150% Direct Loan Limit for first time borrowers after July 1,2013

admin ., Federal Student Aid Programs

Posted Date: May 16, 2013

Author: Jeff Baker, Director, Policy Liaison and Implementation, Federal Student Aid

Subject: 150% Direct Subsidized Loan Limit: Electronic Announcement #1 – Interim Final Regulations Published

NOTE: This Electronic Announcement is the first in a series of numbered Electronic Announcements with subjects of “150% Direct Subsidized Loan Limit”.

On July 6, 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21) (Public Law 112-141) was enacted. MAP-21 added a new provision to the Direct Loan statutory requirements (see HEA section 455(q)) that limits a first-time borrower’s eligibility for Direct Subsidized Loans to a period not to exceed 150 percent of the length of the borrower’s educational program. Under certain conditions, the provision also causes first-time borrowers who have exceeded the 150 percent limit to lose the interest subsidy on their Direct Subsidized Loans.

Note: Only first-time borrowers on or after July 1, 2013 are subject to the new provision. Generally, a first-time borrower is one who did not have an outstanding balance of principal or interest on a Direct Loan or on a FFEL Program Loan on July 1, 2013.

Interim Final Regulations

On May 16, 2013, we published interim final regulations in the Federal Registerimplementing this provision of MAP-21 (See 78 FR 28953). While interim final regulations have immediate legal effect, the public is invited to submit comments on the interim final regulations until July 1, 2013, according to the instructions provided in the May 16, 2013Federal Register.

Training and Additional Guidance:

In addition to the preliminary guidance provided in this letter, we will be holding a series of webinars on the new requirements. The first set of webinars, the subject of which will be the guidance provided in Dear Colleague Letter GEN-13-13, will occur on June 4 and June 6. The second set of webinars, the subject of which will be on the requirements and implementation of the 150 percent limit, will occur on June 11, June 12, and June 13. We urge institutions to monitor our IFAP website (ifap.ed.gov) for official announcements of the webinars.

We also expect to be issuing additional Dear Colleague Letters, Electronic Announcements, and Question & Answer documents over the next several months.

The Department’s Responsibilities

To implement the interim final regulations, we will be making significant changes to our Common Origination and Disbursement (COD) System, National Student Loan Data System (NSLDS), and Central Processing System (CPS). These changes are described in more detail in the preamble to the interim final regulations under the heading titled “Additional Reporting Requirements and Modifications to Departmental Systems”. We will be responsible for the following:

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  • Calculating a first-time borrower’s maximum eligibility period;
  • Calculating a first-time borrower’s subsidized usage periods;
  • Determining whether a first-time borrower has any remaining eligibility period, and if so, how much; and
  • Determining whether a first-time borrower loses interest subsidy on his or her Direct Subsidized Loans as a result of the 150 percent limit.

While we are committed to reducing burden on institutions by assuming the responsibility for tracking, computing, and determining borrowers’ Direct Subsidized Loan eligibility and loss of interest subsidy, institutions will be required to report additional information necessary for us to make such determinations.

Institutional Responsibilities – Immediately

The majority of school reporting responsibilities will be for the 2014-2015 Direct Loan processing year and forward. However, there are two things that schools must begin doing immediately:

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  • Correctly report Direct Loan academic year and loan period dates to COD under the guidance provided in the recently published Dear Colleague Letter GEN-13-13. Incorrectly reporting this information could result in borrowers improperly losing eligibility for Direct Subsidized Loans.
  • Providing entrance counseling to their students, as described in the interim final regulations. See below for more information on the implementation of the new entrance counseling requirements.

Institutional Responsibilities – 2014-2015 Direct Loan Processing Year and Forward

To comply with the new statutory and regulatory requirements, starting with the 2014-2015 Direct Loan processing year, institutions will be required to report additional program-identifying information and borrower enrollment information to us. The additional reporting requirements are described in the in the interim final regulations under the heading titled “Additional Reporting Requirements and Modifications to Departmental Systems”.

Entrance Counseling

The 150 percent limit represents a significant change to the terms and conditions of a student’s Direct Loans. It is therefore critical that schools communicate information about these important changes to borrowers as part of entrance counseling. Without this information, first-time borrowers could be impacted by the 150 percent limit without having prior knowledge of the requirements, how eligibility is calculated, and without understanding the significant financial implications for them if they reach or exceed the 150 percent limit. Therefore, the interim final regulations require schools to provide robust entrance counseling to first-time borrowers before making the first disbursement of a Direct Subsidized or Unsubsidized Loan to such borrowers on or after July 1, 2013.

In order to comply with the interim final regulations, institutions must ensure that first-time borrowers begin receiving counseling on the 150 percent limit on July 1, 2013. We encourage schools to provide, to borrowers who complete entrance counseling prior to July 1, 2013, the information in the attached documents.

Departmental Entrance Counseling: Beginning June 28, 2013, entrance counseling materials on StudentLoans.gov will, as a temporary measure, include a link to information regarding the 150 percent limit in the attached documents. In October 2013, we expect to integrate those materials into the full Direct Loan entrance counseling features of StudentLoans.gov.

Institutionally Provided Entrance Counseling: Institutions that provide their own entrance counseling (or use a third party) instead of relying on the Department’s entrance counseling on the StudentLoans.gov website, must ensure that all of their first-time borrowers (those who do not have a balance on a Direct or FFEL loan on July 1, 2013) receive the information required by the regulations. To do so, institutions may use information in the attached documents.

We thank institutions in advance for their assistance in ensuring compliance with the provisions of MAP-21 and the May 16, 2013 interim final regulations, and we remind institutions to monitor IFAP for information on upcoming webinars.