Trends and Issues

Sticky situations: Know your limits

Have you ever been bewildered while trying to decipher a student's loan history information, or felt frustrated in awarding Stafford loans for your students who can't seem to decide if they want to be undergraduate or graduate students? This article — the latest installment in our series on difficult policy situations that come up occasionally in the Title IV programs — will address some common issues that arise with aggregate loan limits. For previous "Sticky Situations" articles, see Shoptalk Online editions 384, 390, 394, 402, and 409, and 418.

Back to basics Before we examine some of the most common Stafford aggregate loan limit situations, keep in mind that the maximum amounts a student may borrow under the Federal Stafford Loan Program, including all subsidized and unsubsidized amounts, are as follows:

• $23,000 for a dependent undergraduate student,
• $46,000 for an independent undergraduate student, or a dependent undergraduate student whose parent does not qualify for PLUS loans. No more than $23,000 of this aggregate amount may be in subsidized Stafford loan funds.
• $138,500 for a graduate or professional student, including loans borrowed as an undergraduate. No more than $65,500 of this aggregate amount may be in subsidized Stafford loan funds.

For a Consolidation loan, the underlying amounts of Stafford loan principal that were paid off by the Consolidation loan are counted towards the aggregate Stafford Loan limits. The National Student Loan Data System (NSLDS) now provides an estimate of the subsidized, unsubsidized, and unallocated amounts included in a Consolidation Loan (see NSLDS Newsletter 11 at www.ifap.ed.gov/nsldsmaterials/NSLDSNewsletter11.html for help in evaluating unallocated amounts).

Remember, too, that you should not include accrued interest and other charges that have been added to the original loan amounts. Use the aggregate outstanding principal balance (Agg OPB) amount shown in NSLDS to determine a student's remaining loan eligibility.

Finally, keep in mind that although the Higher Education Reconciliation Act (HERA) of 2005 provided for increases in Stafford annual loan limits for various grade levels, it did not authorize corresponding increases in aggregate limits.

A student transfers from a graduate program into an undergraduate program. How does the school evaluate the student's remaining aggregate loan eligibility?

Page 3-96 of the 2007-08 Federal Student Aid Handbook (FSA Handbook) states:

"In some cases, a student may qualify for higher loan limits, but then lose the eligibility for the higher limits. This situation could occur because … a student with a graduate degree entered an undergraduate degree program. In these cases, you only count the loan amounts that the student would have received under his/her current eligibility as an undergraduate or dependent student against the applicable undergraduate aggregate loan limit."

Later, on page 3-101, a chart provides an example of a student who enrolled in "a first undergraduate program and a graduate program ... [and] The student has now enrolled in a second undergraduate program." The text that follows says that "Only the loans received for the first undergraduate program are counted toward the student's undergraduate aggregate loan limit."

Clearly, the school should count only the amounts borrowed as an undergraduate toward the undergraduate aggregate limit. If a student borrowed Stafford loan amounts as a graduate/professional student, they are not counted toward the undergraduate limit.

A student received increased unsubsidized Stafford loans funds as a health profession student. She has now transferred into a non-health profession program. Do the loans she borrowed as a health professions student count toward her aggregate limit?

To replace loan funds that otherwise would have been available under the HEAL (Health Education Assistance Loan) Program, which was phased out beginning in 1995, certain health profession students may borrow increased unsubsidized Stafford loan amounts.

The combined subsidized/unsubsidized aggregate loan limit for graduate and professional health profession students who are eligible to receive the increased unsubsidized amounts is $189,125, versus $138,500 for other graduate/professional students. Not more than $65,500 of this amount may be in subsidized loans.

Regarding how the increased loan amounts impact a student's aggregate loan limit in the event the student transfers to a non-health profession program, the 2007-08 FSA Handbook says on page 3-103 that:

"If a student receives the additional Stafford loan amounts on the basis of study in a health profession program, but then leaves that program and enters a program in a different field, the student is no longer eligible for the increased Stafford loan limits. However, the additional loan amounts received on the basis of health professions study are not counted toward the normal aggregate Stafford loan limit for that student."

So the student's prior loans borrowed as a health profession student should be excluded from her aggregate limit, similar to the example above of a graduate student who transfers to an undergraduate program.

An undergraduate student in her final semester decides to enroll in some graduate coursework. Is she allowed to borrow Stafford loans as a graduate student?

