NASFAA has received several questions regarding an institution's right to choose which Title IV Federal Student Aid (FSA) programs it will participate in. We've also been asked whether a school may withhold aid from a student. The following Q&A attempts to capsulate and answer many of those questions.
1. As a school, may we choose which FSA programs to participate in and to offer our students?
A school wishing to participate in any FSA program must be certified by the Department of Education as an eligible institution by submitting an electronic Application for Approval to Participate in Federal Student Financial Aid Programs (E-App).Once designated as eligible, the school must sign a Program Participation Agreement. On the E-app, the school may elect to participate in any or all of the following programs:
- Federal Pell Grant
- Federal Supplemental Educational Opportunity Grant (FSEOG)
- Federal Work-Study (FWS)
- Federal Perkins Loan (Perkins)
- Federal Direct Loan (DL)
- Federal Family Education Loan (FFEL)
Some FSA programs require prerequisite participation in other programs. These programs include:
- Academic Competitiveness Grant (ACG) - requires participation in the Federal Pell Grant Program.
- National Science & Mathematics Access to Retain Talent (SMART) Grant - requires participation in the Federal Pell Grant Program.
- PLUS Loan Program - within both DL and FFEL, schools with graduate or professional programs must participate in the Stafford Loan Program in order to provide PLUS loans. This is a change from previous practice due to the addition of the Graduate/Professional PLUS loan, which requires that students be given the option of borrowing Stafford loans prior to any PLUS loans.
Note that a school that participates in the PLUS program must make PLUS loans available to both parent and student borrowers (assuming the school provides both undergraduate and graduate programs). The PLUS Loan Program is one program with two types of eligible borrower and a school may not deny loans to one particular type of borrower.
A school may, however, participate only in the Stafford Loan Program but not the PLUS Loan Program.
2. How does an institution add FSA programs to its current list of programs?
An institution that wishes to participate in an FSA program not currently listed in its Program Participation Agreement must update its E-App and wait for approval from the Department of Education. Since all schools that participate in the Pell Grant program and offer an eligible educational program must participate in the ACG and National SMART Grant programs, no new Program Participation Agreement will be necessary.
3. Is a student eligible for an in-school deferment and/or Hope or Lifetime Learning Tax Credit if he or she is attending a school that does not participate in any FSA programs?
Yes, a student may be eligible for in-school deferment and the Hope or Lifetime Learning Tax Credits if the student is attending an institution that has received the eligible institution designation from the Department. An eligible institution is an institution that meets all requirements of a Title IV school regardless of whether it actively participates in any of the programs.
Institutions who have applied for this designation through the Department's E-App process at www.eligcert.ed.gov must obtain approval before their students receive in-school deferments or utilize the Hope or Lifetime Learning Tax Credits.
4. Even though we participate in the Pell Grant, Stafford, and PLUS loan programs, our general policy is to package students with only Pell Grant funds. Is that permissible?
Yes. However, if your institution participates in the Stafford loan program, you must make the student aware that they qualify for Stafford loans even if you don't package them with it. If a student has Stafford loan eligibility, requests a Stafford loan, and your school participates in the Stafford loan program, you may not reduce or refuse to certify a loan without justifiable cause. This requires using professional judgment on a case-by-case basis and must be thoroughly documented in the student's file.
If an institution participates in the Federal Pell Grant Program, it must award the appropriate Pell Grant amounts, based on published Pell payment schedules, to students regardless of any other aid, scholarships, resources, or assistance.
Additionally, federal law also requires aid administrators to find out whether their student is eligible for any other programs in which the school participates that would reduce the need for the student to borrow. For example, loans cannot be certified prior to a determination on the student's Pell Grant eligibility, unsubsidized Stafford Loans cannot be certified prior to a subsidized Stafford Loan determination.
5. Are we allowed to have a policy whereby we only allow students to use Pell Grant funds and PLUS loans, purposefully excluding Stafford loans from the package to keep students from going into debt?
Not exactly. While aid administrators are allowed to certify and disburse parent PLUS funds without determining the student's Pell Grant eligibility (in cases where the school does not require a FAFSA for parent PLUS loans), an aid administrator cannot categorically deny any student Stafford Loan funds if the student has applied and is otherwise eligible for the funds.
In regards to an independent student, or a dependent student whose parents are ineligible for a PLUS loan, an aid administrator may not deny or reduce the maximum Stafford loan amount for which the student is eligible without justifiable cause using professional judgment.
Schools that wish to package PLUS Loans before Stafford Loans are free to do so, but may not deny students their entitled Stafford Loan funds should they be eligible. Aid administrators may also want to consider that because of the favorable repayment options of a Stafford Loan, it may be less burdensome on the family to package Stafford Loans before PLUS Loans.
6. One of our students is receiving a scholarship, which when combined with her Pell Grant would exceed her cost of attendance. Should we lower the amount of Pell Grant funds she would otherwise receive?
No, the Department issues Pell payment schedules that base the award solely on the student's cost of attendance, EFC, and enrollment status, without regard to any other type of resource or outside aid. It is possible that a student could receive a scholarship that the school does not control, which when combined with the student's Pell Grant exceeds the student's total cost of attendance. While no other FSA funds could be applied, the student should receive her full Pell Grant amount.
7. Is it permissible for us to limit a student's loan amount to cover just tuition and fees, not allowing the student to borrower up to the full cost of attendance?
No. Only on a case-by-case basis can an aid administrator use professional judgment authority to certify or originate a loan for an amount less than the borrower's maximum eligibility without the student's permission. A school cannot engage in a practice of certifying Stafford loans only in the amount needed to cover the school charges, or to limit unsubsidized Stafford borrowing by independent students. When an aid administrator makes the decision to reduce the amount of a loan, it must be thoroughly documented and explained in the student's file.
By Justin Draeger
NASFAA Assistant Director for Communications
Posted November 17, 2006 on www.NASFAA.org, the Web Site of the
National Association of Student Financial Aid Administrators (NASFAA).
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