement of Direct Loan funds prior to the first day of classes of a payment period begins attendance on a less-than-half-time basis, there is no requirement for the school or the student to return the loan funds as long as:

The student began attendance in at least one course during the payment period; and
At the time of the loan disbursement the student was enrolled (registered) for classes on at least a half-time basis.

However, the school must not make any subsequent disbursements of the loan unless the student resumes enrollment on at least a half-time basis during the payment period.

A student who is no longer enrolled at least half time may not receive as a late disbursement any second or subsequent disbursement of the loan.

Note that different requirements apply if a student who received a Direct Loan disbursement prior to the first day of classes fails to begin attendance in any classes. See “When A Student Fails to Begin Attendance” in Volume 4, Chapter 3.

If a student does not withdraw, but ceases to be enrolled on at least a half-time basis, a school may make a late disbursement of a Direct Loan for costs incurred by the student for a period in which the student was eligible. However, this does not apply if the student dropped all future classes or modules, because the student never really began classes as a half-time student.

Title IV program funds (including Direct Loans) are disbursed to a student on the presumption that the student will attend the hours for which aid has been awarded. Therefore, a school is not required to delay the disbursement of a Direct Loan until a student has begun attendance in enough hours to establish half-time enrollment status. However,

if a school has not yet made a Direct Loan disbursement to a student who has dropped classes, and the school determines that the student never began attendance in enough classes to establish half-time enrollment status, the school may not make a first disbursement of a Direct Loan to that student.

Likewise, if a student who was enrolled in a series of modules drops all future classes before beginning attendance in enough modules to establish half-time enrollment status, the school may not make a first disbursement of a Direct Loan because the student never began attendance on at least a half-time basis.

If a student who dropped to less-than-half-time status resumes enrollment on a half-time basis during the payment period or period of enrollment, the school may make remaining disbursements of a Direct Loan if the school documents (1) the student’s revised COA, and (2) that the student continues to qualify for the entire amount of the loan, despite any reduction in the student’s COA caused by the temporary cessation of enrollment on at least a half-time basis.

Direct Loan eligibility after inadvertent overborrowing

A student who has inadvertently received Direct Loan funds in excess of the annual or aggregate loan limits is ineligible to receive any Title IV funds until the overborrowing is resolved. As explained in more detail below, the student can regain eligibility for aid by repaying the amount that exceeded the annual or aggregate loan limits, or by making satisfactory arrangements with the loan servicer to repay the excess amount.

The school where the student is requesting additional Title IV funds is responsible for identifying the loan(s) that resulted in the overborrowing, determining that the overborrowing was inadvertent, discussing the overborrowing with the student, and resolving any discrepancies in the information that is obtained.

If the loan(s) that caused the student to exceed the annual or aggregate loan limit were received for attendance at a different school, in some cases it may be necessary for the school the student is currently attending to contact the other school for additional information needed to determine that the excess borrowing was inadvertent.

Examples of circumstances that may have resulted in a student inadvertently exceeding an annual or aggregate loan limit include, but are not limited to—

School processing errors;
Missing or incorrect National Student Loan Data System (NSLDS) information; or
Unintentional student error or omission.

Overborrowing is not considered inadvertent if there is any evidence that it was the result of deliberate action on the part of the school that determined the borrower’s eligibility for the loan, or on the part of the borrower who received the loan. If a school determines that the overborrowing was the result of deliberate action on the part of another school or the borrower, it must notify the Department’s Office of the Inspector General and provide evidence (see the contact number at the end of this section).

Once the school where the student is requesting Title IV funds has documented that the student has either repaid the excess loan amount or has made satisfactory arrangements to repay the excess amount, it may award additional aid. For Direct Loans, the student’s eligibility is retroactive to the beginning of the academic year in which the overborrowing was resolved.

A student who regains eligibility after inadvertent overborrowing may or may not be eligible to receive additional loan funds, depending on the circumstances. For example, a dependent undergraduate who inadvertently exceeded the $23,000 aggregate limit for subsidized loans could not receive any additional Direct Subsidized Loan funds as a dependent undergraduate unless the outstanding debt was paid down below the $23,000 limit (see Chapter 4 of this volume for information on aggregate loan limits).

However, the student could potentially receive additional Direct Unsubsidized Loan funds, up to the $31,000 aggregate loan limit, or non-loan aid. An independent undergraduate who inadvertently exceeded the $23,000 subsidized limit (but who has not reached the $57,500 combined aggregate loan limit for independent undergraduates) could borrow additional Direct Unsubsidized Loan funds once they make satisfactory arrangements to repay the subsidized amount that exceeds $23,000. For more on overborrowing and overwarms, see Volume 4.

A student who regains Title IV eligibility after having inadvertently exceeded an annual loan limit for an academic year is not eligible to receive additional Direct Loan funds for that same academic year, but could receive other types of Title IV aid. However, if the student exceeded only the annual subsidized limit and has regained eligibility, the student would be eligible to receive Direct Unsubsidized Loans up to the applicable annual maximum.

Note: A student who inadvertently exceeded an undergraduate annual or aggregate loan limit does not automatically become eligible to receive additional Direct Loans if they gain access to an increased annual loan limit as a result of progressing to a higher grade level, or gain access to an increased aggregate loan limit due to their dependency status changing from dependent to independent or by enrolling in a graduate or professional degree program. In either case, the inadvertent overborrowing must still be resolved before the student can receive additional Title IV aid.

Repayment of the excess loan amount

If a student who has inadvertently overborrowed wishes to regain Title IV eligibility by repaying the excess loan amount, the student must contact the applicable servicer and comply with the servicer’s repayment instructions. The school may assist the student in identifying and contacting the servicer, but the student, not the school, must make the payment of the excess loan funds in accordance with the servicer’s instructions. Once the student has repaid the excess loan amount in full,

the servicer will send the student confirmation that the excess loan amount has been repaid. The student or servicer must provide a copy of the repayment confirmation to the school. The inadvertent overborrowing is considered to have been resolved as of the date the servicer received the borrower’s full payment of the excess loan amount.

Satisfactory repayment arrangements (“reaffirmation”)

A student who has inadvertently overborrowed may also regain Title IV eligibility by making satisfactory repayment arrangements to repay the excess loan amount. This requirement can be met if the student agrees in writing to repay the excess amount according to the terms and conditions of the promissory note that supported the loan. This is called “reaffirmation.” The reaffirmation process includes the following five steps:

Either the student or the school where the student is requesting additional Title IV funds contacts the servicer of the loan that caused the overborrowing and explains that the student has inadvertently overborrowed and wishes to reaffirm the debt.
The servicer sends the student a reaffirmation agreement.
The student reads, signs, and returns the reaffirmation agreement to the servicer.
The servicer sends the student confirmation that the reaffirmation agreement has been accepted. The student or servicer must provide a copy of the confirmation to the school where the student is requesting Title IV funds.
The inadvertent overborrowing is considered to have been resolved as of the date the servicer receives the student’s signed reaffirmation agreement.

Consolidation of loan amounts that exceed the annual or aggregate loan limit

If a borrower who inadvertently received more than the annual or aggregate loan limits has consolidated the loan(s) that caused the borrower to exceed the loan limit, the consolidation loan is considered to be a satisfactory arrangement to repay the excess amount that restores the borrower’s eligibility for Title IV aid.

If the school where the student is seeking aid confirms through NSLDS that the loan(s) have been consolidated, no further action is required. Note, however, that consolidation of an amount that exceeded the aggregate Direct Subsidized/Unsubsidized Loan limits does not automatically make a student eligible for additional Direct Loan funds.

Refusing to originate a loan or originating for less than maximum eligibility

On a case-by-case basis, you may refuse to originate a Direct Loan for an individual borrower, or you may originate a loan for an amount less than the borrower’s maximum eligibility. If you choose to exercise this discretion, you must ensure that your decisions are made on a case-by-case basis and do not constitute a pattern or practice that denies access to Direct Loans for borrowers because of race, sex, color, income, religion, national origin, age, or disability status.

When you make a decision not to originate a loan or to reduce the amount of the loan, you must retain documentation supporting the determination in the student’s file and provide the reason for the determination to the student in writing. Also note that your school may not have a policy of limiting Direct Loan borrowing on an across-the-board or categorical basis. For example, you may not have a policy of limiting borrowing to the amount needed to cover the school charges, or not allowing otherwise eligible students to receive the “additional” Direct Unsubsidized Loan amounts that are available under the annual loan limits.

