Trends and Issues

Sticky situations: complicated parent PLUS loan denials

Shoptalk Online continues its series on difficult policy issues that come up every so often in the Title IV programs. We feature another of these sticky situations — complicated parent PLUS loan denials — in this installment of the series.

A PLUS approval for one parent and a denial for another parent
Today, a common scenario is for multiple parents to apply for PLUS loan funds for the same dependent student. This is permitted as long as the total PLUS loan amount borrowed by one or more parents does not exceed the student's cost of attendance minus estimated financial assistance (EFA) (per the 2006-07 Federal Student Aid Handbook, page 3-78). But what happens when one parent is approved and another parent is denied? Can the school award the student additional unsubsidized Stafford loan funds?

According to the 2006-07 Federal Student Aid Handbook, page 3-73, "Only one parent must apply for a PLUS and be denied based on adverse credit. However, if both parents apply independently and one is approved and the other denied, the dependent student is not eligible for the increased loan amounts."

A PLUS denial and a PLUS approval from different lenders for the same parent
You're processing aid for the students on your caseload, and you come across a PLUS denial for one of your dependent student's parents. The student has requested additional unsubsidized Stafford loan funds. You're just about to certify the new loan when an approval for the same parent — but from a different lender — comes across your desk. What do you do? Which takes precedence — the approval or denial?

Regarding this scenario, ED states the following in the 2004-05 Federal Student Aid Handbook, page 3-62: "A school can refuse to certify a dependent student for additional Stafford based on a PLUS loan denial if the parent could have gotten a loan from an FFEL lender, but 'shopped around' to find a lender who would refuse to make a loan."

Although ED does not expressly state that a school should refuse to certify the additional unsubsidized Stafford loan for the dependent student, it appears to be endorsing this option, since the parent in this scenario is not unable to obtain a PLUS loan.

A previously denied parent is subsequently approved for a PLUS loan
When you awarded one of your dependent students a PLUS loan in the fall, the student's parent applied for the loan and was denied. You subsequently awarded the student an additional unsubsidized Stafford loan. Now it's spring and the parent has decided to apply for a PLUS loan again — and this time the parent is approved. What do you do now?

According to the Common Manual, subsection 6.15.D, "If either parent subsequently is determined to be eligible for a PLUS loan after the school certifies the student for additional unsubsidized Stafford loan funds, the school must return to the lender any additional unsubsidized Stafford loan funds received by the school but not yet delivered to the student for that loan period. The school must request the cancellation of any future disbursements of the additional unsubsidized Stafford loan funds. The school is not responsible for recovering and returning Stafford loan funds for which the student was previously determined eligible and which have been released to the student. However, those Stafford funds must be included in the EFA used in determining eligibility for the PLUS loan."

A previously approved parent is subsequently denied for additional PLUS loan funds
A previously-approved parent applies for additional PLUS loan funds and is denied. Can you award the dependent student an additional unsubsidized Stafford loan?

Also according to the Common Manual, subsection 6.15.D, "If a parent of a dependent student is initially determined to be eligible for a PLUS loan but subsequently is denied additional PLUS loan funds for the same loan period, the school may choose to certify additional unsubsidized Stafford loan funding for the student, not to exceed the maximum additional unsubsidized loan amounts. Any eligible PLUS loan proceeds delivered or scheduled for future delivery during the loan period must be included in the EFA used in determining eligibility for the additional unsubsidized Stafford loan. The school need not recover or return PLUS loan funds for which the parent was previously determined eligible and that have been released to the parent or student before the parent was determined ineligible for additional funding."

So, the school can award additional unsubsidized Stafford loan funds as long as the student's total aid — including the previously approved PLUS loan funds and the newly awarded unsubsidized Stafford loan funds — do not exceed the student's cost of attendance. Also, note that the school can continue to receive and deliver future disbursements of previously approved PLUS loan funds for the loan period.

More information
For questions about handling parent PLUS loan denials and student eligibility for additional unsubsidized Stafford loan funds, call TG customer assistance at (800) 845-6267, or send an e-mail message to cust.assist@tgslc.org.

To read about another sticky situation in administering the Title IV programs, see Shoptalk Online Edition 384.

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Question of the week

Q.: Must a school apply the delayed delivery requirement to a student who is a first-time borrower but a second-year student — in this case, the student has already earned 30 credit hours?

A.: The delayed disbursement requirement applies to "a first-year undergraduate student who is a first-time borrower (that is, an undergraduate student who is enrolled in the first year of a program of study and who has not previously received a Stafford [FFELP or Direct] or SLS loan) until the student completes the first 30 days of his or her program of study." (Common Manual subsection 8.7.D)

Since this student has already completed the first 30 days of his or her program of study, the delayed disbursement requirement does not apply.

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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