FEDERAL FAMILY EDUCATION LOAN PROGRAM TABLE OF …

CONTENTS

CHAPTER 10

T A B L E O F C O N T E N T S FEDERAL FAMILY EDUCATION LOAN PROGRAM

INTRODUCTION ............................................................................................................. 1

SECTION 1: BORROWER AND INSTITUTIONAL ELIGIBILITY .................................. 3 Student Eligibility Criteria .............................................................................................. 3 Financial Need .............................................................................................................. 4 Eligibility Criteria Specific to Parent Borrowers ............................................................. 7 Lender of Last Resort.................................................................................................... 8 Institutional Eligibility ..................................................................................................... 8

SECTION 2: MAKING LOANS ..................................................................................... 11 The Loan Application .................................................................................................. 11 Determining the Loan period ....................................................................................... 13 Certifying a Loan Application ...................................................................................... 15 Annual Loan Limits...................................................................................................... 18 Prorated Annual Loan Limits--Subsidized and Unsubsidized Stafford Loans ........... 23 Type of Academic Year and Frequency of Annual Loan Limits .................................. 26 Aggregate Loan Limits ................................................................................................ 29 Increased Loan Limits for Health Education Assistance Loan (HEAL) Students ........ 30

SECTION 3: PAYMENT TO THE BORROWER ......................................................... 31 Definitions of Delivery and Disbursement ................................................................... 31 Financial Aid History and NSLDS ............................................................................... 32 Methods of Disbursing and Delivering Loan Funds .................................................... 32 Disbursement and Delivery Requirements.................................................................. 33 Overawards ................................................................................................................. 37 Credit Balances ........................................................................................................... 38 Late Disbursement ...................................................................................................... 38 Borrower Ineligibility and Return of Funds to Lender .................................................. 39 Reimbursement Payment Method............................................................................... 41

SECTION 4: REPAYMENT .......................................................................................... 43 Grace Periods ............................................................................................................. 43 Interest Rates .............................................................................................................. 44 Additional Costs of Borrowing ..................................................................................... 47 Repayment of Federal Stafford Loans ........................................................................ 48 Repayment of Federal PLUS Loans ........................................................................... 52 Capitalization of Interest.............................................................................................. 53 Repayment Disclosure Statement and Billing ............................................................. 53

SECTION 5: DEFERMENT & FORBEARANCE .......................................................... 55 In-School Deferment ................................................................................................... 56 Unemployment Deferment .......................................................................................... 56 Economic Hardship Deferment ................................................................................... 57 Additional PLUS Loan Deferment ............................................................................... 57 Deferment Eligibility Issues ......................................................................................... 58 Deferment Provision Chart Footnotes ......................................................................... 59 Optional forbearance................................................................................................... 62 Mandatory Forbearance .............................................................................................. 64 Administrative Forbearance ........................................................................................ 65 Mandatory Administrative Forbearance ...................................................................... 66 Interest Accruing During Deferment and Forbearance ............................................... 66

SECTION 6: LOAN DISCHARGE ................................................................................ 67 Death and Permanent Disability Discharges............................................................... 67 Bankruptcy Discharge ................................................................................................. 67 Other loan cancellation provisions .............................................................................. 67 Effect on a Borrower's SFA Eligibility .......................................................................... 68 Payments Made after Discharge ................................................................................. 70 Repayment by the U.S. Department of Defense ......................................................... 70

SECTION 7: DELINQUENCY AND DEFAULT ............................................................ 71 Consequences of Default ............................................................................................ 71 Reinstatement of Eligibility after Default ..................................................................... 74 Loan Rehabilitation ..................................................................................................... 74

SECTION 8: CONSOLIDATION LOANS ..................................................................... 77 Federal Consolidation Loans ...................................................................................... 77 Applying for a Consolidation Loan .............................................................................. 78 Borrower Eligibility for a Federal Consolidation Loan ................................................. 78 Repayment and Deferment ......................................................................................... 80

SECTION 9: COUNSELING STUDENTS..................................................................... 83 Entrance Counseling ................................................................................................... 83 Exit Counseling ........................................................................................................... 88

SECTION 10: DEFAULT REDUCTION MEASURES .................................................. 93 Loans Included in a School's Cohort Default Rates .................................................... 93 Calculating Cohort Default Rates ................................................................................ 94 Changes Occurring after an Official Cohort Default Rate Calculation ........................ 97 Draft Cohort Default Rates .......................................................................................... 98 Change in Status of a School...................................................................................... 99 Consequences Associated with High Official Cohort Default Rates ......................... 100 Appeal Procedures.................................................................................................... 102 General Requirements to Reduce Defaults .............................................................. 105

SECTION 11: ADDITIONAL SCHOOL REQUIREMENTS ........................................ 109 Refunds ..................................................................................................................... 109 Exchange of Information Requirements .................................................................... 110 Recordkeeping, Audits, and Reports ........................................................................ 111 Audit Requirements................................................................................................... 113 Program Participation Agreement Requirements...................................................... 114 Prohibited School and Lender Activity ...................................................................... 115

APPENDIX: GUARANTY AGENCY DIRECTORY..................................................... 117

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INTRODUCTION

Introduction

Part B of Title IV of the Higher Education Act of 1965 (HEA), as amended, created the guaranteed student loan programs. The Higher Education Amendments of 1992 (P.L. 102-325) reauthorized the HEA and renamed the guaranteed student loan programs the Federal Family Education Loan (FFEL) Program, which now comprises Federal Stafford Loans (formerly Guaranteed Student Loans), Federal PLUS Loans, and Federal Consolidation Loans. The FFEL Program makes these long-term loans available to students attending institutions of higher education; vocational, technical, business, and trade schools; and some foreign schools.

State or private nonprofit guaranty agencies insure FFELs, and these agencies are reimbursed by the federal government for all or part of the insurance claims they pay to lenders. The federal guaranty on a FFEL replaces the security (the collateral) usually required for a long-term consumer loan.

Note that although all FFEL-related guaranty agency procedures and policies must accord with the federal requirements discussed in this chapter, individual guaranty agencies may have additional procedures and policies. To obtain specific information about a guaranty agency's policies and procedures, contact that agency. Appendix A of this chapter contains a list of guaranty agencies and their addresses and telephone numbers.

The different types of FFELs serve different purposes:

Both undergraduate and graduate students can receive Stafford Loans.

Parents of dependent students can receive PLUS Loans.

Federal Consolidation Loans allow a borrower to combine several loans into one to facilitate repayment. The loans may be consolidated if the borrower meets certain conditions. (These conditions and the types of loans that may be consolidated are discussed in Section 5.)

Introduction 10-1

Specific information on how cohort default rates for prior fiscal years are used for eligibility determinations following a change in status for a school was not available at the time this Handbook went to print. The Department will issue further guidance on this topic at a later date in the form of Dear Colleague Letters. When issued, this up-to-date information will also be available on the SFA BBS.

Introduction 10-2

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