Prohibition on establishing additional eligibility requirements for Direct Loans

You may not condition the disbursement of a Direct Loan on anything other than the eligibility criteria under the federal regulations that govern the Direct Loan Program. For example, you may not:

Require students to participate in counseling beyond the required entrance counseling for first-time student borrowers (see Chapter 2 of this volume for more information) as a condition for receiving a Direct Loan;
Require a student to complete a separate Direct Loan application as a condition for receiving a Direct Loan; or
Perform credit checks on students in connection with awarding Direct Loans or other Title IV aid.

Direct Subsidized Loans and Direct Unsubsidized Loans

No minimum age to receive a Direct Loan

Requirement to offer both subsidized and unsubsidized loans

Direct Subsidized and Direct Unsubsidized Loans are two components of a single loan program. A school may not choose to make only Direct Subsidized Loans or only Direct Unsubsidized Loans available to its eligible students. For more information, see the discussion under “Direct Subsidized Loans and Direct Unsubsidized Loans” in DCL GEN-11-07.

Direct Unsubsidized Loans for students whose parents have ended financial support or refuse to file a FAFSA form

For instance, under these circumstances a dependent second-year undergraduate could receive up to $6,500 in Direct Unsubsidized Loan funds (see Chapter 4 of this volume for information on annual loan limits). However, the student may not receive Direct Subsidized Loans or aid from any other Title IV programs.

Direct PLUS Loans

Direct PLUS Loans are available to graduate and professional students, and to the parents of dependent undergraduate students.

A parent who had a prior Title IV loan discharged for total and permanent disability must meet the same eligibility requirements outlined for student borrowers in Volume 1, Chapter 3. Finally, a parent is not eligible for a Direct PLUS Loan if the federal government holds a judgment lien on their property or if the parent is incarcerated. Note, however, that a parent’s ineligibility for a Direct PLUS Loan does not affect the student’s eligibility for other Title IV aid, assuming that the student is otherwise eligible.

Requirement to offer Direct PLUS Loans to both student and parent borrowers

Definition of “parent” for Direct PLUS Loan purposes

Assuming that they meet all other Direct PLUS Loan eligibility requirements, the following individuals can borrow Direct PLUS Loans on behalf of a dependent undergraduate student:

The student’s biological parent;
The student’s legal adoptive parent; or
The student’s stepparent (spouse of the student’s biological or legal adoptive parent), but only if the stepparent is considered to be a parent in accordance with the instructions on the FAFSA form for purposes of reporting their income and assets on the FAFSA form.

Grandparents and other family members are not eligible to take out Direct PLUS Loans on behalf of a dependent undergraduate student unless they have legally adopted the student.

Requirement for dependent students to file a FAFSA form

Is not in default on a Title IV loan and does not owe an overpayment on a Title IV grant;
Has had their Social Security number verified by the Social Security Administration; and
Has had their citizenship status confirmed by either the Social Security Administration or the Department of Homeland Security.

Adverse credit history

They have one or more debts with a total combined outstanding balance greater than $2,085 that are 90 or more days delinquent as of the date of the credit report, or that have been placed in collection or charged off during the two years preceding the date of the credit report; or
During the five years preceding the date of the credit report, they have been determined to be in default on a debt, their debts have been discharged in bankruptcy, or they been the subject of foreclosure, repossession, tax lien, wage garnishment, or write-off of a Title IV debt.

An applicant cannot be denied a Direct PLUS Loan because they have no credit history. That is, the absence of a credit history is not considered to be adverse credit.

Annual Loan Limits for Students Who Transfer or Change Programs

Overview

The Direct Loan annual loan limits apply to an academic year. If a student who received a Direct Loan transfers from one school to another school or changes to a different program at the same school and there is an overlap between the academic year associated with the loan received for the first school or program and the academic year for the new school or program, this overlap may affect the amount that the student is initially eligible to borrow at the new school or for the new program.

An overlap in academic years exists if the academic year at the new school (or the academic year for the new program at the same school) begins before the calendar end date of the academic year at the prior school or program. In the case of a transfer student from another school, you may obtain documentation from the prior school of the specific beginning and ending dates for the prior academic year or look for the academic year dates of Direct Loans originated by the prior school on the “award detail information page” in the COD Web interface.

Transfer into standard term or SE9W nonstandard term program (SAY, BBAY 1, or BBAY 2)

Transfers between schools

If a student enrolls in a program with standard terms or SE9W nonstandard terms after already having taken out a loan at another school with an overlapping academic year, the student initially may not receive more than the annual loan limit at the new school minus the amount received at the prior school.

However, the student may borrow again for a subsequent term within the same academic year at the new school if the term begins after the end of the academic year at the prior school. For a subsequent term that begins after the end of the prior school’s academic year, but within the initial academic year at the new school, the student may borrow up to the difference between the applicable annual loan limit and the amount already received for the new school’s academic year, if the student’s COA supports that amount.

EXAMPLE 23: TRANSFER INTO STANDARD-TERM PROGRAM

A student receives a $2,000 Direct Subsidized Loan at School A for a loan period from May 1 to August 31. School A reports the academic year for this loan as May 1 to November 27. The student, a dependent undergraduate, transfers to a program at School B in September and is admitted at grade level 2. The student requests a loan for the fall and spring semesters (September-May). The program at School B uses an SAY consisting of fall and spring semesters, followed by a summer trailer term.

Because the academic year at School B begins before the end of the academic year at School A, the student may initially receive only up to a maximum of $4,500 for the fall semester at School B, not more than $2,500 of which may be subsidized. This amount represents the difference between the annual loan limit of $6,500 (maximum $4,500 subsidized), and the amount received at School A ($2,000 subsidized) for the overlapping academic year period.

The initial loan period at School B corresponds with the fall term. Assuming that the student receives the maximum of $4,500 for the fall semester, at the start of the spring semester in January the student may borrow up to an additional $2,000 (the difference between the second-year dependent undergraduate annual loan limit and the amount already borrowed for the fall-spring academic year at School B). If the student received the maximum $2,500 in subsidized loan funds for the fall term, the additional $2,000 would be limited to unsubsidized.

As an alternative, School B could choose to change the student from an SAY schedule to a BBAY 1 schedule beginning with the spring semester. The student would then be eligible to borrow up to the full annual loan limit for a spring-summer BBAY 1. Although this might appear to result in an overlap between the SAY and BBAY 1 at School B, in this limited transfer student circumstance the fall semester at School B can be considered the last term of the academic year that began at School A.

Transfers between programs at the same school

If a student transfers to a different program at the same school at the beginning of a new term within the same academic year, the student’s loan eligibility for the remaining term(s) of the academic year is equal to the difference between the applicable loan limit for the new program and the loan amount the student received for the prior program within the same academic year.

Transfer into clock-hour, non-term, or non-SE9W nonstandard term program (BBAY 3): abbreviated loan periods

Transfers between schools

If a student transfers into a clock-hour, non-term, or non-SE9W nonstandard term program at a new school and the academic year associated with the last loan the student received at the prior school overlaps the initial academic year for the program at the new school, the new school may originate an initial loan for a loan period that covers the remaining portion of the academic year that began at the prior school.

The loan period for this initial loan is called an “abbreviated loan period” because it is shorter than the loan period that would otherwise be required under the normal minimum loan period requirements (that is, the lesser of the academic year or the length of the program or remaining portion of the program).

The new school may originate a loan for an abbreviated loan period regardless of whether the new school accepts transfer hours from the prior school. The abbreviated loan period begins with the date of the student’s enrollment at the new school and ends on the calendar period ending date of the academic year that began at the prior school,

without regard to the number of credit/clock-hours or weeks of instructional time that the student has completed during the abbreviated loan period. After the abbreviated loan period is completed, the student progresses to a new loan period and academic year (BBAY 3), and a new annual loan limit.

If the new school accepts credits/hours from the prior school, this may give the student advance standing that reduces the length of time it will take to complete the program at the new school. If the remaining portion of the program at the new school following the completion of the abbreviated loan period is shorter than an academic year, the annual loan limit for the next loan must be prorated.

Generally, the loan amount for the abbreviated loan period at the new school may not exceed the remaining balance of the full annual loan limit applicable to the student at the new school, minus the loan amount the student received at the first school for the same academic year. However, if the program at the new school is less than a full academic year in length, or is a remaining portion of a program that is less than an academic year in length,

the total loan amount that the student may receive for the program at the new school (for the abbreviated loan period and any subsequent loan period combined) may not exceed the applicable prorated annual loan limit for the program or remaining portion of the program.

