Financial Aid Experts Seek Clarity on Loan Proration Rules

In recent weeks, the term “loan limits” has been used mainly to refer to the new, highly contested caps on how much graduate students can borrow. But the cap on master’s degree spending isn’t the only loan limit taking effect this fall.

Under the same set of regulations, the Education Department now requires colleges to base the amount of federal funding they give a student on the number of credit hours they’re enrolled in—no matter what degree the student pursues.

So if a college says undergraduates pursuing a bachelor of science must enroll in 24 credit hours over the course of a year to be considered full-time, then an eligible freshman must meet that standard to receive the full $5,500 they are entitled to. And if that same student changes pace midway through the year—say, by dropping one or more classes—the value of the loan would decrease proportionally. After that, the retracted loan dollars would be sent back to the government and the student would be responsible for paying any remaining balance.

While the policy may seem straightforward at first, financial aid administrators warn that it’s riddled with case-by-case complexities, which the Education Department has not addressed in any sort of comprehensive guidance.

Now, with the start of a new academic year approaching, financial aid advisers worry not only that ED’s lack of guidance could make them liable under future compliance checks, but also that they have little time to clear up confusion and prepare students for its effects, which could hinder their ability to pay for college.

“Many students have been reliant on loans even for part-time study, and now they’re going to learn that they don’t have access to those because alternatives in the private loan market aren’t available to everybody,” said Jill Desjean, director of policy analysis at the National Association of Student Financial Aid Administrators. “The worst-case scenario is someone says, ‘This isn’t enough for me. I can’t come back right now.’ And then they still have the debt that they took on for part of the degree without anything to show for it or the ability to pay it off.”

Desjean also noted that the lack of clarity could tarnish the trust built between students and their financial aid advisers.

“I don’t think students are going to trust very well if a financial aid adviser says, ’You dropped a class in October and now your spring loan is adjusted,’” she said.

When asked about the proration concerns NASFAA and others raised, department spokesperson Ellen Keast pointed to a 647-page final rule on federal loans, released in May. She added that staff members have answered “hundreds” of implementation questions through virtual office hours hosted twice a week and that ED “expects to publish additional guidance on the schedule of reductions soon.”

Desjean and other financial aid experts say that’s not enough.

“[Department staff] have been really good about having these office hours, but they’ve also said this is not official guidance and their answers have not been consistent in a lot of cases. Without written guidance, it’s really, really hard for schools to know they’re doing the right thing,” she said.

Timing Is Everything

A large part of what makes the new loan-proration policy complicated is that it is based on enrollment for the full academic year, not on a term-by-term basis like Pell Grant proration.

That’s not the Education Department’s fault; Congress set those terms in law. But the rule doesn’t take into account such questions as: Does the summer semester count toward the full-time credit, even if a college doesn’t require students to take classes then?

The answer could have major implications. If summer credits do count when setting the bar for full-time students, then the number of credits required for full loan access would go up. But if only the fall and spring terms matter, colleges could advise students to use the summer as a cushion, making up any classes they dropped earlier in the year in order to maintain full loan access.

The full-year period could also force financial aid officers to do a lot of predicting and adjusting when it comes to loan disbursement.

For example, if a student is enrolled full-time at the start of the fall semester, it would make sense to allow them full loan access. But if they drop one or more classes midway through—regardless of whether it is due to poor performance, a scheduling conflict or life circumstances—their loan amount would have to be adjusted.

The question then becomes, should the college retract the students’ funds immediately or wait until the spring semester to see if they compensate by taking on more than the full-time minimum?

Brad Barnett, an associate vice president and director of the financial aid office at James Madison University, said his college is choosing to wait before stripping aid. He cited university data showing that 93 percent of all undergraduates complete their full-time requirement of at least 24 credit hours over the summer, fall and spring terms. So even if a student doesn’t hit the mark in one term, there’s a high probability they will make it up elsewhere.

“What we will do is reach out to that student and tell them, ‘You have reduced your hours and your loans could be adjusted if you don’t pick up enough hours in the future,’” Barnett said. If a student doesn’t make up for the credits lost in the fall or drops more credits in the spring, then the college will have to retract the aid and bill them directly.

But the lack of concrete, comprehensive guidance from ED makes it hard for JMU to plan definitively, especially because this new policy requires getting not only financial aid staff up to speed but faculty and academic advisers, too, Barnett said.

Normally, instructors don’t have to consider financial aid when they advise a student to drop a class rather than take an F and risk tanking their GPA. But now they do, because dropping a class could mean losing money the student depends on to pay for rent, groceries or childcare.

“So we’ve really spent a lot of time getting out in front of people, explaining to them what we know and how it works today. But that comes with the qualifier that all of the rules aren’t out yet,” Barnett said. “We’re trying to set what the norm will be when we absolutely don’t know what the norm will be because we’re still waiting for all of the explanations.”

Community College Challenges

Like Barnett, Angela Johnson, vice president of enrollment management at Cuyahoga Community College, is opting to wait it out and give students a chance to make up their credits before taking away loan dollars. But she knows that about 35 percent of Cuyahoga students will at some point transfer to a university—so what happens then?

If a student is enrolled full-time at CCC in the fall but transfers in the spring, will the credits they take at the new institution count toward their loan eligibility? And whose job is it to determine that—the old college or the new one?

“Our goal has been proactive, and we’re certainly sending lots of messages to students as these regulations have changed,” Johnson said, adding that CCC staff are still waiting for clarification on a number of issues. Even then, “we might be trying to pre-emptively share information with students, but until they find themselves in that situation, some of the changes aren’t going to be real.”

The three financial aid experts Inside Higher Ed spoke with said they understand why the department has yet to release more comprehensive guidance: Congress gave the department just over a year to introduce, negotiate and finalize the regulations—leaving scant time to provide guidance on implementation. But that doesn’t mean the problem is gone.

“I don’t want it to appear like I’m casting stones at ED,” Barnett said. “They’re kind of building this ship as they’re sailing it, so to speak. And I know that a lot of the Department of Ed folks are working as hard as they can to try to figure this out. But it’s very complex. So we do need more guidance.”