Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Federal Family Education Loan Program - Borrower and Institutional Eligibility

AwardYear: 1997-1998
EnterChapterNo: 10
EnterChapterTitle: Federal Family Education Loan Program
SectionNumber: 1
SectionTitle: Borrower and Institutional Eligibility
PageNumbers: 5-12

In general, a student must be enrolled at least half time as a regular
student in an eligible program and must meet the school's satisfactory
academic progress standards to be eligible for a Federal Stafford or
to benefit from a Federal PLUS Loan (that is, for his or her parents to
receive a PLUS Loan). Chapter 2 covers in detail the student
eligibility requirements that are common to all Student Financial
Assistance (SFA) programs, and Chapter 3 covers in detail the
institutional eligibility requirements of the SFA programs. Only
those borrower and institutional eligibility requirements that are
specific to the Federal Family Education Loan (FFEL) Program are
noted here.


To receive a Stafford Loan or Federal Consolidation Loan or to
benefit from a PLUS Loan, a student must meet the general
eligibility criteria for all SFA programs (explained in Chapter 2).

There are three exceptions to the general SFA eligibility requirement
that a student be enrolled or be accepted for enrollment in a degree or
certificate program.

[[Coursework necessary to enroll in degree or certificate program]]
- An otherwise eligible student may apply for a Stafford Loan for a
single consecutive 12-month period if the school has determined
that the coursework is necessary in order for the student to enroll
in a degree or certificate program and if the student is enrolled at
least half time. This category of students may borrow at the first-
year undergraduate loan level. Loan limits are explained in the
chart on page 10-24.

[[Coursework necessary to enroll in graduate or professional
- An otherwise eligible student may apply for a Stafford Loan for a
single consecutive 12-month period if the school has determined
that the coursework is necessary in order for the student to enroll
in a graduate or professional program and if the student is enrolled
at least half time. This category of students may borrow at the
fifth-year undergraduate loan level, effective for loans certified on
or after January 16, 1997. (Previously, this category of students
was allowed to borrow only at the first-year undergraduate loan
level.) This increased limit may be applied to a loan that is
certified on or after January 16, 1997 even if the loan period began
before that date. For a student whose loan was certified at the
previous level, his or her school can certify another loan for the
difference between the fifth-year limit and the amount already

[[Non-degree teacher certification programs]]
- A student enrolled at least half time in a program required by a
state for teacher certification or recertification at the elementary or
secondary level may apply for a Stafford Loan without being
enrolled as a regular student. The school's records must indicate
that the courses taken are required by the state where the student
will be teaching. As noted on page 10-6, such students may
borrow at the fifth-year undergraduate loan level.

[[Medical internships and residencies]]
A student is INELIGIBLE to receive a Stafford Loan or a Federal
Perkins Loan (see Chapter 6) or to benefit from a PLUS Loan while
in a medical internship or residency program, unless the internship is
part of the school's degree program. This restriction does NOT apply
to students in dental internship programs.

Cost of Attendance
- Expected Family Contribution
- Estimated financial Assistance
= Need for subsidized Federal Stafford Loan

As stated in Chapter 2, a student who owes a refund on an SFA grant
or is in default on an SFA loan is ineligible for additional SFA funds.
Note that the parents of such a student may not receive a PLUS Loan
for the student's benefit.


To qualify for a subsidized*1* Stafford Loan, a student must have
financial need. A borrower unable to qualify for a need-based
Stafford Loan may apply for an unsubsidized Stafford Loan. Also, a
student able to qualify for only a part of his or her subsidized
Stafford Loan limit may apply for an unsubsidized Stafford Loan to
cover the difference between his or her loan limit and the subsidized
amount for which he or she is eligible. Basically, a student's need for
a subsidized Federal Stafford Loan is his or her cost of attendance
(COA) minus his or her Expected Family Contribution (EFC) minus
his or her estimated financial assistance (EFA).

The student's EFA is the amount of other aid he or she will receive
for the enrollment period covered by the loan. See Chapter 2, Section
2 for more information on determining a student's financial need.
Section 2 of this chapter provides information on loan limits.

An unsubsidized Stafford Loan is not need-based, but it cannot
exceed the student's cost of attendance less the total of EFA, which
includes the borrower's subsidized Stafford Loan eligibility.

A student does not have to demonstrate financial need to benefit
from a PLUS Loan his or her parents borrow.

Because an independent student's parents may not obtain a PLUS
Loan on the student's behalf, an independent student has
unsubsidized loan borrowing limits in addition to the subsidized
limits. The student does not need to demonstrate financial need to
receive this additional amount. See Chapter 2 for information on
determining dependency.

If, due to circumstances such as an adverse credit history (see the
next page), a dependent undergraduate student's parents are unable to
borrow a PLUS Loan, the school may allow the student to obtain an
unsubsidized Stafford Loan under the independent student borrowing
limits. Again, the student does not need to demonstrate financial
need to receive this additional amount.