Rules for abbreviated loan periods:

The abbreviated loan period begins when the student starts at the new school.
The abbreviated loan period ends when the academic year would have ended at the prior school, without regard to how many hours or weeks of instructional time the student has completed at the new school during the abbreviated loan period.
Generally, the maximum loan amount that the student can receive for the abbreviated loan period is the difference between the full annual loan limit applicable to the student at the new school and the loan amount that was disbursed at the prior school during the overlapping academic year (see the preceding discussion for an exception to this general rule when the program at the new school is less than a full academic year in length, or is a remaining portion of a program that is less than an academic year in length).
The first disbursement of the loan for the abbreviated loan period at the new school is made at the beginning of the abbreviated loan period. Unless the school qualifies based on its cohort default rate for the exemption from the multiple disbursement requirement (see Volume 3, Chapter 1), the loan must be disbursed in at least two installments,
with the second disbursement made at the calendar midpoint of the abbreviated loan period regardless of how many clock/credit hours or weeks of instructional time have been completed. The normal payment period disbursement rules do not apply in this situation.
The next loan period and a new BBAY 3 at the new school begins the day after the last day of the abbreviated loan period.
Once the new loan period and BBAY 3 begin, all of the normal rules for the timing of disbursements and annual loan limit progression apply.

EXAMPLE 24: TRANSFER INTO CLOCK-HOUR PROGRAM ONE ACADEMIC YEAR OR GREATER IN LENGTH

A dependent first-year undergraduate student receives the first disbursement ($2,750) of a Direct Unsubsidized Loan at School A. The loan period and academic year dates are April 1 to December 31. For purposes of this example, assume that the student has no financial need for a Direct Subsidized Loan and receives only Direct Unsubsidized Loans.

The student transfers from School A to an 1,800 clock-hour program at School B and begins attendance on June 25. The student is still classified as a dependent first-year undergraduate. The program at School B has an academic year of 26 weeks of instructional time and 900 clock hours.

The student’s first loan period at School B will be an abbreviated loan period from June 25 (the beginning date of attendance at School B) through December 31 (the date the academic year would have ended at School A). For the initial abbreviated loan period, School B may originate a loan for up to the difference between the student’s annual loan limit ($5,500) and the loan already received at School A for the overlapping loan period ($2,750). The loan amount available to the student during the abbreviated loan period is $2,750.

On January 1, the day after the last day of the abbreviated loan period, a new BBAY 3 begins and the student becomes eligible for a new annual loan limit. The loan period for the new loan the student receives following the completion of the abbreviated loan period will correspond to the lesser of the academic year or the remainder of the program at School B. If there is less than a full academic year of the program remaining after the abbreviated loan period has ended, the loan limit for the new loan must be prorated.

EXAMPLE 25: TRANSFER INTO CLOCK-HOUR PROGRAM SHORTER THAN AN ACADEMIC YEAR

A dependent first-year undergraduate student receives the first disbursements of a Direct Subsidized Loan ($1,750) and Direct Unsubsidized Loan ($1,000) at School A. The loan period and academic year dates are January 26 to July 31.

The student leaves School A and transfers into a 300 clock- hour/12-week program at School B on June 15. School B defines its Title IV academic year as containing 900 clock hours and 26 weeks of instructional time. The combined subsidized/unsubsidized prorated annual loan limit for the 300-hour program at School B is $1,815, not more than $1,155 of which may be subsidized.

For the abbreviated loan period at School B (June 15 to July 31), a transfer student would normally be eligible to receive the difference between the full first-year annual loan limit and the loan amount received at School A (that is, an additional $1,750 subsidized and $1,000 unsubsidized). In this example, however, the student may not receive those amounts, because they would exceed the prorated annual loan limits for the 300 clock-hour program.

Therefore, the maximum loan amount the student may receive for the program at School B (for the abbreviated loan period and any subsequent loan period combined) is a total of $1,815, not more than $1,155 of which may be subsidized (the prorated loan limits for the program). If the student receives the maximum prorated loan limit for the program during the abbreviated loan period, there is no remaining loan eligibility for the program following the completion of the abbreviated loan period.

Transfers between programs at the same school

Unless a student is considered to remain in the same loan period and payment period (see the next paragraph), when a student transfers within the same academic year from one program to a different program at the same school, and the new program is a clock-hour, non-term, or non-SE9W nonstandard term program,

the school may originate an initial loan for the new program with an abbreviated loan period that ends on the calendar period ending date of the academic year associated with the prior program. The same abbreviated loan period rules that apply when a student transfers from one school to another school (see above) also apply when a student transfers within the same academic year to a new program at the same school.

If certain requirements are met, when a student who has received a Direct Loan for one program transfers to a different program at the same school, you have the option of considering the student to remain in the same payment period and loan period. Otherwise, you must place the student in a new payment period and originate a new loan with a new loan period.

Same payment period and same loan period

At your option, you can consider a student who transfers from one program to another program at the same school to be in the same payment period and loan period if all of the following conditions apply:

The student is continuously enrolled at the school;
The coursework in the payment period the student is transferring out of is substantially similar to the coursework the student will be taking when they first transfer to the new program;
The student’s current payment period and the payment periods that would otherwise apply in the new program are substantially equal in length in weeks of instructional time and credit or clock hours, as applicable;
There are few or no changes in school charges associated with the transfer to the new program; and
The credits or clock hours from the payment period the student is transferring out of are accepted toward the new program.

If you choose to keep the student in the same payment period, the loan period for the loan the student received for the first program would also remain the same. However, you must consider any changes as to when the student is expected to complete the hours and weeks of instructional time of the academic year and make any necessary adjustments to the ending date of the loan period or the dates of the second and any subsequent disbursements.

New payment period and new loan period

If the requirements described above are not met, or if they are met but you choose to place a student who transfers from one program to a different program in a new payment period, you must perform a Return of Title IV (R2T4) funds calculation for the student’s withdrawal from the payment period in the first program (assuming that the student did not complete that payment period without starting a new one before transferring into the new program if the R2T4 calculation is done on a payment period basis,

or assuming the student did not complete the loan period if the calculation is done on a period of enrollment basis). That calculation would close out the original loan period. Then the student would start over with a new loan period for his new program that uses the remaining annual loan limit eligibility from the academic year associated with the first program.

If a student transfers from one program at your school to a different program at your school within the same academic year and is not considered to remain in the same payment period and loan period (regardless of whether the student completed the first program or is changing to a different program without having completed the first program), you may originate an initial loan for the new program with an abbreviated loan period that ends on the calendar period ending date of the academic year associated with the prior program,

as described in more detail above. As with a student who transfers from a different school, for the abbreviated loan period the student may receive up to the difference between the applicable annual loan limit for the new program and the loan amount that the student received for the prior program during the same academic year.

EXAMPLE 26: TRANSFER INTO NON-TERM CREDIT-HOUR PROGRAM AT SAME SCHOOL

A school offers some programs in a standard term academic calendar and other programs in a non-term calendar. A first-year dependent undergraduate student enrolls in a standard term program with an SAY consisting of fall, winter, and spring quarters and receives the first and second disbursements of a Direct Subsidized Loan (total of $2,234) and a Direct Unsubsidized Loan (total of $1,334). The loan period and academic year dates are September 1 to May 31.

The student decides not to finish the program and after completing the winter quarter transfers to a 2-year non-term credit hour program offered at the same school. The academic year for the new program is defined as 24 semester hours and 30 weeks of instructional time. The student begins the new program on March 1. For the new program, the school may originate an initial loan for an abbreviated loan period that begins on March 1 and ends on May 31,

the ending date of the academic year associated with the loans the student received for the first program. For the abbreviated loan period, the student can receive up to $1,932, not more than $1,266 of which may be subsidized. This represents the difference between the first-year dependent undergraduate annual loan limit ($5,500, maximum $3,500 subsidized) and the loan amounts received for the first program during the overlapping academic year.

On June 1, the first BBAY 3 for the new program will begin (BBAY 3 must be used because this is a non-term credit-hour program), and the loan period will be for the first full academic year of the new program (the period during which the student will be expected to complete 24 semester hours and 30 weeks of instructional time).

