Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Federal Family Education Loan Programs: Federal Stafford Loans, Federal PLUS, and Federal Consolidation Loan Programs - Additional Requirements and Responsibilities of Schools

AwardYear: 1996-1997
EnterChapterNo: 10
EnterChapterTitle: Federal Family Education Loan Programs: Federal Stafford Loans, Federal PLUS, and Federal Consolidation Loan Programs
SectionNumber: 11
SectionTitle: Additional Requirements and Responsibilities of Schools
PageNumbers: 123-131


This section covers additional requirements and responsibilities (not
covered in prior sections) that schools must meet. The requirements
for an equitable refund policy, for sending information to lenders, for
meeting recordkeeping and audit requirements, and for verification
of loan applications are covered here. Discussion of the prohibition
against employment of commissioned salespersons is also provided.
See Section 9 for school requirements for providing consumer
information to students and prospective students.

Please note that Chapter 3 also provides a discussion of refund
policies applicable to the student financial assistance programs in
general.

REFUND POLICY

[[Requirements for refund standards]]
Each school must establish a fair and equitable refund policy for
returning unused tuition, fees, and room and board charges to a
student who receives a loan but who does not enroll for the academic
period for which the loan was intended or who does not complete the
academic period for which a loan was made. (The policy, of course,
extends to a parent Federal PLUS borrower for such a student.) The
Higher Education Amendments of 1992 define a fair and equitable
refund policy as one that provides for a refund of at least the largest
amount provided under

- the requirements of applicable state law;

- the specific refund requirements established by the school’s
nationally recognized accrediting agency and approved by the
U.S. Department of Education; or

- the pro rata refund calculations as defined in the Higher Education
Amendments of 1992.

Pro rata refund requirements apply to all schools, regardless of a
school’s default rate. Pro rata refunds must be given to any first-time
student whose withdrawal date is on or before the 60% point in time
during the student’s period of enrollment.

[[Refund policy must be in writing]]
The school must clearly state its refund policy in writing and must
clearly state the procedure a student must follow to obtain a refund.
The school must provide a statement explaining the school’s refund
policy for any prospective student. This information must be
provided prior to the student’s acceptance for enrollment. The school
must also make its refund policy known to currently enrolled
students. If its refund policy changes, the school must inform all
students of the change.

[[Refund policy timeframes]]
In reference to the refund policy for withdrawn students (in which
the school makes a refund to the student via the lender), a refund
must be made within 60 days after the student’s official withdrawal
date. If a student drops out, the school must pay the refund within 60
days of the earliest date of the following:

- the date the student dropped out according to the school;

- the last day of the academic term in which the student withdrew;
or

- the last day of the period of enrollment for which the student has
been charged.

Concerning the refund policy for a student who has taken an
approved leave of absence and who has not returned to an institution,
refunds due must be paid to a student within 30 days of whichever of
the following dates is earlier: 1) the expiration of the leave of
absence or 2) the student’s date of notification that he or she will not
be returning to the institution after the leave of absence expires. (The
30-day time frame is stated in the December 1, 1995 FFEL Final
Rule.) If the student was on an unapproved leave of absence, the
refund must be made within 60 days of the student’s last recorded
date of class attendance.

ALL REFUNDS MUST BE SENT DIRECTLY TO THE LENDER--
THEY MUST NOT BE GIVEN TO THE STUDENT OR PARENT.

If a refund is due a student, the refund must first be credited to any
outstanding balance on a FFEL before funds to other SFA Programs
may be credited. When the school makes a refund to the lender, the
school must notify the student in writing and--if the borrower is the
student’s parent--the school must also notify the parent.

For more information about refunds and for refund calculation
procedures, see Chapter 3. An April 1995 "Dear Colleague" letter
(GEN-95-22) provides additional clarification concerning
institutional refunds to students; it includes a discussion of
reasonable administrative fees, accrediting agency refund policies,
the definition of state refund policies, and the legal status of certain
refund regulations.

EXCHANGE OF INFORMATION REQUIREMENTS

A school is required to inform the lender or the guaranty agency
within 30 days of discovery of any change in a Stafford borrower’s
permanent address. The school also must (on request) provide a
lender or guaranty agency with the borrower’s name, address, and if
possible, the employer and employer address. Within 60 days after
the exit interview, the school must provide the guaranty agency that
was listed in the borrower’s student aid records with updated
information about the borrower’s future permanent address, Social
Security Number, identity and address of expected employer, address
of next of kin, and the driver’s license number of the borrower.

To promote loan repayment, a school now may make an agreement
to provide the holders of delinquent loans made to current or former
students with information about the delinquent borrower’s location
or employment. The school may also try to contact the borrower and
counsel him or her to avoid default.

Lenders now must provide schools with the name and Social
Security Number of the student for whom a parent is borrowing a
PLUS Loan. If a lender has requested preclaims assistance from a
guaranty agency, the guaranty agency (rather than the lender) must
provide the school at which the borrower obtained a loan with the
borrower’s name, address, and Social Security Number. The
guaranty agency may charge the school a reasonable fee for the
service. The school may only use the information to remind the
borrower to repay his or her loan(s).

