Trends and Issues

Sticky situations: Determining Stafford loan eligibility for transfer students

As a highly-skilled financial aid professional, you know that you've got a handle on almost all of the Title IV rules that you have to put into practice on a day-to-day basis. But you also know that just about every week brings one of those head-scratching, brain-tickling, sticky situations that requires you to sit back and say, "Now, how do I handle this one?" This new series in Shoptalk Online will shed some light on some of these conundrums and give you a handy reference the next time these same situations arise.

To begin the series, let's examine the sticky situation of having to determine Stafford loan eligibility for a student who transfers from one school (School A) to another (School B). To determine the student's eligible loan amount, School B needs to know what amount of funds the student received at School A and how that amount affects the student's Stafford loan eligibility at his or her new school.

School B may think that in certifying a new loan for the student, its loan period cannot overlap the loan period that School A certified. This is not the case. Loan periods can overlap — and often do. This can occur at the same school — when more than one Stafford loan is certified for the same loan period — and at different schools — when a student is receiving more than one Stafford loan to attend more than one school concurrently on at least a half-time basis. There is no need for School B to request that School A amend its loan period to eliminate the overlap. The main thing that School B must keep in mind, according to the Federal Student Aid Handbook (FSA Handbook), is whether its and School A's academic years overlap — and, if they do, how to deal with it.

FSA Handbook Guidance
The 2006-07 FSA Handbook states on page 3-75: "The annual loan limits are based on an academic year. If a student transfers from one school to another school or changes to a different program at the same school, and there is an overlap of academic years, this overlap may affect the amount that the student is eligible to borrow at the new school or for the new program."

In other words, since a student can receive only one Stafford loan limit per academic year, if the academic year at School A overlaps the academic year at School B, School B has to make sure that the student is not awarded over his or her annual loan limit for either the academic year at School A or the academic year at School B.

The following, derived from an example provided on page 21 of ED's publication "Annual Loan Limits: Minimum Standards for Federal Family Education Loans in Guaranty Agency Policies, and for Federal Direct Student Loans" — which was issued as an attachment to a March 16, 1994, Dear Guaranty Agency Director letter available at www.nchelp.org/elibrary/DearPartnerLetters/GADirector/1994/DCL_031694.pdf — illustrates this scenario:

Example
Bonita, a second-year dependent student, attends School A, which certifies a Stafford loan for $3,500 for the loan period 3/23/2006 to 10/18/2006. Bonita withdraws from School A on 8/20/2006 and transfers to School B; but before she transfers, Bonita receives $2,325 in Stafford loan funds from School A. Bonita applies for a $3,500 Stafford loan at School B, for the fall/spring loan period.

School B determines that its academic year begins before School A's academic year ends (there is an overlap). School B determines that it cannot simply certify a $3,500 loan for the fall/spring loan period with two disbursements, one scheduled at the beginning of each term. This is because per federal regulations, a loan's disbursement amounts must be substantially equal (thus, the fall/spring disbursements on a $3,500 loan would be $1,750 each). Since Bonita received $2,325 in Stafford funds before withdrawing from School A, if Bonita receives $1,750 from School B at the beginning of the fall, she will receive $4,075 in Stafford loan funds before the end of School A's academic year, which exceeds Bonita's $3,500 Stafford annual loan limit by $575.

School B determines that it has a few options:

1. It can certify a $3,500 loan for fall/spring but delay the fall disbursement of $1,750 until after the end of School A's academic year.
2. It can certify two separate loan periods: one for fall only and one for spring only (keeping in mind that for a standard term-based program, the minimum loan period is a term). If School B chooses this option and is eligible to schedule a single disbursement for a single-term loan period, School B can certify only $1,175 ($3,500 - $2,325) in Stafford loan funds for Bonita for the fall loan period. For the spring loan period, School B must take into account Bonita's Stafford annual loan limit for its own academic year, and can certify only $2,325 ($3,500 - $1,175) for spring. If School B chooses this option and is not exempt from the multiple disbursement requirement, it could certify two separate loan periods of $1,750 each, with two disbursements per loan period, making sure that the second fall disbursement occurs after the end of school A's academic year.
3. It can certify a $3,500 loan for fall/spring but schedule four disbursements of $875 (two in the fall, making sure that the second fall disbursement occurs after the end of School A's academic year, and two in the spring).

Under each of these options, Bonita is awarded no more than $3,500 in Stafford loan funds for either the academic year at School A or the academic year at School B.

The preceding example should clarify what to do in this sticky situation, and in the future, you'll feel confident about how to determine Stafford loan eligibility for a transfer student whose previous school's academic year overlaps with yours.

More information
For more information on academic years and the frequency of Stafford annual loan limits, contact TG customer assistance at (800) 845-6267, or send an e-mail message to cust.assist@tgslc.org.

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Question of the week

Q: Is a student who has a defaulted student loan(s) that was filed within a prior bankruptcy but not discharged, eligible to receive additional federal student aid?

A. No, as with any student with a defaulted student loan, the student is required to resolve the default in order to reestablish Title IV aid eligibility. Note: the student's ineligibility for federal student aid includes ineligibility for a PLUS loan(s) sought by a parent borrower.

The Common Manual subsection 5.2.E describes the various means by which a defaulted borrower may resolve a defaulted loan, including making satisfactory repayment arrangements with the lender for the purposes of reestablishing Title IV aid eligibility.

Do you have a question?
If you have a question that needs an answer, feel free to Ask TG™. Ask TG is TG's online query tool for borrowers, schools, and lenders. It includes a database of frequently asked questions about financial aid, student loan processing, and TG's products and services. To submit a question to Ask TG, visit tgslc.custhelp.com.

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