As explained in Chapter 2, because students who are members of
certain religious organizations are considered to have no financial
need for SFA program purposes, such a student is not eligible for
need-based SFA funds. He or she may, however, be eligible for an
unsubsidized Stafford Loan or an unsubsidized Consolidation Loan,
or, if dependent, he or she may be eligible to benefit from a PLUS
Loan. (PLUS Loans are also unsubsidized.)

A school that participates in the Federal Pell Grant Program must
determine an undergraduate student's Pell Grant eligibility before
certifying a subsidized or unsubsidized Stafford Loan for that
student. If the student is eligible for a Pell Grant, the school cannot
ceritfy a loan until the student has applied for a Pell Grant for the
same enrollment period that will be covered by the loan.

In addition, a school cannot certify an unsubsidized Stafford Loan
for a student without first determining his or her need for a
subsidized Stafford Loan. If a student has need for a subsidized
Stafford Loan of less than $200, a school can choose to certify only
an unsubsidized Stafford Loan that includes the amount of the
student's need, rather than certifying a subsidized loan of less than
$200 and an unsubsidized loan for the remainder of the student's
borrowing limit. Details on certifying loans are provided in Section 2
of this chapter.

A school can certify a PLUS Loan for a parent WITHOUT first
determining the benefitting student's Pell Grant and subsidized
Stafford Loan eligibility. In fact, calculation of a student's EFC is not
required for making a PLUS Loan.

Offsetting a Student's Expected Family Contribution (EFC)

Loans made on behalf of a student under PLUS, unsubsidized
Stafford Loans, loans made by a school to assist the student, and
state-sponsored and private education loans all can be used to offset
(substitute for) part or all of the student's EFC for Stafford Loans and
other need-based SFA Programs. The following example shows how
nonfederal aid may be substituted for the EFC in determining a
student's financial aid package.

Gordon, a student at Bonner's Mill College, has a COA of $7,000
and an EFC of $1,500. Gordon's financial aid includes a Federal
Pell Grant of $1,500, an FSEOG of $500, a private scholarship of
$500, and a state-sponsored loan of $2,000. Subtracting his EFC
(1,500) and his EFA ($4,500) from his COA ($7,000) would
appear to leave him with unmet need of $1,000.

COA $7,000
- EFC $1,500
- EFA $4,500
= Unmet Need $1,000

The EFC is replaced in the calculation by the EFC offset. The
$1,500 of the state-sponsored loan that is used to offset the EFC is
no longer considered part of the EFA. Thus, the EFA is reduced to
$3,000, and Bonner's Mill may approve Gordon's subsidized
Stafford Loan application for $2,500.

COA $7,000
- EFC Offset $1,500
- Remaining EFA $3,000
= Unmet Need $2,500

Note that because the $2,000 state loan is greater than the EFC, the
remaining $500 of the state loan cannot be counted towards the
EFC and must remain part of the EFA. It is very important to note
that although the EFC is being offset by a state loan, the EFC itself
does not change. The offset causes a reduction in EFA, not in the
EFC. Therefore, the student's Pell Grant eligibility is not affected
by this offset. See Chapter 2 for more information on EFA and
financial need.

The financial aid administrator may want to establish need for the
subsidized Stafford Loan before other loans are figured into the aid
package--and the financial aid administrator must do so in the case of
unsubsidized Stafford and PLUS loans--to enable the student to
receive the maximum subsidized Stafford Loan amount.


[[Definition of parent for PLUS Loan purposes]]
For the purpose of determining PLUS Loan eligibility, a parent is a
student's natural mother or father, adoptive parent, or legal guardian.
Please note that, effective July 1, 1996, the definition of a parent also
includes the spouse of a parent who has remarried, if that spouse's
income and assets would be taken into account when calculating the
dependent student's EFC.

A parent may receive a PLUS Loan only to pay for the educational
costs of a dependent undergraduate student who meets the eligible
student definition.

A parent must meet the same citizenship and residency requirements
as a student. Also, a parent who owes a refund on an SFA grant or is
in default on an SFA loan is ineligible for a PLUS Loan. (Note that
the parent's ineligibility for a PLUS Loan does not affect the
student's eligibility for SFA funds.) See Chapter 2 for more
information on these general eligibility criteria.

To receive a PLUS Loan, a parent must provide his or her Social
Security Number as well as that of the student on whose behalf the
parent is borrowing. Like a student borrower, a parent borrower must
also submit a Statement of Educational Purpose. He or she does not,
however, have to complete a Statement of Selective Service

[[Adverse credit history]]
A parent with an adverse credit history is prohibited from obtaining a
PLUS Loan. A lender must obtain a credit report on each applicant
for a loan from at least one national credit bureau. Unless the lender
determines that extenuating circumstances exist, the lender must
consider the applicant to have an adverse credit history if

- he or she is 90 days or more delinquent on the any debt; or

- during the 5 years preceding the date of the credit report, he or she
has been determined to be in default on a debt, his or her debts
have been discharged in bankruptcy, or he or she has been the
subject of foreclosure, repossession, tax lien, wage garnishment, or
write-off of an SFA debt.

