| AwardYear: 1998-1999 EnterChapterNo: 11 EnterChapterTitle: William D. Ford Federal Direct Loan Program SectionNumber: 1 SectionTitle: Eligibility PageNumbers: 5-12 Direct Loan Program borrowers and schools must meet federal eligibility requirements outlined in the law and regulations. Chapters 2 and 3 provide extensive information about those requirements. This section highlights eligibility information for borrowers and schools. STUDENT BORROWER ELIGIBILITY -------------------------------- [[Enrollment status]] Eligibility for a Direct Subsidized Loan or Direct Unsubsidized Loan requires a student to be enrolled at least half time as a regular student in an eligible program at a school participating in the Direct Loan Program. Students may also obtain Direct Loans while enrolled in a 12-month period of preparatory coursework or in a teacher certification program (see Section 2 for more information). [[No FFELs and Direct Loans for same enrollment period]] Although a postsecondary school may participate simultaneously in the Direct Loan and Federal Family Education Loan (FFEL) programs, a student may not borrow from both programs for attendance at the same school for the same enrollment period. Students without high school diplomas or recognized equivalents may still be academically qualified and, thus, eligible for Direct Loans. Such students must demonstrate the ability to benefit from the instruction being offered. See Chapter 2, Section 1 for detailed information on how the student's ability to benefit is determined. Incarcerated students and students enrolled in elementary or secondary schools are not eligible for Direct Loans. [[Federal Pell Grant eligibility]] Schools that participate in the Federal Pell Grant Program must determine Pell Grant eligibility before awarding Direct Subsidized and Direct Unsubsidized Loans. In addition, before awarding a Direct Unsubsidized Loan, an aid administrator must first determine whether the student is eligible for a lower-cost Direct Subsidized Loan. Note that in general a school can award a Direct PLUS Loan without first determining whether the dependent student for whom the parent is borrowing is eligible for a Pell Grant or Direct Subsidized Loan. However, in order to make a late disbursement of a Direct PLUS Loan, the school must have a Student Aid Report (SAR) or Institutional Student Information Record (ISIR) for the student with an official Expected Family Contribution (EFC). [[Financial need]] To qualify for a Direct Subsidized Loan, a student must have financial need, which is determined by the following formula: Cost of Attendance (COA) -- Expected Family Contribution (EFC) ----------------------------------------- -- Estimated Financial Aid (EFA) = Eligibility for Direct Subsidized Loans The school establishes the COA in compliance with federal guidelines. The EFC is calculated using financial information the student's family provides on the Free Application for Federal Student Aid (FAFSA), the only application a student needs to apply for Direct Loans. The EFA includes the amount of the student's Pell Grant eligibility plus other aid the student will actually receive. Although financial need is not considered when determining the amount of Direct Unsubsidized Loans and Direct PLUS Loans for which a borrower is eligible, the COA and EFA must be taken into account: COA ------ - EFA = Eligibility for Direct Unsubsidized Loans/Direct PLUS Loans Proceeds from Direct Unsubsidized Loans and Direct PLUS Loans may be used to replace the EFC for a given loan period. (The same is true for nonfederal loan proceeds.) See Chapter 2, Section 3 for detailed information about how eligibility for the Direct Loan Program (and the other SFA Programs) is determined using the COA, EFC, and EFA. [[Promissory note]] Students must complete and sign a promissory note before receiving their first Direct Loan disbursement. For more information on promissory notes, see the Direct Loan School Guide. [[Membership in religious organizations]] As explained in Chapter 2, students who are members of certain religious organizations are considered to have no financial need for SFA Program purposes and are therefore ineligible for Direct Subsidized Loans; however, these students may be eligible for Direct Unsubsidized Loans. (Note that the parent of such a student is not precluded from borrowing a Direct PLUS Loan for that student.) For further details, see Chapter 2, Section 1. [[Internships/residencies]] A student is ineligible to receive a Direct Loan while in a medical internship or residency program. Students in dental internship programs are eligible to receive Direct Loans. [[Eligibility after disability cancellation]] A student who has had a Direct Loan canceled due to total and permanent disability may reestablish eligibility for a new loan by (1) obtaining a statement from a physician certifying that the student can engage in substantial gainful activity and (2) signing a statement acknowledging that the new Direct Loan cannot be canceled because of any impairment present when that loan is made, unless the impairment substantially deteriorates. [[Default, excess borrowing, and overpayment]] Students who are in default on federal student loans, have obtained federal student loan funds in excess of annual or aggregate loan limits, or have received overpayments of SFA funds are not eligible for Direct Loans or any other SFA Program funds. A student in any of these situations can regain eligibility for SFA funds, including Direct Loans, by repaying in full the amount owed or by taking other steps. - For purposes of regaining Direct Loan eligibility in cases of default, the borrower must make "satisfactory repayment arrangements," defined as six consecutive, voluntary, on time, full monthly payments that are reasonable and affordable given the borrower's financial situation. "On time" means a payment made within 15 days