Monitoring Annual Loan Limit Progression

Annual loan limit progression overview

The academic year (not the award year) is used as the basis for monitoring Direct Loan annual loan limits. That is, a student may receive up to the applicable annual loan limit each academic year (see Volume 3, Chapter 1 for guidance on defining the academic year). Note that the loan period for which a Direct Loan is originated does not always correspond to the academic year. Although the loan period is often the same as the academic year, it may also be for a period shorter than the academic year.

For Direct Subsidized Loans and Direct Unsubsidized Loans, a school must use either a Scheduled Academic Year (SAY) or a Borrower-Based Academic Year (BBAY) to determine when a student is eligible for a new annual loan limit. Although there is no fixed annual loan limit for Direct PLUS Loans, Direct PLUS Loans are awarded for the same SAY or BBAY period that is used for Direct Subsidized Loans and Direct Unsubsidized Loans.

The type of academic year (SAY or BBAY) that a school may (or must) use to monitor annual loan limit progression depends on a program’s academic calendar, as explained in the sections that follow.

Scheduled Academic Year

An SAY corresponds to a traditional academic year calendar that is published in a school’s catalog or other materials, and is a fixed period of time that generally begins and ends at the same time each year. An SAY may be used by:

Programs with standard terms and a traditional academic calendar; or
Programs with SE9W nonstandard terms (see Chapter 3) and a comparable calendar.

The guidance above also applies to subscription-based programs with standard terms or SE9W nonstandard terms. For more information on academic calendars for subscription-based programs, see Volume 3, Chapter 1.

Examples of SAYs for a standard term program are fall and spring semesters, or fall, winter, and spring quarters. If a program has SE9W nonstandard terms, an SAY could consist of two or more SE9W nonstandard terms running from fall through spring. For both standard term and SE9W nonstandard term programs, the number of credit hours and weeks of instructional time in the fall through spring SAY period must meet the regulatory requirements for an academic year.

SAY for programs with standard terms using a traditional academic calendar

As noted previously, an SAY corresponds to a traditional academic year calendar, and usually begins and ends at the same time each calendar year (for example, beginning on the first day of the fall semester and ending on the last day of the spring semester). An SAY must meet the FSA requirements for an academic year (as defined in Volume 3, Chapter 1). An SAY may include one or more terms that a student does not attend.

Standard terms are semesters, trimesters, or quarters (see Volume 3, Chapter 1 for more detail on standard terms). A standard-term program may use an SAY if it has a traditional academic calendar (i.e., has terms that start and end at about the same time each year, such as an academic calendar consisting of the fall and spring semesters or the fall, winter, and spring quarters).

Summer terms are generally not considered to be part of the SAY, but for loan limit purposes they may be treated as a “trailer” to the preceding SAY or as a “header” to the following SAY. Your school has the option to establish a policy that designates its summer term as either a trailer or header to the SAY for all students. You can also choose to make different designations for different educational programs, or for different students, as long as you ensure that there is no overlap in academic years.

Note that a fixed designation of the summer term can limit a student’s eligibility. For instance, if you always treat your summer term as a trailer to a preceding fall-spring SAY, a student who receives the full annual loan limit for fall-spring would have no remaining loan eligibility for summer.

If the summer term is split into modules (sometimes called “minisessions), such as “summer 1” and “summer 2,” the modules can be combined and treated as a single trailer or header, or they can be treated separately and assigned to different SAYs. That is, the first module can be treated as a trailer to the preceding fall-spring SAY, and the second module treated as a header to the following fall-spring SAY. Note that if a term other than the summer term is divided into modules,

the modules must be combined with each other or with other terms and treated as a single standard or nonstandard term (see Volume 3, Chapter 1 for more information on combining modules). If modules (summer or otherwise) are grouped together and treated as a single term, the COA cannot include costs for a module for which the student is not expected to be enrolled. A student doesn’t have to be enrolled in each module, but must be able to enroll at least half time in the combined term.

The annual loan limit applies to the SAY, plus the summer trailer or header. For example, if the SAY consists of fall and spring semesters followed by a summer trailer, a student could receive a full annual loan limit for the fall-spring-summer period. Once the calendar period associated with all of the terms in the SAY and the summer header or trailer (if any) has elapsed, a student regains eligibility for a new annual loan limit.

SAY for programs with SE9W nonstandard terms using an academic calendar comparable to a traditional academic calendar

A program with SE9W nonstandard terms may use an SAY if all of the following requirements are met:

It has a fixed academic calendar comparable to a traditional academic calendar (i.e., terms that start and end at about the same time each year, with the academic year comprised of two or more SE9W nonstandard terms in the fall through spring);
All of the nonstandard terms, including any summer term, are SE9W; and
The number of credit hours and weeks of instructional time in the comparable fall-spring academic calendar meet the regulatory requirements for an academic year.

EXAMPLE 15: SE9W SAY

A school has programs with an academic calendar using semester hours with three 12-week quarters, offered over the fall through spring (comparable to a traditional academic year calendar) and a 10-week term offered in the summer. The school defines the academic year for these programs as 36 weeks of instructional time and 24 semester hours. Because the terms are quarters, but academic progress is measured in semester hours, the terms are considered nonstandard.

Because these terms are SE9W nonstandard terms offered in a fixed schedule with an academic calendar comparable to a traditional calendar, the school may use an SAY (with the summer term treated as a trailer or header) or BBAY 1 consisting of any three consecutive terms (see below) for these programs.

Borrower-Based Academic Year

A BBAY does not have fixed beginning and ending dates. Instead, it “floats” with a student’s (or a group of students’) attendance and progression in a program of study. There are three types of BBAY:

BBAY 1, for credit-hour programs using an SAY with standard terms or SE9W nonstandard terms (including subscription-based programs, as described in Volume 3, Chapter 1).
BBAY 2, for credit-hour programs not using an SAY, with standard terms or SE9W nonstandard terms (including subscription-based programs, as described in Volume 3, Chapter 1).
BBAY 3, for clock-hour programs, non-term programs, programs with non-SE9W nonstandard terms (see Chapter 4), or programs with standard and nonstandard terms not described above.

If a program is offered in an SAY calendar, you have the option of using either an SAY or BBAY 1 to monitor the annual loan limits for students in that program. You must use a BBAY to monitor the annual loan limits for any academic program that does not meet the definition of a program allowed to use an SAY. However, there are significant differences between the different types of BBAY. We describe the differences between BBAY 1, BBAY 2, and BBAY 3 in the sections that follow.

BBAY 1 for credit-hour programs with SAY

If a program is offered in a SAY, you have the option of using a BBAY 1 as an alternative to the SAY for monitoring annual loan limit progression. Unlike an SAY, a BBAY is not a fixed period that begins and ends at the same time each year. Instead, the beginning and ending dates depend on the individual student’s enrollment.

For programs with an SAY, a BBAY 1 must include the same number of terms as the SAY that would otherwise be used (not including any summer “trailer” or “header”). For example, if the SAY includes three quarters (fall, winter, spring), a BBAY 1 would consist of any three consecutive terms. A BBAY 1 may include terms the student does not attend if the student could have enrolled at least half-time in those terms, but (unlike an SAY) it must begin with a term in which the student is actually enrolled (even though the student may be enrolled less than half time for the first term and not eligible for a loan for that term).

Also, any modules (summer or otherwise) that run consecutively within a term must be combined and treated as a single term. The COA cannot include costs for a module for which the student is not expected to be enrolled. A student doesn’t have to be enrolled in each module, but must be able to enroll at least half time in the combined term.

Like an SAY, a BBAY 1 must meet the minimum FSA requirements for an academic year. However, a BBAY 1 that includes a summer term may include fewer than 30 weeks of instructional time or fewer credit hours than the minimum number required for an SAY. This is because a summer term may be shorter than a standard term in an SAY, but is recognized as academically equivalent to a standard term when used as one of the terms in a BBAY 1(this exception applies only to a BBAY 1 used as an alternative for a program with an SAY).

You may use a BBAY 1 for all students, only for students in certain programs, or on a student-by-student basis. For example, you could use a BBAY 1 for students enrolled in a program that begins in a term other than the first term of the SAY. You can even alternate BBAY 1 and SAY for a student, provided the academic years don’t overlap. This treatment may allow a student to receive another loan sooner than would be allowed under an SAY standard.

As with an SAY, the annual loan limit applies to the BBAY 1. Once the calendar period associated with all of the terms in the BBAY 1 has elapsed, a student regains eligibility for a new annual loan limit.

