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The school’s primary responsibility in the loan application process is to certify that the student and/or parent is eligible for the loan amounts requested.
School Checklist for Loan Certification
For all Federal Stafford and PLUS loan applications, the school must:
For a Federal Stafford Loan, the school must also:
- determine the student’s Federal Pell Grant eligibility (Volume 1 - FSA Handbook: Student Eligibility);
- for an unsubsidized Federal Stafford Loan, first determine the student’s eligibility for a subsidized Stafford Loan;
- prorate (Volume 3 - FSA Handbook: Calculating Awards and Packaging) loan for programs of study that are shorter than an academic year and for programs in which the remaining period of study is less than an academic year in length; and
- ensure that the loan disbursement dates meet the cash management and disbursement (Volume 4 - FSA Handbook: Processing Aid and Managing FSA Funds) requirements for Federal Stafford Loans.
If the school is eligible to use the multi-year feature of the Master Promissory Note (MPN), certification must be provided for each new loan under the MPN.
Schools are no longer required to provide need analysis information to the lender. However, you must document the student’s cost of attendance, Expected Family Contribution (EFC) and estimated financial assistance in the student’s file. This information must be made available to the lender, the guarantor or the U.S. Department of Education (ED) upon request.
The school may not certify a loan for more than:
- the amount the borrower requests;
- the student’s unmet financial need (subsidized Federal Stafford Loan);
- the student’s cost of attendance; or
- the borrower’s maximum borrowing limit (annual and/or aggregate loan amounts).
Lender Checklist for Origination and Certification
Once the school verifies the student’s eligibility when certifying the loan, the lender usually relies on the information from the borrower and the school. The lender may need to verify the loan information independently if they have reason to believe the information reported is incorrect. The lender also has the following responsibilities in the certification of the loan.
- Determining whether the lender’s records conflict with the borrower or school information and resolving any conflicts.
- Ensuring that the borrower does not currently owe on a defaulted federal education loan held by the lender for which a claim has been filed.
- Determining whether the borrower meets the lender’s criteria. Each lender is responsible for developing and applying its own lending criteria, which may include restrictions on items such as area of service, types of loans, minimum loan amounts, or credit standards. A lender may not refuse to make a loan because of the applicant’s race, national origin, religion, sex, marital status, age, disability, or solely on the basis of prior bankruptcy.
- For a PLUS loan, determining that the borrower, or endorser, if applicable, does not have adverse credit or retaining a record of the circumstances under which the borrower’s adverse credit is considered immaterial with regard to making the loan.
- Providing the borrower and endorser, if applicable, with a copy of the executed promissory note.
- Approving or denying the loan.
- Providing the borrower with initial disclosure information at or before the first disbursement of the loan.
- Notifying the borrower if the loan is denied. When denying a loan request, the lender must provide the borrower with a notice (such as a Notice of Adverse Action) explaining the reason for the denial.
- Disbursing the loan in accordance with federal regulations and the original disbursement schedule provide by the school, or any modifications the school makes to the schedule.
- Reporting and paying the federal origination fee to ED and the guarantee fee to the guarantor, and collecting the fees from the borrower, as applicable
- Reporting and paying the 0.5% lender origination fee to ED.
Loan Fees
When a loan is certified, the lender is required to pay two fees to ED, a federal origination fee and a lender fee.
The origination fee may be charged to the Stafford loan borrower and should not exceed 1%; but 3% must be charged to the PLUS loan borrower. Regardless of whether the lender passes the fee on to the borrower, the fee must be paid to ED. In addition, lenders are required to pay a fee of 1% of the principal amount of each FFELP loan made. This fee cannot be passed to the borrower.
Additional Information
The Common Manual outlines the lender’s role in obtaining guarantees and disbursing proceeds for Stafford and PLUS loans.
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