of the scheduled due date. "Voluntary" payments are those the borrower makes directly, regardless of whether a judgment exists. Voluntary payments do not include those obtained by income tax offset, garnishment, or income or asset execution. For the purpose of regaining eligibility, a student may make satisfactory repayment arrangements on a defaulted Direct Loan only once. (See Section 4 for more information on resolving defaults.) - Students who have inadvertently exceeded loan limits or received overpayments must make repayment arrangements satisfactory to the holder of the loan or the holder of the overpayment debt. Students who exceed Direct Loan limits must contact their Direct Loan Servicing Center to establish repayment arrangements satisfactory to the Department. [[Regaining eligibility during enrollment period]] If a student regains eligibility during an enrollment period (for example, if the sixth payment under a satisfactory repayment arrangement is made after the start of an enrollment period), the student regains eligibility for the entire loan period. Chapter 2, Section 1 discusses in detail overpayment, borrowing in excess of loan limits, and regaining eligibility for SFA Programs. For more information on the consequences of default for borrowers, see page 11-57 of this chapter. PARENT BORROWER ELIGIBILITY ------------------------------- For purposes of Direct PLUS Loan eligibility, an eligible parent borrower is a student's biological mother or father, adoptive parent, or legal guardian. A parent also includes the spouse of a parent who remarries, if that spouse's income and assets would be taken into account when calculating a dependent student's EFC. A parent must use the Direct PLUS Loan to pay for the educational expenses of a dependent undergraduate student who meets the requirements for an eligible student (see Chapter 2). [[Application/promissory note]] A parent must submit a Direct PLUS Loan application/promissory note to the school or to the Department's Loan Origination Center, depending on the school's origination level. A parent does not have to complete the FAFSA unless the student for whom the parent plans to borrow is applying for other SFA funds--or nonfederal funds--that require the FAFSA. However, note that to make a late disbursement of a Direct PLUS Loan, the school must have a SAR or ISIR for the student with an official EFC. For more information on PLUS application/promissory note procedures, see the Direct Loan School Guide. [[General eligibility requirements]] A parent must meet the same requirements as a student applying for SFA Program funds when it comes to citizenship status, defaults, overpayments, and previous loans canceled due to total and permanent disability. A parent also must comply with the requirements for submitting a Statement of Educational Purpose (see Chapter 2). In addition, the parent must provide his or her Social Security Number and the student's Social Security Number. A parent is not allowed to borrow a Direct PLUS Loan and a Federal PLUS Loan for the same student for the same enrollment period at the same school. [[Adverse credit history]] Direct PLUS Loans are not available to a parent with an adverse credit history unless he or she obtains an endorser with no adverse credit history or demonstrates extenuating circumstances. (See Section 2 for more information on credit history requirements.) ELIGIBILITY AFTER BANKRUPTCY DISCHARGE ------------------------------------------- To be eligible for SFA Program funds, including Direct Loans, borrowers do not have to reaffirm loan or overpayment obligations discharged in bankruptcy. The Bankruptcy Reform Act of 1994 prohibits denial of aid based solely on a bankruptcy discharge. However, a parent borrower who wishes to receive a Direct PLUS Loan within 5 years following a bankruptcy discharge may be required to obtain an endorser or document extenuating circumstances. A federal student loan or federal grant overpayment is not dischargeable in bankruptcy unless the debt has been outstanding for at least seven years, excluding any periods of deferment or forbearance, or unless the bankruptcy court has determined that repaying the debt would cause undue hardship to the debtor and his or her dependents. An applicant for SFA funds who has a defaulted federal student loan (or grant overpayment) determined nondischargeable in the bankruptcy filing will be considered ineligible for further federal student aid until the default or overpayment status is resolved as discussed on page 11-7. If a default or overpayment occurred before the borrower's bankruptcy filing and the debt was discharged in bankruptcy, the applicant is eligible for further federal student aid. The applicant does not have to establish satisfactory repayment arrangements because the debt no longer exists. A borrower who listed a dischargeable SFA debt in a bankruptcy filing is also eligible for further federal student aid before the debt is actually discharged. The borrower must provide documentation to the school from the holder of the debt stating that the debt is dischargeable. REFUSAL TO ORIGINATE A LOAN ------------------------------- A school may refuse to originate any Direct Loan or may originate an amount less than a borrower's calculated need if the school - makes such decisions on a case-by-case basis; - does not engage in any pattern or practice that results in denying access to Direct Loans because of a borrower's race, gender, color, religion, national origin, age, disability status, or income; - documents the reason for the decision and keeps that documentation in the student's file; and - notifies the student or parent in writing of the decision. INSTITUTIONAL ELIGIBILITY ----------------------------- [[NEW]] The Department selects schools to participate in the Direct Loan Program, drawing from colleges, universities, graduate and professional schools, vocational