Alternating SAY/BBAY 1

This treatment may allow a student to receive another loan sooner than would be allowed with an SAY. For instance, if you normally use an SAY consisting of fall and spring semesters with a summer trailer, a student who received the maximum annual loan limit for fall-spring could not receive another loan until the start of a new SAY in the fall. If the student enrolls for summer and wants a loan, you could choose to switch the student to a BBAY 1 consisting of the summer and fall terms.

The student could then receive a loan for the summer term, which would be the start of a new academic year. A school that provides flexibility in academic year standards for purposes of monitoring annual loan limits must have a written policy that explains how it applies this flexibility when determining loan eligibility.

Examples 16 through 19 illustrate the optional use of BBAY 1 for a program that is offered in an SAY. Note that in each example the first BBAY 1 is the same as the SAY.

EXAMPLE 16: BBAY 1 WHERE SAY CONTAINS TWO SEMESTERS

Year 1: SAY or BBAY 1	Year 2: BBAY 1	Year 3: BBAY 1
Fall + Spring	Summer + Fall	Spring + Summer

In Example 16, the initial fall and spring terms could be considered either an SAY or BBAY 1. If the student attends the summer session at the school, the school can choose to treat the summer term and the next fall as a BBAY 1 for the student. In that case, the following spring and summer would also constitute a BBAY 1. The maximum loan limit for an academic year applies to each BBAY 1. If these were the first three years of study for a dependent student who progressed a grade level each academic year, the student would be eligible for up to the applicable annual loan limit each academic year.

EXAMPLE 17: BBAY 1 WHERE SAY CONTAINS TWO SEMESTERS (STUDENT NOT ENROLLED IN SECOND TERM OF BBAY)

Year 1: SAY or BBAY 1	Year 2: BBAY 1	Year 3: BBAY 1
Fall + Spring	Summer + Fall (not enrolled)	Spring + Summer

A student doesn’t have to attend all of the terms in a BBAY 1, but the BBAY 1 cannot begin with a term that the student doesn’t attend. In Example 17, the student is not enrolled in the second term (fall) of year 2.

EXAMPLE 18: BBAY 1 WHERE SAY CONTAINS TWO SEMESTERS (STUDENT NOT ENROLLED IN TERM THAT WOULD OTHERWISE BE FIRST TERM IN BBAY)

Year 1: SAY or BBAY 1	Year 2: BBAY 1		Year 3: BBAY 1
Fall + Spring	Summer + Fall	Spring (not enrolled)	Summer + Fall

In Example 18, if the student does not attend a term that otherwise would have been the beginning of a BBAY 1 (in this case, spring), then the student’s next BBAY 1 cannot begin until the next term that the student attends (in this case, summer). As with Examples 16 and 17, the annual loan limit applies to each BBAY.

EXAMPLE 19: BBAY 1 WHERE SAY CONTAINS THREE QUARTERS

Year 1: SAY or BBAY 1	Year 2: BBAY 1
Fall + Winter + Spring	Summer + Fall + Winter

The same concepts apply to quarter-term programs. For instance, in Example 19, the fall, winter, and spring terms constitute the school’s SAY. If the student attends the summer session at the school, it can be the first term of a BBAY 1 that also includes the following fall and winter terms.

BBAY 2 for standard-term programs and SE9W nonstandard term programs without SAY

If a program with standard terms or SE9W nonstandard terms is not offered in a traditional academic year calendar (SAY), BBAY 2 must be used. If the program uses semesters or trimesters, a BBAY 2 consists of any two consecutive terms. If the program uses quarters, a BBAY 2 consists of any three consecutive terms. If the program uses SE9W nonstandard terms, a BBAY 2 consists of the number of consecutive terms that coincide with the weeks of instructional time in the program’s academic year.

As with the optional BBAY 1 that may be used for programs with an SAY, BBAY 2 may include terms that a student does not attend (as long as the student could have enrolled at least half-time in those terms), but it must begin with a term in which the student is actually enrolled (even though the student may be enrolled less than full time for the first term and not eligible for a loan for that term). Unlike the optional BBAY 1 for programs offered in an SAY,

there is no exception to the minimum academic year requirements for a BBAY 2 that includes a summer term. This means that the BBAY 2 for standard-term programs that are not offered in a traditional academic calendar, or for SE9W nonstandard term programs not offered in a comparable academic calendar, must always include enough terms to meet the minimum Title IV academic year requirements for weeks of instructional time.

As with BBAY 1, any modules (summer or otherwise) that run consecutively within a term must be combined and treated as a single term. The COA cannot include costs for a module for which the student is not expected to be enrolled. A student doesn’t have to be enrolled in each module, but must be able to enroll at least half time in the combined term.

The annual loan limit applies to the BBAY 2. Once the calendar period associated with all of the terms in the BBAY 2 has elapsed, a student regains eligibility for a new annual loan limit.

EXAMPLE 20: BBAY 2

First BBAY 2	Second BBAY 2	Third BBAY 2
Semester 1 + Semester 2	Semester 3 + Semester 4 (not enrolled)	Semester 5 + Semester 6

A school has a program that measures academic progress in credit hours and uses 15-week semesters, but it is not offered in a traditional academic year calendar (SAY). New students begin the program each month, and a 15-week semester begins at that time for that cohort of students. The school must use BBAY 2 to monitor annual loan limits. A BBAY 2 consists of any two consecutive semesters, beginning with a semester in which a student is enrolled. In Example 20, the student is enrolled only in the first semester (Semester 3) of the second BBAY 2.

BBAY 3 for clock-hour, non-term credit-hour, and non-SE9W nonstandard-term programs

All clock-hour programs, non-term credit-hour programs, and non-SE9W nonstandard-term programs must use a BBAY 3 that meets the minimum requirements for an academic year. That is, the BBAY 3 must contain at least 30 weeks (or, for clock-hour programs, 26 weeks) of instructional time and at least the minimum number of credit or clock hours:

For undergraduate programs, 24 semester or trimester hours, 36 quarter hours, or 900 clock hours;
For graduate programs, the number of hours a student would complete under the school’s full-time standard in the weeks of the Title IV academic year, which must be a minimum of 30 weeks of instructional time for credit-hour programs, or at least 26 weeks of instructional time for clock-hour programs.

The BBAY 3 begins when a student enrolls and does not end until the later of the date the student successfully completes the hours in the academic year or the number of weeks of instructional time in the academic year. Because a student must successfully complete the minimum number of hours or weeks of instructional time in an academic year (whichever comes later) before a new BBAY 3 begins, a student’s enrollment status may affect how soon the student regains eligibility for a new annual loan limit.

For example, a student who is attending part time will take longer to complete a BBAY 3 than a full-time student. (In contrast, an SAY, BBAY 1, or BBAY 2, ends when the calendar period associated with the terms in the SAY or BBAY has elapsed, regardless of how many credit hours or weeks of instruction the student completed during the SAY or BBAY.)

Individual academic progress in BBAY 3

In many clock-hour, non-term, and nonstandard-term programs, students are allowed to progress at an individual pace. For example, a school that defines its academic year as 900 clock hours and 26 weeks of instructional time offers a 900 clock-hour program that most students complete in 26 weeks. However, one student might complete 900 clock hours in 22 weeks, and another in 30 weeks.

As we explained in Chapter 5 of this volume, the annual loan limit must be prorated (reduced) if an undergraduate student is enrolled in a program that is less than a full academic year in length, or is in a remaining period of study that is shorter than a full academic year. However, in the scenario described above you do not have to prorate the loan limit for the occasional student who completes the program in fewer than 26 weeks.

This policy applies only to programs that are exactly one academic year in length. If a program is longer than an academic year, proration may be required for a loan covering the remaining portion of the program if a student completes more than the minimum number of hours during the first 26 weeks of instructional time (see Example 12 in Chapter 5 of this volume).

BBAY 3 for programs with both standard and nonstandard terms

BBAY 3 must also be used if a program has both standard terms and nonstandard terms and does not qualify to use an SAY. For example, if you offer a program with a 4-week intersession between a 15-week fall semester and a 15-week spring semester, and you do not combine the intersession with one of the standard terms but instead treat it as a standalone nonstandard term, you would be required to use BBAY 3 to monitor annual loan limit progression.

