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Professional Judgment
Refusal to Certify Loan

Section 479A(c) of the Higher Education Act permits the financial aid administrator to refuse to certify a loan or to certify the loan for a lower amount. (The authority to refuse to certify a loan is also provided in sections 428H(a)(2)(A) and 454(a)(1)(C) of the Higher Education Act, in the sections relating to FFELP and FDSLP.) The financial aid administrator must document his or her decision and notify the borrower of the reason for the decision in writing.

The law specifically prohibits discrimination on the basis of race, national origin, religion, sex, marital status, age, or disability status. The regulations (34 CFR 682.603(e)) add prohibitions on discriminating on the basis of color, income, or the selection of a particular lender or guaranty agency.

The latter prevents the school from restricting students to using the school's preferred lender list.

The regulations indicate that the school must refuse to certify a loan that will result in total borrowing exceeding the cost of attendance less estimated financial aid for the period (34 CFR 682.603(d)(2)). This includes not just PLUS loans, but also Stafford loans or any combination of loans. The school must also refuse to certify a loan that will exceed relevant annual or cumulative loan limits.

Page 4-16 of the 2008-09 Federal Student Aid Handbook indicates that financial aid administrators may not use this authority to restrict students to borrowing only the amount needed to cover school charges or to limit unsubsidized Stafford borrowing by independent students.

Other situations in which a school can refuse to certify a loan or certify the loan for a lower amount include:

  • Conflicting information. (Technically, the school can certify an unsubsidized loan so long as the proceeds are not disbursed until the conflicting information is resolved.)
  • Student failed to submit required documentation by the verification deadline.
  • Student dies, graduates, withdraws or is expelled. (For example, if the student will be graduating in the fall semester, the school should certify the loan only for that semester.)
  • Student has expressed an intention to default on their loans.

Schools can also refuse to certify a dependent student for the additional Stafford limits for students whose parents were denied a PLUS loan if they believe the parent shopped around for a lender who would refuse to issue them a PLUS loan.

Financial aid administrators would like to use this authority as a tool to prevent default. For example, some financial aid administrators would like to prevent overborrowing by students, by instituting lower limits for associate's degree candidates or specific majors, or refusing to certify loans that will be used for purposes unrelated, even indirectly, to the student's education. (The goal is to limit borrowing to the amount a student with the given degree will be able to afford to repay based on their education. A good rule of thumb is that total student borrowing should not exceed the average starting salary for students in that degree and major.) However, many schools are hesitant to implement such limits, given the guidance provided in the Federal Student Aid Handbook.

As a general rule, most financial aid administrators are reluctant to invoke this authority except in situations where the Department has indicated that the authority should be invoked (i.e., borrowing exceeds COA-aid or conflicting information). Instead, some financial aid administrators rely on bureaucratic delays in the certification process to discourage overborrowing.

Incidentally, excessive borrowing is not a good predictor of default. So certifying a loan for a lower amount will not necessarily prevent default. The most likely predictors of default are attitudes toward repaying debt and failure to graduate college.


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