College financial aid administrators can reduce student loan limits on a case-by-case basis, but are more likely to do so with private student loans than federal student loans.
The statutory authority to reduce federal student loan limits or refuse to certify a loan is pretty broad. But guidance published by the U.S. Department of Education has narrowed this authority enough that college financial aid administrators hesitate to use this authority except in the most extreme circumstances or when the student is ineligible for federal student loans.
Members of Congress have responded by proposing legislation that will allow college financial aid administrators to reduce loan limits on a categorical basis, such as for specific academic majors and degree programs. Below, we look at each of these points in greater detail.
Regulatory Authority To Reduce Student Loan Limits
Section 479A of the Higher Education Act of 1965 does provide college financial aid administrators with the authority to refuse to certify a federal student loan or to adjust the loan amount. There are three key requirements for this statutory authority:
- 1The refusal to certify a loan and reductions in loan amounts must be made on a case-by-case basis.
- 2Students must be provided with a reason for this action and it must be documented in the student’s file.
- 3The action must not discriminate against borrowers based on certain protected statuses, which include race, national origin, religion, sex, marital status, age and disability.
When Financial Aid Administrators Can And Can't Reduce Student Loan Limits
College financial aid administrators are required to reduce student loan limits when the student is ineligible for student loans, such as:
- The student is enrolled on less than a half-time basis
- The student’s total student financial aid, plus federal and private student loans, exceeds the college’s cost of attendance
- The student is not maintaining satisfactory academic progress (SAP) toward a degree
But the U.S. Department of Education has also published guidance that limits when reductions may be applied. The Dear Colleague Letter that was published by the U.S. Department of Education on March 22, 2011, discusses several ways in which an administrator may not limit student or parent borrowing, such as:
- To just tuition and other institutional charges
- On a categorical basis, such as limits that apply to all first-year students, students who live at home, or students in specific majors
- To just certain academic terms, such as the fall and spring semesters
- Across-the-board to everyone, such as a $2,000 reduction in loan limits for all students.
The U.S. Department of Education says that limited borrowing in any of the above ways would conflict with the requirement to consider reductions in loan limits on a case-by-case basis. But many college financial aid administrators feel that, in practice, this guidance ties their hands with regard to reducing loan limits.
These administrators would like to use loan limit reductions to reduce over-borrowing by eligible students. For example, they’d like to be able to reduce loan limits for part-time students and for students in low-paying academic majors whose ability to repay debt will be more limited.
But since reductions of this kind are difficult to apply without running against the above guidance, many administrators simply refuse to certify a loan altogether when they can document that the student doesn't intend to repay their student loans. This is part of their fiduciary duty to the federal government in the administration of federal student aid funds.
Proposals For Changes In Federal Loan Limits
There have been several proposals to change the annual and aggregate loan limits on federal student loans as part of Reauthorization of the Higher Education Act of 1965. These loan limits were last changed in 2008.
There is bipartisan support for changing the loan limits. The proposals include the following:
- Repeal the Federal Grad PLUS loan, replacing it with higher Federal Stafford loan limits.
- Add specific dollar annual and aggregate loan limits for the Federal Parent PLUS loan (e.g., an annual limit of $12,500 per student and an aggregate limit of $56,250 per student).
- Increase undergraduate federal student loan limits by $2,000 per year.
- Increase graduate federal student loan limits by $8,000 per year.
- Allow college financial aid administrators to reduce or prorate loan limits on a program-by-program basis depending on average starting salaries, enrollment status, degree level and year of the program.
What About Private Student Loan Limits?
Nearly all private student loans are "school-certified." This means that the lender asks the college financial aid administrator to confirm that the student is (or will be) enrolled at the college and that the student’s combined financial aid and loans will not exceed the college’s published cost of attendance.
If the cost of attendance will be exceeded, the college financial aid administrator can reduce the loan amount to eliminate the over-award. College financial aid administrators can also certify a private student loan for a lower amount for other reasons, such as the student’s enrollment status, degree level and academic major, but rarely do so.
When it comes to federal student loans, financial aid administrators are limited to when they can reduce a student's loan limits. It's true that these limits are meant to protect students against discrimination. But they also make it more difficult for administrators to help students avoid over-borrowing, especially those who are enrolled in lower-paying degree paths.
Over time, changes in regulation could give administrators the power to reduce student loan limits based on a particular degree's expected financial outcomes. But, in the meantime, it's still ultimately up to the students themselves to know the average incomes of the professions they hope to join and to avoid taking out more debt than they can comfortably repay on that income.
Mark Kantrowitz is an expert on student financial aid, scholarships, 529 plans, and student loans. He has been quoted in more than 10,000 newspaper and magazine articles about college admissions and financial aid. Mark has written for the New York Times, Wall Street Journal, Washington Post, Reuters, USA Today, MarketWatch, Money Magazine, Forbes, Newsweek, and Time. You can find his work on Student Aid Policy here.
Mark is the author of five bestselling books about scholarships and financial aid and holds seven patents. Mark serves on the editorial board of the Journal of Student Financial Aid, the editorial advisory board of Bottom Line/Personal, and is a member of the board of trustees of the Center for Excellence in Education. He previously served as a member of the board of directors of the National Scholarship Providers Association. Mark has two Bachelor’s degrees in mathematics and philosophy from the Massachusetts Institute of Technology (MIT) and a Master’s degree in computer science from Carnegie Mellon University (CMU).