On March 22, 2011, ED published clarifying guidance regarding a school's participation in the Federal Direct Loan Program (FDLP). Dear Colleague Letter (DCL) GEN-11-07 addresses the following topics:
Additional details are provided below.
Participation in one or more components of the FDLP
Direct Subsidized Loans and Direct Unsubsidized Loans
ED considers Direct Subsidized Loans and Direct Unsubsidized Loans to be components of a single loan program. As such, a school may not elect to offer only subsidized loans to its students. However, loan counseling may emphasize the difference in the loans and the importance of responsible borrowing.
The Application to Participate in the Title IV Programs will be modified to clarify this requirement. If a school's Eligibility and Certification Approval Report (ECAR) now indicates the school is participating in only one of these components, the ECAR will be updated to indicate the school is participating in both.
If a school has offered only Direct Subsidized Loans to students, ED will not require the school to review 2010-2011 award year financial aid packages to offer Direct Unsubsidized Loans to students who qualify for additional funds. However, ED clarifies that "if such a student contacts the school and requests Direct Unsubsidized Loan funds that the student is otherwise eligible to borrow for a loan period in which the student is still enrolled at least half time, the school must originate the Direct Unsubsidized Loan, unless the school exercises its authority to refuse to originate a loan on a case-by-case basis..."
Direct PLUS Loans
The Direct PLUS Loan Program consists of loans to parents of dependent undergraduate students and loans to graduate and professional students. Therefore, if a school elects to participate in the Direct PLUS Loan Program, the school must make loans available to all eligible parents and students.
If a school provides graduate or professional degree programs and chooses to participate in the Direct PLUS Loan Program, the school must also offer Direct Subsidized Loans and Direct Unsubsidized Loans. Federal regulations require such a school to determine a graduate or professional student's eligibility for those loans before originating a Direct PLUS Loan. The school must notify the student of his or her maximum Direct Subsidized and Unsubsidized Loan eligibility, and describe the terms and conditions of the loans for which the borrower is eligible. The student may choose to borrow all or some of the loans.
ED also reiterates that if a school does not participate in the Direct PLUS Loan Program, a dependent undergraduate student whose parent is unable to obtain a Direct PLUS Loan may not receive an additional Direct Unsubsidized Loan amount for that reason.
Limiting student or parent borrowing
School's authority to refuse to originate a loan or to reduce the amount of a loan on a case-by-case basis
A school is authorized to refuse to originate a Direct Loan, or to reduce the amount of a borrower's eligibility for a Direct Loan, on an individual basis. Any such decision must be communicated in writing to the student or parent, and documentation supporting the decision must be retained in the student's file.
Limitation on an across-the-board basis or by category of borrower
A school is not authorized to limit Direct Loan borrowing by students or parents on a comprehensive or categorical basis. For instance, a school is not permitted to limit Direct Loan borrowing to amounts needed to cover only institutional costs, or to categories of students such as first-year or transfer students, or students who live at home or pursue certain majors or programs of study. A school also is not permitted to decline to offer Direct Loans during certain enrollment periods such as a summer term.
In addition, a school may not have a policy that restricts groups of students - or all students - to borrowing only the "base" combined Direct Subsidized and Unsubsidized Loan limits and not the "additional" unsubsidized loan amount for which a student qualifies.
Denial of Direct PLUS Loans based on adverse credit
Some parents and graduate students previously denied Federal PLUS Loans by FFELP lenders may be approved for Direct PLUS Loans
In some cases, schools that recently began participating in the FDLP have found that parents who were unable to obtain a FFELP PLUS Loan are being approved for a Direct PLUS Loan, even though the financial circumstances of the parent have remained largely unchanged. Some schools have expressed concern that this has prevented a dependent student of such a parent from obtaining additional unsubsidized loan funds normally available only to an independent student.
ED explains that the FFELP and FDLP share the same definition of "adverse credit history," but FFELP lenders were permitted in regulations to establish stricter creditworthiness standards. This explains the difference in a parent's eligibility to obtain a PLUS loan in the two programs.
Awarding additional Direct Unsubsidized Loan funds to dependent students
School's authority to award additional Direct Unsubsidized Loan funds to a dependent undergraduate student, based on a determination that the student's parent is unable to borrow a Direct PLUS Loan due to adverse credit history or other exceptional circumstances
FDLP regulations permit a school to award additional Direct Unsubsidized Loan funds to a dependent undergraduate student (up to the amounts normally available only to an independent student) if the financial aid administrator determines a student's parent is unable to borrow a Direct PLUS Loan due to exceptional circumstances. The school must make such a determination on a case-by-case basis and retain supporting documentation. Examples of exceptional circumstances are provided in the DCL.
If a school determines that a parent is unable to borrow a Direct PLUS Loan for this reason, the school may award additional Direct Unsubsidized Loan funds to a dependent undergraduate student without requiring the parent to apply for a Direct PLUS Loan. A school may also make a determination that a parent is unable to borrow a Direct PLUS Loan for this reason even if the parent has already applied for a Direct PLUS loan and received approval based on the results of a credit check.
Student FAFSA required for parent Direct PLUS Loans
The only new requirement included in the DCL is located in this section. Beginning with parent Direct PLUS Loans made for the upcoming 2011-2012 award year, the dependent student beneficiary must have filed a valid FAFSA before a parent may obtain a Direct PLUS Loan. ED originally notified schools of this new requirement in a September 7, 2010 e-announcement posted on the Information for Financial Aid Professionals (IFAP) website. More details regarding this change are provided in the DCL.
If you have questions about DCL GEN-11-07, contact TG customer assistance at (800) 845-6267 or send an email message to email@example.com.
On October 29, 2010, ED published final regulations on 14 program integrity issues. In Dear Colleague Letter GEN-11-08 published on March 25, 2011, ED provides additional guidance on the program integrity provision regarding ability-to-benefit (ATB) testing.
The new regulations, effective July 1, 2011, require that students who are non-native speakers of English and who are enrolled in a program taught in their native language, pass an independently administered examination that has been approved by ED under §668.148(a)(1).
Currently, there is no Spanish language test approved by ED for ATB determination, and due to the time constraints related to test publisher submission and ED approval of the new ATB tests, it is not expected that there will be an approved Spanish-language test by July 1, 2011, the effective date of the new regulations. Therefore, ED will not enforce the new regulatory provision in §668.148(a)(1) until a Spanish-language test is approved. Schools may continue to use tests that would satisfy the standard in the current regulation to assess the ability to benefit of Spanish-speaking students. As Spanish-language tests are submitted for approval, ED will take action to review them and render approval decisions within a reasonable period of time after the July 1, 2011, effective date.
If you have questions about ATB testing procedures or related issues, contact TG customer assistance at (800) 845-6267, or send an email message to firstname.lastname@example.org.