The student is still subject to undergraduate annual and aggregate limits. The FSA Handbook states on page 3-90:

"A student in an undergraduate program is not eligible for graduate loan limits based on taking graduate coursework as a part of the undergraduate program."

But the converse is not true:

"In contrast, a graduate student who is taking some undergraduate coursework is eligible for the graduate loan limits if the student is enrolled at least half-time in courses (either graduate or undergraduate) that can be applied to the graduate program requirements. However, the student must already be admitted into the graduate program - a student with a bachelor's degree who is taking preparatory work for graduate school (or whose full admission to the graduate program is contingent upon completion of certain undergraduate courses) is not eligible for graduate loan limits."

A dependent undergraduate student borrows additional unsubsidized Stafford loan funds because his or her parent is ineligible to borrow a PLUS loan. How does this affect the student's aggregate loan limit?

The amount the student borrows due to the PLUS denial(s) is excluded for purposes of the student's dependent Stafford aggregate limit. The FSA Handbook provides an example of this situation on page 3-96:

"[I]f a dependent student was treated as an independent student for loan limit purposes and received additional unsubsidized Stafford amounts for the first 3 years at your school because a parent was denied a PLUS loan for each of those years, but a parent was eligible to borrow PLUS for the student's fourth year, the student would be eligible for the following Stafford amounts:

1st year (independent student loan limit) = $7,500
2nd year (independent student loan limit) = $8,500
3rd year (independent student loan limit) = $10,500
4th year (dependent student loan limit) = $5,500

The additional unsubsidized Stafford Loan amount of $13,000 that the student received in the first three years of the undergraduate program is not counted against the $23,000 dependent undergraduate aggregate loan limit. Excluding the additional unsubsidized amount, the student received only $13,500 for the first three years. The student may therefore receive the entire 4th year maximum loan amount, even though the student's total outstanding Stafford Loan amount is $32,000."

TG's role
When a school certifies a loan that appears to put a borrower over his or her Stafford aggregate loan limit, the TG guarantee system has an edit that will reject the loan certification. In this situation, TG's loan guarantee operations (LGO) team retrieves the student's NSLDS data and reviews the complete loan history. After the required verification, LGO will either guarantee the loan in full, guarantee it at a reduced amount, or deny the guarantee. If the loan is guaranteed at other than the full amount requested, LGO will notify the school.

Note: If TG is not the guarantor of all of the borrower's prior loans, those loans will not be on the TG system, and TG's edits will not flag the system for an aggregate review.

More information
If you have a question about Stafford aggregate loan limits, call TG customer assistance at (800) 845-6267, or send an message to cust.assist@tgslc.org.

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Question of the week

Q.: Could a Grad PLUS loan borrower consolidate his or her Grad PLUS loans while in school?

A.: The short answer is yes. The long answer follows.

First, let's establish that a borrower must be in the grace period or have entered repayment on each loan chosen for consolidation. This is per the federal regulations in 34 CFR 682.201(c)(1)(i)(A)(1) and (2).

One of the amendments precipitated by the Higher Education Reconciliation Act (HERA) of 2005 signed last year was the elimination of "in-school consolidation." However, this was specific to Stafford loans. What the HERA actually did was to eliminate in the Higher Education Act the provision that allowed a borrower to request to enter repayment early on his or her Stafford loan(s) [Section 428(b)(7)(A)]. Thus, since a Stafford loan borrower can no longer opt to enter repayment early, the borrower must wait until his or her grace period begins (i.e., after the borrower is no longer "in school") to consolidate that loan(s).

This is not the case for the Grad PLUS loan borrower, since such a borrower has no grace period and enters repayment upon final disbursement of the loan (i.e., while the borrower is still in school). Since the borrower is in repayment (albeit in an in-school deferred status) while in school, the borrower can consolidate his or her Grad PLUS loan(s) while in school. This is per the final rules published in the November 1, 2006, Federal Register.

However, note that it is not always in the borrower's best interest to consolidate his or her Grad PLUS loans, particularly while the borrower is in school and may need to borrow additional loans in the future. The borrower may be better off waiting until completion of his or her degree in order to consider consolidation. Then, if the borrower chooses to consolidate, the borrower would have the ability to consolidate all of his or her eligible Grad PLUS and Stafford loans at that time.

Encourage your borrowers who are contemplating consolidation to call TG's customer assistance team at (800) 845-6267 to review specific information about their loans and determine whether consolidation is a good option for them.

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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