schools, and proprietary schools. To the extent possible, the Department selects schools reasonably representative of those participating in the FFEL Program in terms of anticipated loan volume, length of academic program, type of control, highest degree offered, size of enrollment, geographic location, and default history. At the time this Handbook went to print, the separate William D. Ford Federal Direct Loan Program Participation Application had been eliminated. Schools interested in participating should contact the Direct Loan Task Force at (202) 708-9951 for more information. To participate in the Direct Loan Program, schools must meet the general institutional eligibility definitions and criteria described in Chapter 3. Direct Loan schools also must meet and maintain other requirements, as discussed below. [[Correspondence study]] A school offering programs exclusively for study by correspondence is not eligible to participate in Direct Loans. [[Initial participation]] To qualify for initial participation in the Direct Loan Program, a school must not be subject to an emergency action or a proposed or final Limitation, Suspension, and Termination action. In addition, a school must meet the eligibility requirements in Section 435(a) of the Higher Education Act, including the requirement that the cohort default rate be less than 25% for at least one of the three most recent fiscal years for which data are available. Note that the cohort default rate requirement is not solely an initial participation requirement. See Section 4 for information on cohort default rate requirements. [[Program Participation Agreement]] To participate in Direct Loans, a school must sign an addendum to the Department's Program Participation Agreement. The chief executive officer signs the agreement on the school's behalf. If schools apply as a consortium, each school in the consortium must meet the eligibility requirements described above and must sign a separate Program Participation Agreement. The signed agreement obligates the school to comply with statutory and regulatory requirements. The agreement allows schools to participate simultaneously in the Direct Loan and FFEL programs; however, as mentioned earlier, individual students may not receive loans under both programs for the same enrollment period at the same school. The agreement requires schools to identify eligible students, estimate their financial need, and certify that borrowers have not exceeded annual or aggregate loan limits. Schools also must provide timely and accurate information to help the Department service the loans and collect repayments. Such information includes the status of student borrowers--and the status of students for whom parents have borrowed--while these students are still enrolled. In addition, at the Department's request, a school must provide any new information about borrowers obtained after the students leave school. Other provisions in the agreement require schools to - refrain from charging fees of any kind for origination activities or for providing Direct Loan information to student or parent borrowers, - implement a quality assurance system, and - comply with other provisions the Department determines necessary to protect the interests of the United States and to promote the Direct Loan Program's purposes. [[Requirements for Option 1 and Option 2 schools/consortia]] Option 1 or 2 schools or consortia must meet additional criteria: - have participated in the Federal Perkins Loan Program or the Federal Pell Grant Program or, for a graduate or professional school, have participated in a similar program for the three most recent years; - not be on the reimbursement system of payment in the Federal Pell Grant Program; - have had no severe performance, audit, or program review deficiencies for any SFA Program; - be financially responsible in accordance with the standards of 34 CFR 668.15; - be current on program and financial reports and SFA audits for the 12-month period immediately preceding the Direct Loan application date; - be current on required federal cash transaction reports and have no final determination of cash on hand that exceeds "immediate need"; - have no material findings in annual financial audits submitted for the three most recent years preceding the date of application to participate in Direct Loans; and - provide assurance that the school has no delinquent debts to the federal government, unless the debts are being repaid under an arrangement satisfactory to the government or unless the Department decides the appropriate federal agency has not determined the existence or amount of the debts. [[Participation for deferment purposes only]] A school that has never participated in SFA Programs but wants to be considered an eligible school for deferment purposes only must prove, before it can certify deferment forms, that it meets the Department's definition of an eligible school. For more information about eligibility for deferment purposes, schools should write U.S. Department of Education Room 3915, Initial Participation Branch 600 Independence Avenue SW Washington, DC 20202-5244 WITHDRAWING FROM THE DIRECT LOAN PROGRAM ---------------------------------------------- A school may withdraw from the Direct Loan Program by notifying the Department in writing at least 60 days before the planned withdrawal date. Unless the Department approves an earlier date, the withdrawal is effective (1) 60 days after the school notifies the Department or (2) the date the school designates, whichever is later. Whether program withdrawal is voluntary or the result of Department action, an SFA audit is required as is a final reconciliation to account for all funds drawn down. [[Loss of eligibility]] For steps a school must take if it loses its eligibility to participate in Direct Loans, see Chapter 3. For loss of eligibility due to high cohort default rates, see page 11-65. |