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(Direct Loans) Subject: 150% Direct Subsidized Loan Limit: Electronic Announcement #20 - Determining a Student’s Eligibility for a Direct Subsidized Loan when the "Remaining Eligibility Period" is Less than 1 Year

Posted Date:October 19, 2015

Author: Jeff Baker, Director, Policy Liaison and Implementation, Federal Student Aid

Subject: 150% Direct Subsidized Loan Limit: Electronic Announcement #20 - Determining a Student’s Eligibility for a Direct Subsidized Loan when the "Remaining Eligibility Period" is Less than 1 Year

Over the past several months, we have received many questions about how a school determines whether a student is eligible for a Direct Subsidized Loan when the student's Remaining Eligibility Period is less than 1 year, and, if the student is eligible, for what period and in what amount.

An otherwise eligible student can receive a Direct Subsidized Loan when that student has a Remaining Eligibility Period that is 1 year or greater. However, there are special considerations if the student's Remaining Eligibility Period is greater than 0 years, but less than 1 year. These students can receive a Direct Subsidized Loan if:

  • The school can originate a Direct Subsidized Loan in compliance with all Direct Loan origination rules as provided in the regulations at 34 CFR 685.301, with particular attention to the applicable minimum loan period rules, as discussed below; and

  • The loan's loan period, academic year, enrollment status, and loan amount results in a Subsidized Usage Period that is equal to or less than the student's Remaining Eligibility Period.

Loan Period & Academic Year

When originating a loan for a student who has a Remaining Eligibility Period of less than an academic year, the school must take into account the minimum loan period for which an institution can originate a Direct Loan. Under 34 CFR 685.301(a)(10), the minimum loan period is generally:

  • For a credit-hour program that uses standard terms or non-standard terms with terms that are substantially equal in length with no term less than nine weeks in length, a term.

  • For a credit-hour program that does not use standard terms or non-standard terms with terms that are not substantially equal in length with no term less than nine weeks in length, the lesser of:

    • The length of academic year; or

    • The length of the program (or the remaining portion of the program).

  • For a clock hour or non-term program the lesser of:

    • The length of academic year; or

    • The length of the program (or the remaining portion of the program).

For example, if the student is in a credit-hour, semester-based program and has a Remaining Eligibility Period of 0.5 years, the student will likely be able to receive a single-term loan because in this example, the minimum loan period in this circumstance is a semester, and the academic year will be at least 2 semesters. This loan would create a Subsidized Usage Period that is 0.5 years if the student is enrolled full time and the loan is for less than the annual loan limit.

In contrast, consider if the same student was enrolled in a clock-hour program that is 1 year in length and had a Remaining Eligibility Period of 0.5 years. The student would not likely be able to receive another Direct Subsidized Loan because the minimum loan period must be, under the regulations, 1 year and since the academic year would also be 1 year, the Subsidized Usage Period would be 1 year, which is greater than the student's Remaining Eligibility Period of 0.5 years.

Enrollment Status

Subsidized Usage Periods are prorated when the student is enrolled less than full-time (unless the student is enrolled in a credit-hour non-term or clock-hour program). Therefore, even in cases where the student's Remaining Eligibility Period is very small, it is possible for the student to receive a Direct Subsidized Loan if the student is enrolled less than full-time.

For example, if a student is enrolled half time in a credit-hour, semester-based program and has a Remaining Eligibility Period of 0.2 years, the student may be able to receive a single-term loan because the minimum loan period is a semester, the academic year will be at least 2 semesters, and the Subsidized Usage Period would be prorated by 0.5. A loan with these characteristics could create a loan with a Subsidized Usage Period of 0.2 years if the loan is for less than the annual loan limit.

Loan Amount

The 150% limit does not generally affect the amount of a loan that a student may receive. Therefore, an institution should not prorate a student's Direct Subsidized Loan amount in cases where the student has less than one year of remaining eligibility. Instead, the school must give the student the most in subsidized loans that need and cost support for the loan period.

The only time that 150% will affect the loan amount the student can receive is when the student receives a loan in the amount of the annual loan limit for the student and the loan is for a period of less than an academic year. In this circumstance, the Subsidized Usage Period will generally be set to one year even though the loan period is less than an academic year.

Because of this exception above, schools should take special care when a student:

  • Has a Remaining Eligibility Period that is less than one year;
  • Is being packaged with a Direct Subsidized Loan for a period of less than an academic year; and,
  • Is otherwise eligible to receive a loan in the amount of the annual loan limit for the period.

In such instances, the school must reduce the loan amount to be less than the student's annual loan limit. The school should give the student the most in Direct Subsidized Loan funds that the student is eligible to receive given this limitation. For some students, that could be just one dollar less than the annual loan limit.

For example, suppose a third or fourth year student has a Remaining Eligibility Period of 0.5 years, but otherwise is eligible to receive the full $5,500 in Direct Subsidized Loan funds. The institution may award a single-term loan for that student, but must originate the loan for an amount that is less than the full $5,500 loan amount; otherwise, the annual loan limit exception would result in a Subsidized Usage Period of one year.

If an institution cannot properly originate a Direct Subsidized Loan to a student, bearing in mind minimum loan periods, that would create a Subsidized Usage Period that is equal to or less than the student's Remaining Eligibility Period, the student is not eligible for a Direct Subsidized Loan for the period. The amount that the student was not eligible to receive in a Direct Subsidized Loan may be replaced by a Direct Unsubsidized Loan.

If an institution wishes to model a Direct Loan origination to determine whether the Common Origination and Disbursement (COD) System will accept the origination record before submitting it to the COD System, it may do so on the COD website.

For questions about the 150% limit, please email 150Percent-Questions@ed.gov.

Last Modified: 10/18/2015