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Trends and Issues

Shoptalk Online 402, April 24, 2007

Trends and Issues

Sticky situations: Increasing loan amounts

In this edition of Shoptalk Online, we offer another installment in our series on difficult policy issues that come up occasionally in the Title IV programs (see previous articles in editions 384, 390, and 394). This article will present several common scenarios involving a student's request for an increased loan amount after the school has already certified the student's original loan.

Things to remember
A student or parent borrower's request for an adjustment to his or her loan amount must always be documented in the student's file. Additionally, a school may not increase the loan amount by making an adjustment to a prior disbursement as this would cause interest to accrue from the earlier date of disbursement rather than the actual (later) date of disbursement.

A student changes grade level mid-year, and requests a corresponding increase in his or her Stafford loan in the spring semester. Can the school increase the original loan amount even if the loan has been partially or fully disbursed? Or would the additional amount have to be certified as a new loan?
According to the 2006-07 Federal Student Aid Handbook (FSA Handbook), page 3-77, the school has three options for increasing loan amounts:

The school may certify a new loan in addition to the original loan amount. In the case of a change in grade level, the new loan must be certified for the loan period in which the student qualifies for the higher loan limit.
If the original loan has not been fully disbursed, the school may cancel any pending disbursements and certify a new loan for the amount of the cancelled disbursement plus the additional loan amount for which the student is eligible.
The school may contact the lender to modify the original loan amount, to adjust to a pending disbursement of the original loan amount, or to schedule an additional disbursement.

If the school opts to certify a new single-semester loan, the school must request two equal disbursements of the new loan or additional amount unless exempt from the multiple disbursement requirement under the provisions in 34 CFR 682.604(c).

For example (using the third option above): a student transitions from grade level 2 to grade level 3 after the end of the fall semester, and before the spring semester loan amount is disbursed. The student contacts the school to request an increase in his or her loan amount. The school increases the original loan amount from $4,500 to $5,500 with a new spring loan amount of $3,250 (the original scheduled disbursement of $2,250 plus half of the additional loan amount). The school, which is not exempt from the multiple disbursement requirement, requests an initial spring disbursement of $2,750, then a second disbursement of $500 at the midpoint, for a total of $3,250 in the spring semester.

What if a student reduces his or her original loan amount on the award notification and later requests an increase?
As with the previous scenario, the school may opt to certify a new loan or may instead increase the original loan amount. However, unlike an increase due to a change in grade level, since the additional loan amount is for the entire original loan period, the additional amount may be released as a single disbursement.

For example: the school offers a student $5,500 in Stafford loan funds for the fall and spring semesters, but the student reduces his or her award amount to $4,500. Before the second disbursement arrives, the student requests the $1,000 he or she originally declined, so the school contacts the lender to request an adjustment to the original loan to $5,500. Since the student could have received half of that amount as part of the first disbursement that was made at the beginning of the fall term, and the fall term has now ended, the school may increase the second disbursement from $2,250 to $3,250 and release the additional loan amount with the second disbursement all at once. The same would apply if the student requested the additional loan amount after receiving the initial spring disbursement of $2,250 — the school could simply contact the lender to increase the entire loan amount and request an additional $1,000 disbursement separate from the originally scheduled fall and spring disbursements.

Can a school process a student's request for an increase in his or her loan amount after the end of the loan period?
The school may contact the lender to request an increase in the original loan amount after the end of the loan period as long as the loan was certified before the end of the loan period and the student successfully completed the period of enrollment for which the loan was intended (see the Common Manual, subsection 8.7.E, for more information about late delivery timeframes for FFELP funds).

What if a school certifies a fall semester loan for a student who expects to graduate in the fall semester, then the student later realizes he or she will not be able to graduate in the fall, and requests loan funds for the spring semester?
Again, the school may choose to certify a new loan for spring only, with two separate, equal disbursements. Alternatively, the school may contact the lender to request a change in the loan period from the fall semester only to fall and spring, and request a disbursement of the additional loan funds as a single disbursement for the spring semester, since the additional loan amount is for the entire original loan period.

More information
Information presented in this article was drawn from multiple sources, including the FSA Handbook, pages 3-75 through 3-77; ED's DLB-02-23 (accessible on IFAP at www.ifap.ed.gov); and material and examples were taken from ED's 2000 Direct Loan Annual Conference Policy Update (a summary from session 21 of the conference, which notes that the guidance provided also applies to the FFELP).

For questions about increasing loan amounts, call TG customer assistance at (800) 845-6267, or send an message to cust.assist@tgslc.org.

Question of the week

Q.: A school has a summer term with two mini-sessions, and considers the summer to be a single standard term with a single payment period. A student is enrolled in both mini-sessions at three hours each (for a total of six hours; thus, at least half-time). The student's school has certified a Stafford loan for the student for the full summer term. May the school deliver the first disbursement (or the only disbursement, if the school is exempt from the multiple disbursement requirement) of the student's funds at the beginning of the first mini-session? And if so, what happens if the student does not attend the second summer mini-session?

Note: This question was asked during the "Taking the Heat Out of Summer" session at the TG Annual Conference on April 4. The following answer, taken from the Common Manual and confirmed with the ED regional office in Dallas, provides clarification on this issue.

A.: Yes, the school may deliver the FFELP loan funds of a student who is enrolled at least half-time for the summer term at the beginning of the first mini-session in which the student is enrolled. Since the student is enrolled in the first mini-session of the term, the school may deliver the student's funds up to 10 days before the first day of the first mini-session (unless the student is subject to delayed delivery — see below).

The Common Manual subsection 8.7.F states the following:

"Payment Rules for Modular Programs and Mini-Sessions
A student who is enrolled in a modular program (see subsection 6.3.C) is not eligible to receive FFELP loan funds until the first module that he or she will actually attend. For example, the earliest that a school may deliver loan funds to a student who begins enrollment in the second of three five-week modules that comprise a payment period is 10 days prior to the first day of the second module (or 30 days after the date the second module begins if the borrower is subject to delayed delivery).
[2006-07 Federal Student Aid Handbook, Volume 4, Chapter 2, p. 4-30]

A borrower subject to delayed delivery (see subsection 8.7.D) who is enrolled in a summer or winter mini-session that is less than 30 days in length is not eligible to receive Stafford loan funds until the student completes the first 30 days of his or her program of study. This may result in the school delivering the funds during a subsequent mini-session or during the next full term.
[§668.164(f)(3)]"

If the school delivers the student's loan based on at least half-time enrollment at the beginning of the first mini-session of the summer term, and the student subsequently does not attend the second mini-session, the student is considered to have dropped from at least half time to below half time. There is no effect on the student's loan and the school is not responsible for recovering the delivered loan funds.

If there are any undelivered loan funds, the school can not deliver those funds because the student is now enrolled less than half-time — unless the school is able to offer those funds in a late delivery. For more information on the conditions for late delivery, see the Common Manual subsection 8.7.E.

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.