In this circumstance it’s not permissible to simply ignore the intersession and consider the program to be offered only in standard terms. In contrast, if you combine the intersession with one of the semesters, you could use an SAY consisting of the fall and spring semesters.

EXAMPLE 21: BBAY 3 FOR CLOCK-HOUR PROGRAM

A school has an 1,800 clock-hour program with 52 weeks of instructional time, and defines its academic year as 900 clock hours and 26 weeks of instructional time. The first BBAY 3 begins with a student’s initial enrollment date and ends when the student has successfully completed the first 900 clock hours and 26 weeks of instructional time in the program, whichever comes later.

The second BBAY 3 would be the period of time it takes the student to successfully complete the final 900 hours and 26 weeks of instructional time in the program. A student who completes the first 900 hours in less than 26 weeks must still complete 26 weeks of instructional time before the second BBAY 3 begins. Similarly, a student who has completed fewer than 900 clock hours after 26 weeks of instructional time must successfully complete 900 hours before the second BBAY 3 begins.

During the first BBAY 3, the student may receive up to the full annual loan limit for a first-year undergraduate. The student becomes eligible for a new annual loan limit (at the second-year undergraduate level) when the second BBAY 3 begins.

The principles described in this example for a clock-hour program would also apply to a non-term credit-hour program, or a non-SE9W nonstandard term credit-hour program. For example, if a school offers a non-term 48 semester hour, 60 weeks of instructional time program with a defined academic year of 24 semester hours and 30 weeks of instructional time, the second BBAY 3 would not begin until a student has successfully completed the first 24 semester hours and 30 weeks of instructional time.

Similarly, in a 72 quarter-hour program with 60 weeks of instructional time offered in a series of non-SE9W nonstandard terms, with a defined academic year of 36 quarter hours and 30 weeks of instructional time, the second BBAY 3 would not begin until a student has successfully completed the first 36 quarter hours and 30 weeks of instructional time, whichever comes later, regardless of the number of terms that have elapsed.

For instance, a student who successfully completes only 33 quarter hours in the first 30 weeks of instructional time must successfully complete an additional three quarter hours before the second BBAY 3 begins and the student becomes eligible for a new annual loan limit at the second-year undergraduate level.

SAY and BBAY summary

For reference, Table 5 below compares the main features of SAY, BBAY 1, BBAY 2, and BBAY 3 (as discussed in more detail earlier in the chapter) in a side-by-side format.

TABLE 5: SAY AND BBAY COMPARISON

SAYUsed for credit-hour programs with standard terms or SE9W nonstandard terms offered in a traditional academic calendar.	BBAY 1Alternative to SAY for credit-hour programs with standard terms or SE9W nonstandard terms that are also offered in an SAY.	BBAY 2Must be used for credit-hour programs with standard terms or SE9W nonstandard terms that are not offered in an SAY.	BBAY 3Must be used for clock-hour programs, non-term programs, programs with non-SE9W nonstandard terms, and programs that mix standard and nonstandard terms and do not qualify to use an SAY.
SAY uses:Traditional academic calendar with at least 2 semesters/trimesters or 3 quarters in fall through spring, orComparable academic calendar with SE9W nonstandard terms, if all terms (including summer) are SE9W, and if number of hours/weeks in comparable fall-spring calendar meets regulatory academic year minimums.	N/A	N/A	N/A
Generally begins/ends at same time each year.	Doesn’t begin/end at same time each year; “floats” with student’s enrollment.May be used as alternative to SAY for all students, certain students, or certain programs.May alternate SAY and BBAY 1 (but academic years may not overlap).	Doesn’t begin/end at same time each year; “floats” with student’s enrollment.	Doesn’t begin/end at same time each year.Begins when student enrolls at least half-time and “floats” with student’s enrollment.
Student not required to be enrolled in first term.	Student must be enrolled in first term (may be less than half time).May include terms student does not attend (except first term) if student could have enrolled at least half time.	Student must be enrolled in first term (may be less than half time).May include terms student does not attend (except first term) if student could have enrolled at least half time.	N/A
Must at least meet program’s Title IV academic year in weeks/hours.	Length of BBAY 1 must equal number of terms in program’s SAY, excluding summer trailer/header.BBAY 1 that includes summer term may contain fewer than regulatory minimum number of hours/weeks in academic year.	Must meet at least minimum requirements for hours/weeks in program’s Title IV academic year, and must consist of:At least 2 consecutive semesters or trimesters;At least 3 consecutive quarters; orAt least number of consecutive SE9W nonstandard terms covered by program’s Title IV academic year.	Must meet at least minimum requirements for hours/weeks in program’s Title IV academic year.
Summer term may be “trailer” or “header”:By strict policy;By program; orOn case-by-case, by student.	N/A	N/A	N/A
Total loan amount received within SAY plus summer trailer/header may not exceed annual loan limit.	Total loan amount received within BBAY 1 may not exceed annual loan limit.	Total loan amount received within BBAY 2 may not exceed annual loan limit.	Total loan amount received within BBAY 3 may not exceed annual loan limit.
Student becomes eligible for new annual loan limit after SAY (plus summer trailer/header) calendar period ends.	Student becomes eligible for new annual loan limit after BBAY 1 calendar period ends.	Student becomes eligible for new annual loan limit after BBAY 2 calendar period ends.	Student becomes eligible for new annual loan limit only after successfully completing clock/credit hours AND weeks of instructional time in BBAY 3.
After original loan, student may receive additional loans during same SAY if:Received less than annual loan amount and has remaining eligibility;Progresses to grade level with higher annual loan limit; orChanges from dependent to independent.	After original loan, student may receive additional loans during same BBAY 1 if:Received less than annual loan amount and has remaining eligibility;Progresses to grade level with higher annual loan limit; orChanges from dependent to independent.	After original loan, student may receive additional loans during same BBAY 2 if:Received less than annual loan amount and has remaining eligibility;Progresses to grade level with higher annual loan limit; orChanges from dependent to independent.	After original loan, student may receive additional loans within BBAY 3 only if:Received less than annual loan amount and has remaining eligibility; orChanges from dependent to independent.Student may not become eligible for next grade level annual loan limits until after completion of BBAY 3.
Summer term modules may be combined and treated as single trailer/header, or assigned to different SAYs (one as trailer, the other as header).Modules in terms other than summer must be combined with each other or with other terms and treated as single standard or nonstandard term (affects all Title IV programs).Student need not enroll in each module, but must have been able to enroll at least half time in combined term.	Modules (summer or otherwise) must be combined with each other or with other terms and treated as single standard or nonstandard term (affects all Title IV programs).Student need not enroll in each module, but must have been able to enroll at least half time in combined term.	Modules (summer or otherwise) must be combined with each other or with other terms and treated as single standard or nonstandard term (affects all Title IV programs).Student need not enroll in each module, but must have been able to enroll at least half time in combined term.	N/A

Annual loan limit increase based on grade level progression or dependency status change

The annual loan limit for Direct Subsidized and Unsubsidized Loans increases as a student progresses in grade level. Generally, a student’s grade level for loan limit purposes is set according to the school’s academic standards.

While the law defines minimum coursework for an academic year, it doesn’t define how much coursework a student must complete to progress from one grade level to another. Unless a student’s program of study or a school’s academic standards clearly specify when this grade-level progression takes place, a reasonable approach would be to base grade levels on the number of credits required for the program, divided by the number of academic years it takes a typical student to earn that number of credits.

For instance, if your school has a baccalaureate program that requires 120 semester hours of work and is typically completed in four academic years, then you might use a standard of 30 hours completed at each grade level.

Standard term and SE9W nonstandard term programs: grade level progression within same academic year

In standard term programs or SE9W nonstandard term programs, a student who has already received the full annual limit within an academic year can receive additional loan funds if the student progresses to a grade level with a higher annual loan limit during that same academic year. (See Volume 3, Chapter 1 for a discussion of academic year requirements.)

Increasing the loan amount when grade level changes during an academic year

There are two options for awarding an additional loan amount when a student progresses to a grade level with a higher annual loan limit during an academic year:

Originate a new loan at the new grade level for the applicable amount (the difference between the new loan limit and the amount of the first loan). The loan period for the new loan must correspond to the term(s) during which the student qualifies for the higher loan limit.
You could also choose to cancel any pending disbursements of the first loan and originate a new loan for an amount equal to the canceled disbursements of the first loan plus the additional amount for which the student is eligible due to the grade level change.
Adjust the amount of the current loan. Change the grade level in the loan record and increase the amount of the existing loan to the new amount.

