ED Releases Formal Guidance on Schedule of Reductions
By Maria Carrasco, NASFAA Staff Reporter
The Department of Education (ED) released long-awaited formal guidance this week on how financial aid administrators should reduce annual loan limits for less-than-full-time enrollment using the Schedule of Reductions (SOR).
The 24-question FAQ addresses the provision in the final rule implementing loan limit reductions for less-than-full-time borrowers under the One Big Beautiful Bill Act (OBBBA).
Financial aid professionals have pushed for formal written guidance since ED published the final rule in May, particularly given its importance to institutional compliance.
ED clarified that the FAQ “is intended only to provide clarity to the public regarding the new regulations and the interaction with existing requirements under the law or agency policies.” Outside of existing statutory and regulatory requirements, the document’s contents “do not have the force and effect of law and are not meant to bind the public.”
The guidance covers foundational questions: what the SOR is, which borrowers are subject to the reduction, which loan types are affected, and more. However, it includes only one step-by-step example of an SOR calculation, leaving other scenarios unaddressed.
The FAQ does confirm several responses ED has given verbally during virtual office hours, including what the order of operations is for determining the reduced annual Graduate PLUS loan limit for an eligible borrower enrolled less than full-time under the interim exception.
ED wrote that for a less-than-full-time Graduate PLUS borrower, an institution would first reduce the annual loan limits, if applicable, for the Direct Unsubsidized Loan before reducing the Graduate PLUS Loans.
Specifically, the order of operation would be:
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An institution would first reduce Direct Unsubsidized Loans using the Schedule of Reductions based on less-than-full-time enrollment.
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The institution then applies all the reduced and other financial assistance to the cost of attendance for the borrower’s actual enrollment status for the academic year to determine the borrower’s initial annual Graduate PLUS loan limit, and then applies that limit to the Schedule of Reductions to determine the reduced annual Graduate PLUS loan limit to use for loan disbursement.
ED wrote that, for Direct Subsidized and Unsubsidized Loans, the institution reduces a borrower's annual loan amount if the borrower is less than full-time, after considering the borrower’s eligibility for the annual loan limit based on the loan type, grade level, dependency status, and loan period.
If the borrower requests a loan amount that is less than the reduced annual loan limit, the institution must provide the lower amount. And if a borrower requested more than the reduced annual loan limit, the institution would provide no more than that limit, ED noted. While not specifying Graduate PLUS loans in this response, it seems to say that as long as a borrower requests an amount equal to or less than the amount they are eligible for after the SOR calculation, they may receive that amount. This is consistent with information provided verbally during office hours.
Another key question answered in the FAQ document regards how institutions can avoid “double-prorating” a loan when existing loan limit proration rules and the new proration regulations for less-than-full-time students apply.
ED had previously given different answers to this question during different office hour sessions, but the FAQ document confirms what ED has been saying most recently, which clarifies that the existing annual loan limit proration regulations, under 34 CFR 685.203 (a) through (c), require institutions to prorate the Direct Loan annual loan limit for undergraduate programs with remaining periods of study that are shorter than an academic year.
When a financial aid professional is applying these loan proration requirements, they do not further reduce that annual limit for less-than-full-time enrollment because the student’s enrollment hours are already included in the proration calculation.
While not new information, ED also confirmed that schools are not required to disburse loan funds in substantially equal installments when accounting for less-than-full-time enrollment. When adjusting under SOR, an institution may continue, but is not required to disburse the reduced loan amount in equal disbursements.
Notably, ED addressed a question about how loan limits are reduced for less-than-full-time borrowers in subscription-based programs, which has been a source of confusion given the information previously presented. ED wrote that for the first and second subscription periods of a program, if the institution determines that the student is enrolled in an eligible program on a less than full-time basis, the institution reduces the annual loan limit based on the student’s enrollment status for the subscription-based program and the number of credit hours calculated by the institution for the student to complete before receiving subsequent disbursements for that program of study.
For the third subscription period and subsequent subscription periods, the institution must apply the subscription-based coursework completion requirement before determining that the student is eligible to receive the disbursement for that subscription period. The institution cannot establish disbursement eligibility for those later subscription periods before the student satisfies the applicable coursework completion requirements. This seems to agree with the regulation text in 34 CFR 685.203(m)(1)(ii)(B), which says "For the third subscription period and for each subsequent subscription period, the institution would treat the student as enrolled full-time in a non-term program."
In the section titled “Operational Questions,” ED provides information on how the Common Origination and Disbursement (COD) system works with these new loan adjustments. Specifically, question 24 addresses how COD now collects a new disbursement-level Enrollment Intensity field for the Direct Loan program that is required for all new disbursements.
ED noted that these questions will be updated “periodically,” and new and/or updated questions will be marked as “new” in the document. The FAQ, along with other resources, can be found on ED’s OBBBA information page.
Publication Date: 8/7/2026
Daniel D | 8/12/2026 11:33:59 AM
There is no mention if a student completely withdraws in fall but then takes spring classes. do we treat it as a one term loan or do we look at Fall/Spring and student gets little or no aid? How do we treat mid-year transfers?
the Q/A about F's is less than helpful. So typical ED...
Jessica K | 8/7/2026 11:5:53 AM
Be sure to document everything based on the school's understanding of ED's guidance at the time of awarding/disbursement.
Patrick R | 8/7/2026 9:57:11 AM
Agreed. I hope they offer leniency if our next compliance audit reveals we 'didn't follow the regs' clarified after the (f)act of awarding aid for the 2627 award year prior to receiving clear guidance.
Joshua M | 8/7/2026 9:44:13 AM
Could have used this months ago..
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