A lender is permitted to establish a more stringent definition of
adverse credit history than these regulatory criteria. However, a
parent cannot be rejected for a PLUS Loan on the basis of having no
credit history. The absence of a credit history CANNOT be
construed as an adverse credit history.

The Bankruptcy Reform Act of 1994 (enacted October 22, 1994)
prohibits a lender from discriminating, on the basis of past
bankruptcy filing or discharge only, against a borrower applying for
a student loan. However, past bankruptcy can be included as a factor
in determining the future creditworthiness of a loan applicant. These
provisions are also described in Section 6 of this chapter.

A parent with an adverse credit history may secure an endorser
without an adverse credit history in order to qualify for a PLUS
Loan. The endorser for this purpose may not be the dependent
student for whom the parent is borrowing. Instead of securing an
endorser, a parent may appeal a determination of adverse credit
history to the lender by documenting extenuating circumstances. The
lender has the final decision on whether or not to make a loan to the


A student who is otherwise eligible for a subsidized Stafford Loan
and, after not more than two rejections, has been unable to find a
lender willing to make such a loan, should contact the guaranty
agency in his or her state of residence or the guaranty agency in the
state in which the student's school is located. The guaranty agency
either must designate an eligible lender to serve as a lender of last
resort (LLR) or must itself serve in that capacity and must respond to
the student within 60 days. An LLR cannot make a loan that exceeds
the borrower's need, nor can it make a loan for an amount less than
$200. The LLR, as with any other lender, may refuse to make the
loan if the borrower fails to meet the lender's credit standards. Each
guaranty agency is required to develop rules and procedures for its
LLR program.


In order to participate in the FFEL Program, a school must meet the
SFA Program eligibility criteria discussed in Chapter 3. Only
institutional eligibility issued specific to the FFEL Program are
discussed here.

Only a school accredited as an institution of higher education
offering a graduate-level program may certify FFELs at the graduate
level for students unconditionally accepted into a graduate or
professional program. A school offering programs EXCLUSIVELY
for study by correspondence is not eligible to participate in the FFEL

If a school is notified that it has lost its eligibility to participate in the
FFEL Program and the school does not intend to appeal the decision,
it must immediately inform all current and PROSPECTIVE students
of its loss of eligibility. The school must also explain that it can no
longer certify FFELs for students. If the school appeals its loss of
eligibility within the required time frame, the school may continue
certifying FFELs during the appeal process. Once a final decision on
the appeal is made, the school must take the appropriate action
described in the Department's final appeal decision letter. (See
Section 9 for more information about the appeal process.)

If a school loses eligibility or decides not to participate in FFEL
Program, reinsurance of loans previously disbursed will not be
affected, and interest benefits will continue as long as the student
maintains his or her required enrollment status. The student's grace
period and eligibility for in-school status and in-school deferment
also will not be affected by a school's loss of eligibility. If a school
has delivered the first disbursement of a loan to a student before the
loss of eligibility, the school may deliver the remaining
disbursements. However, if a school loses eligibility before it
delivers any loan proceeds to the student, the school is not permitted
to deliver the loan proceeds to the student. (See Section 10 for
information about how excessive default rates affect school

If a school plans to withdraw from participation in the FFEL
Program, it must provide both the appropriate guaranty agency or
agencies and the Department with written notification of its decision.
Once the effective date of withdrawal has been established, the
school is prohibited from delivering to a student any loan proceeds
received from a lender and must return the loan proceeds to the
lender within 30 days. To find out more about the procedures
required for withdrawal from the FFEL Program, call 202-708-4906.

Note that if the first disbursement of a Federal Stafford Loan was
delivered to the student or credited to the student's account prior to
the school's loss of eligibility or withdrawal from participation, the
school may deliver subsequent disbursements of that Federal
Stafford Loan to satisfy any unpaid commitment made to a student
for the period of enrollment for which the Stafford Loan was made.

If a school has never participated in the SFA Programs but wants to
be considered an eligible school for deferment purposes only, the
school must prove that it meets the Department's definition of an
eligible school before the school may certify borrower deferment
forms. To find out more about eligibility for deferment purposes,
write to the following address:

U.S. Department of Education
Room 3522, Institutional Participation Division
600 Independence Ave. S.W.
Washington, D.C. 20202-5323

*1* A subsidized loan qualifies for a federal interest subsidy during
in-school status, grace periods, and authorized deferment periods. An
unsubsidized loan does not qualify for a federal interest subsidy
during any period.

Last Modified: 07/28/1998