With either option, the student’s remaining loan eligibility must be calculated using only the costs and EFA for the term(s) during which the student qualifies for the higher loan limit.

As a reminder, a student can progress to a higher grade level during an academic year only in a program with standard terms or SE9W nonstandard terms.

EXAMPLE 22: GRADE-LEVEL PROGRESSION WITHIN SAME ACADEMIC YEAR (SAY)

A dependent second-year undergraduate student qualifies for the maximum annual combined subsidized/unsubsidized annual loan limit of $4,500 (for purposes of this example, assume that the student is eligible to receive the full $4,500 in Direct Subsidized Loan funds) and $2,000 in additional Direct Unsubsidized Loan funds. The student receives a first disbursement of $2,250 in Direct Subsidized Loan funds and $1,000 in Direct Unsubsidized Loan funds at the beginning of the fall semester of a fall-spring SAY.

Based on the coursework completed during the fall semester, the student progresses to third-year academic status at the beginning of the spring semester. The student now qualifies for the $7,500 combined subsidized/unsubsidized annual limit (maximum $5,500 subsidized) that applies to third-year and beyond dependent undergraduates.

If otherwise eligible, for the spring term the student could receive up to the difference between the amount already received in the fall and the new annual limit in the spring term. Assuming that the student again qualifies for the maximum subsidized loan amount, eligibility for the spring term is as follows:

$5,500 – $2,250 subsidized received in the fall = $3,250 subsidized eligibility for spring

$2,000 – $1,000 unsubsidized received in the fall = $1,000 additional unsubsidized eligibility for spring

However, only the COA and EFA associated with the spring term can be used in determining the student’s eligibility for the additional loan amount in that term. The COA and EFA for the fall term cannot be considered. The school may either originate a new spring-only subsidized loan for the additional subsidized loan eligibility in

the spring term (note that the grade level progression does not increase the student’s additional unsubsidized eligibility), or may increase the amount of the original fall-spring subsidized loan and make the appropriate adjustment to the second disbursements of that loan.

Clock-hour, non-term credit hour, and non-SE9W nonstandard term programs: grade level progression only at beginning of new BBAY 3

In contrast to standard term and SE9W nonstandard term program, progression to a higher grade level and the beginning of a new BBAY 3 for loan limit purposes always happens at the same time for a student in a clock-hour program, non-term program, or non-SE9W nonstandard-term program. To advance to the next grade level for annual loan limit purposes, a student must successfully complete both the weeks and hours in the program’s Title IV academic year.

That is, the student must complete at least 30 weeks of instructional time (or, for clock-hour programs, at least 26 weeks) and the number of credit or clock hours in the academic year, whichever comes later. For instance, a first-year student in a two-year non-term program with a defined academic year of 36 quarter hours and 30 weeks of instructional time who earns 36 quarter credits over 24 weeks of instructional time cannot progress to the next grade level (and begin a new BBAY 3 for annual loan limit purposes) until another six weeks of instructional time are completed.

New annual loan limit for same grade level

The beginning of a new academic year for annual loan limit purposes does not always coincide with a student’s progression to a higher grade level. For both standard-term programs and SE9W nonstandard term programs, if a student is enrolled at the same grade level after a full academic year has elapsed, the student may be eligible for a new annual maximum amount at the same grade level, provided that the student maintains satisfactory academic progress.

For example, a student in a standard term or SE9W nonstandard term program who completes only 12 semester hours during the first SAY, BBAY 1, or BBAY 2 could receive another loan when the calendar period associated with that academic year has elapsed, but the borrower would still be classified as a first-year undergraduate at the start of the second academic year.

As long as a student is maintaining satisfactory academic progress, a school may not have a general policy that limits the number of times the student can receive the maximum annual loan limit at one grade level. A school may refuse to originate a loan or may originate a loan for an amount less than the borrower’s maximum eligibility only on a case-by-case basis (see “Refusing to originate a loan or originating for less than maximum eligibility” in Chapter 1 of this volume).

Remedial work and grade level progression

Remedial coursework can be counted towards a student’s grade level progression, but only if the school’s written and officially approved academic grade level progression policy specifies that remedial coursework can be counted for this purpose. For instance, a school might have a policy stating that a student must complete 30 semester hours to progress to a second-year grade level, and specifying that up to 10 of those hours may be in the form of remedial coursework.

Increasing loan amount when student changes dependency status during academic year

For any type of educational program (whether term-based or non-term, credit-hour or clock-hour), a dependent student who has already borrowed up to the annual loan limit within an academic year may be eligible to receive additional loan funds if their dependency status changes to independent during that same academic year.

Loan Limit Proration

Proration overview

The annual maximum loan amount an undergraduate student may receive must be prorated (reduced) when the borrower is:

Enrolled in a program that is shorter than a full academic year; or
Enrolled in a program that is one academic year or more in length, but is in a remaining period of study (a period of study at the end of which a student will have completed all requirements of the program) that is shorter than a full academic year.

With one exception (see “Proration of the annual loan limit for students who graduate early from clock-hour programs” later in this chapter), the annual loan limits for Direct Subsidized Loans and Direct Unsubsidized Loans are prorated only in these two situations (. Loan limits are not prorated based on a student’s enrollment status, such as when a student is enrolled less than full time or is enrolled for a period of less than a full academic year that is not a remaining period of study.

The annual loan limit for Direct Unsubsidized Loans is not prorated for students enrolled in graduate or professional level programs. Loan proration requirements also do not apply to students taking preparatory coursework or coursework necessary for teacher certification. The annual loan limit must be prorated only

when a student is enrolled in a program or remaining portion of a program that is shorter than an academic year. For purposes of awarding Title IV aid, students taking preparatory coursework or coursework needed for teacher certification are not considered to be enrolled in a program.

It’s important to understand that loan limit proration determines the maximum loan amount that a student may borrow for a program or remaining balance of a program, not the loan amount that the student actually receives. In some cases, the actual loan amount that a student is eligible to receive (based on costs, EFC, and other aid) may be less than the prorated loan limit.

Use of fractions vs. decimals when prorating loan limits

As we explain in more detail below, proration involves multiplying the annual loan limit by a fraction. It’s acceptable to convert the fraction to a decimal and then multiply the annual loan limit by the decimal, but this conversion is not a requirement. However, you should be consistent in the method you use, since the fraction and decimal calculations sometimes result in slightly different prorated loan limits, as shown in the examples later in the chapter.

Using school’s definition of academic year if longer than the Title IV minimum

As explained above, proration of the annual loan limit is required when an undergraduate student is enrolled in a program that is shorter than an academic year or is enrolled in a remaining period of study that is shorter than an academic year. A school may choose to define its academic year as longer in weeks or hours than the minimum statutory requirements. If so, the school’s standard – not the statutory minimum – determines whether a program or a final period of study is shorter than an academic year.

Separate calculations for combined subsidized/unsubsidized annual loan limit and maximum subsidized annual loan limit

As explained in Chapter 4 of this volume, for undergraduate students there is a maximum combined annual loan limit for Direct Subsidized Loans and Direct Unsubsidized Loans, and a maximum portion of that combined annual loan limit that a student may receive in Direct Subsidized Loans. If the annual loan limit for an undergraduate student must be prorated,

you must first determine the combined Direct Subsidized Loan and Direct Unsubsidized Loan prorated annual loan limit, and then separately determine the Direct Subsidized Loan prorated annual loan limit. This is illustrated in the proration examples below.

Prorating loan limits for programs of study shorter than an academic year

If an academic program is shorter than a full academic year in length, you must multiply the applicable loan limit(s) by the lesser of

Proration examples: programs shorter than an academic year

Examples 6 and 7 illustrate how the prorated annual loan limit is determined when a student is enrolled in a program that is shorter than an academic year.

EXAMPLE 6: CLOCK-HOUR PROGRAM SHORTER THAN AN ACADEMIC YEAR

A dependent student is enrolled in a 400 clock-hour, 12-week program (a “short-term program” as described in Volume 2, Chapter 2). The school defines the academic year for this program as 900 clock hours and 26 weeks of instructional time.

To determine the maximum loan amount the student can borrow, convert the fractions based on weeks and hours to decimals:

12/26 = 0.46

400/900 =0 .44

Multiply the smaller decimal (0.44) by the combined Direct Subsidized Loan and Direct Unsubsidized Loan annual loan limit for a first-year dependent undergraduate ($5,500, not more than $3,500 of which may be subsidized):

$5,500 x 0.44 = $2,420 combined subsidized/unsubsidized prorated annual loan limit

To determine the maximum portion of the $2,420 prorated annual loan limit that the student may receive in subsidized loan funds, multiply the maximum subsidized annual loan limit of $3,500 by the smaller decimal (0.44):

$3,500 x 0.44 = $1,540 subsidized prorated annual loan limit

The maximum combined Direct Subsidized Loan and Direct Unsubsidized Loan amount the student can borrow for the program is $2,420, but no more than $1,540 of this amount may be in subsidized loans.

Note: In Example 6 above and in the other proration examples that follow, the fractions are converted to decimals. As an alternative you could choose to multiply the annual loan limit by the original fraction, though you should be consistent in using one method or the other. Using the fraction 400/900 in Example 6 instead of the decimal 0.44 would result in a slightly higher prorated loan limit: $5,500 x 400/900 = $2,444.

EXAMPLE 7: NON-TERM CREDIT-HOUR PROGRAM SHORTER THAN AN ACADEMIC YEAR

An independent student is enrolled in a 24 quarter-hour, 20-week program. The school defines the academic year for this program as 36 quarter hours and 30 weeks of instructional time.

To determine the maximum loan amount the student can borrow, convert the fractions based on weeks and quarter-hours to decimals:

20/30 = 0.67

24/36 = 0.67

Multiply the smaller decimal (in this case, both are 0.67) by the combined Direct Subsidized Loan and Direct Unsubsidized Loan annual loan limit for a first-year independent undergraduate ($9,500, not more than $3,500 of which may be subsidized):

$9,500 x 0.67 = $6,365 combined subsidized/unsubsidized prorated annual loan limit

To determine the maximum portion of the $6,365 prorated annual loan limit the student may receive in subsidized loan funds, multiply the maximum subsidized annual loan limit of $3,500 by the same decimal (0.67):

$3,500 x 0.67 = $2,345 subsidized prorated annual loan limit

The maximum combined Direct Subsidized Loan and Direct Unsubsidized Loan amount the student can borrow for the program is $6,365, not more than $2,345 of which may be in subsidized loans.

Note: Using the fraction 24/36 in Example 7 instead of the decimal 0.67 would result in a slightly lower prorated loan limit: $9,500 x 24/36 = $6,333.

Prorating loan limits for remaining periods of study shorter than an academic year

You must also prorate loan limits for students enrolled in remaining periods of study shorter than an academic year. This circumstance can occur when a student is enrolled in a program that is one academic year or more in length, but the remaining period of study needed to complete the program (sometimes called a “final” period of study) will be shorter than an academic year.

Proration is required only when you know in advance that a student will be enrolled for a remaining period of study that is shorter than an academic year. If a student originally enrolls for a remaining period of study that is a full academic year in length, but completes the program early in less than a full academic year, you’re not required to retroactively prorate the annual loan limit (but see the discussion under “Proration of the annual loan limit for students who graduate early from clock-hour programs” later in this chapter for a limited exception to this general rule).

In a standard-term program, or a credit-hour program using SE9W nonstandard terms, a remaining period of study is considered shorter than an academic year if the remaining period contains fewer terms than the number of terms covered by the school’s Title IV academic year. For programs that are offered in a Scheduled Academic Year (SAY; see Chapter 6), the number of terms covered in the school’s Title IV academic year usually does not include a summer “header” or “trailer” term.

Consider a student who is enrolled in a four-year program that is offered in an SAY consisting of three quarters plus a summer “trailer,” and who has completed four academic years of study. However, the student needs to attend an additional quarter term to complete the program requirements. The final quarter term would fall in a new academic year, and thus the annual loan limit would have to be prorated, because the remaining period of study (a single quarter) is less than a full academic year.

Similarly, if a student enrolled in a two-year program not offered in an SAY (where the Title IV academic year covers two 15-week semesters) has completed two academic years of study, but needs to return for an additional semester to complete the program requirements, the loan limit would have to be prorated if the student receives a loan for the final semester.

Note that for standard-term programs or credit-hour programs with SE9W nonstandard terms, the length of the loan period does not determine whether a student is enrolled in a remaining period of study that is shorter than an academic year. The determining factor is the length of the remaining period of study in which the student is enrolled, which may not be the same as the loan period. For example, if an undergraduate student is enrolled for a full SAY consisting of fall and spring semesters, and

will complete the program at the end of the spring term, but is enrolled less than half time during the spring, the student is eligible to receive a Direct Loan only for the fall semester. Although the loan period (fall only) would be shorter than an academic year, the remaining period of study (fall through spring) is a full academic year. Therefore, if the student receives a Direct Loan in the fall, proration of the annual loan limit is not required.

In a clock-hour program, non-term program, or a program with non-SE9W nonstandard terms, a remaining period of study is considered less than an academic year if it consists of fewer clock or credit hours than the program’s defined Title IV academic year. In contrast to standard term and SE9W nonstandard term programs,

if a student enrolled in a clock-hour, non-term, or non-SE9W nonstandard term program is in a remaining period of study shorter than an academic year and receives a Direct Loan, the loan period and the remaining period of study will always be the same. This is because for these programs the minimum loan period is the lesser of the length of the program (or remaining portion of a program) or the academic year.

For all types of programs, where there is a remaining period of study less than an academic year, the annual loan limit for the student’s grade level is multiplied by the following fraction to determine the prorated loan limit:

What kinds of federal student loans are available?
The interest rates shown are fixed for the life of the loan. Federal Loan Program Program Details Annual Award (subject to change)
Direct Subsidized Loans

For undergraduate students with financial need
For loans first disbursed on or after July 1, 2022, and before July 1, 2023, the interest rate is 4.99%
You’re not usually charged interest on the loan during certain periods, such as when you’re in school at least half-time
The U.S. Department of Education (ED) is the lender; payment is owed to ED Up to $5,500 depending on grade level and dependency status* For total lifetime limit, go to StudentAid.gov/soursob Direct Unsubsidized Loans
For undergraduate, graduate, and professional degree students; financial need isn’t required
For loans first disbursed on or after July 1, 2022, and before July 1, 2023, the interest rate is o 4.99% for loans made to undergraduate students, and o 6.54% for loans made to graduate and professional degree students
You’re responsible for paying the interest during all periods
ED is the lender; payment is owed to ED Up to $20,500 (less any subsidized amounts received for same period) depending on grade level and dependency status* For total lifetime limit, go to StudentAid.gov/subunsub Direct PLUS Loans
For parents who are borrowing money to pay for their dependent undergraduate child’s education, and for graduate or professional degree students;* financial need isn’t required
For loans first disbursed on or after July 1, 2022, and before July 1, 2023, the interest rate is 7.54%
You must not have an adverse credit history (unless you meet certain additional eligibility requirements) **
ED is the lender; payment is owed to ED Maximum amount is the cost of attendance (determined by the school) minus any other financial aid the student receives

Faqs. Apply Online for Federal Student Loan Programs

Q 1.Where can I apply for federal student loans?

You can apply for federal student loans through the Free Application for Federal Student Aid (FAFSA) at the official website, fafsa.gov.

Q 2 When should I apply for federal student loans?

It’s recommended to complete the FAFSA as early as possible, as some aid is awarded on a first-come, first-served basis. The FAFSA becomes available on October 1 for the following academic year.

Q 3. What information do I need to complete the FAFSA?

You’ll need your Social Security number, tax information, and details about your financial situation. Dependent students will also need their parents’ information.

Q 4. Do I need to reapply for federal student loans every year?

Yes, you need to submit a FAFSA for each academic year you seek federal student aid.

Q 5. How will I know if I’m eligible for federal student loans?

After submitting the FAFSA, you will receive a Student Aid Report (SAR) with information on your eligibility and Expected Family Contribution (EFC).

Q 6.What types of federal student loans are available?

Federal student loans include Direct Subsidized Loans, Direct Unsubsidized Loans, and PLUS Loans for parents or graduate students.

Q 7. Can I choose my repayment plan later?

Yes, you can choose from various repayment plans, including income-driven plans, after you graduate and enter repayment.

Q 8.Is there a deadline for applying for federal student loans?

Deadlines may vary by state and institution, so it’s crucial to check with your school’s financial aid office and the federal deadlines.

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