At the request of a school, a guaranty agency must provide, without
charge, information about students enrolled at the school if such
students are in default on FFELs. The guaranty agency must also
provide the school, on request, with the notice of sale, transfer, or
assignment of the loan to another holder, as well as the address and
telephone number of the new loan holder. This requirement must be
met prior to the beginning of the loan repayment period, but only
applies if a borrower is in the grace period or is in repayment.

RECORDKEEPING, AUDITS, AND REPORTS

A school must maintain the following student loan records:

- the name of the borrower and a copy of the loan application;

(if the PLUS borrower is a parent, the name of the student on
whose behalf the loan was made);

- the name and address of the lender;

- the amount of the loan and the period for which the loan was
intended;

- financial assistance that was available to the student and used in
determining estimated financial assistance for the loan period;

- the data used to construct an individual student’s budget or the
school’s itemized standard budget used in calculating the student’s
estimated cost of attendance (COA);

- the amount of the student’s tuition and fees for that period, the
date the student paid the tuition and fees, and the date the loan
check was received and delivered to the student;

- the amount and basis for calculation of any refund paid to or on
behalf of the student; and

- for subsidized Stafford Loans, the data used to determine the
student’s EFC.

For Stafford Loans, loan records must also contain the following
information:

- the date the school received each loan disbursement and the
amount of the disbursement;

- the date the loan check was endorsed by the school;

- the date(s) of transmittal of loan proceeds to the student;

- a record of the student’s job placement, if known; and

- documentation of the student’s Federal Pell Grant eligibility or
ineligibility for Stafford Loan borrowers.

Each school must establish a fiscal and administrative recordkeeping
system maintained by computer or microfilm. If a school is a lender
and the holder of a promissory note, the school must also retain the
original note, which must be returned to the borrower after the loan
is entirely repaid. Every two years, an independent certified public
accountant must audit the school; the audit must cover the period of
time since the previous audit. A school must agree to allow the U.S.
Department of Education or a guaranty agency to audit the school’s
records periodically to verify compliance with SFA regulations.

The Department has published regulations that require an annual
audit of a school’s entire financial condition and that require school
compliance with SFA Program requirements. If an institution meets
certain performance standards, it may submit these compliance
audits on a "reviewed or compiled basis" rather than having to
submit a full compliance audit. This exception is explained in the
Student Financial Assistance Programs Audit Guide, as referenced in
the Student Assistance General Provisions and FFEL Interim Final
Rule published April 29, 1994. In the corresponding Final Rule
published November 29, 1994, general provisions regarding the
submission of annual compliance audits were given.

Student Status Confirmation Reports (SSCRs) are a reflection of a
school’s FFEL borrower data. If these reports are not reconciled and
reflect inaccurate data, borrowers will not be converted to their grace
and repayment periods properly and the school’s cohort default rate
will likely be inaccurate. The school is responsible for completing an
SSCR.

[[NEW]]
Please note that a March 1996 "Dear President" memo (GEN-96-7)
from the Department’s National Student Loan Data System (NSLDS)
Division stated that the Department has incorporated the SSCR into
the NSLDS in order to centralize and fully automate the enrollment
verification process. In April 1996, all schools should have received
an electronic SSCR file from NSLDS via the Title IV Wide Area
Network (TIV WAN). This file contains enrollment information on
FFEL Program and Federal Direct Loan Program borrowers that the
Department believes are currently attending each school or who have
recently left each school.

Since NSLDS is taking over the SSCR process, guaranty agencies
will no longer send SSCRs to schools after fall 1996; the agencies
will receive enrollment verification directly from NSLDS. (The
effective date for this change will be announced in a "Dear
Colleague" letter scheduled to be disseminated during the fall of
1996.)

[[Loan records must be kept for three years]]
For Stafford and PLUS Loans, the school must keep all required
records of each student who graduates, withdraws, or fails to enroll
at least half time for three years following the last date of the period
for which the loan was intended. The school also must keep copies of
reports and other forms related to Stafford and PLUS Loans for three
years after completion. If the records are involved in a federal audit
procedure, they must be retained until the audit is completed. In the
event of a participating school’s closure, termination, suspension, or
change of ownership, that school or its successor must not only retain
these records but must allow access to the records by designated
federal officials for purposes of auditing and examination.

A school with a default rate above 20% is required to undergo a
biennial on-site guaranty agency review of its FFEL Programs unless
the school is operating under an approved default management plan,
or the school’s default rate is based on loans entering repayment
totalling less than $100,000 in a given year.

The Stafford Loan and PLUS programs are discussed in the Audit
Guide: Audits of Student Financial Assistance Programs. The audit
guide was revised to reflect changes made by the Higher Education
Amendments of 1992. The annual compliance audits described
above must be conducted by an independent auditor in accordance
with the U.S. General Accounting Office’s (GAO’s) Government
Accounting Standards. This publication sets forth general accounting
standards and the standards specifically for compliance audits.

[[Requirements subject to audit - see Audit Guide]]
These are some of the SFA Program requirements that are subject to
audit:

- The institution must determine student eligibility. If the PLUS
borrower is a parent, the financial aid administrator must also
determine whether the parent is eligible to borrow on behalf of an
eligible dependent student. Auditing of the determination of Pell
eligibility for undergraduate Stafford borrowers is also required.

- The institution must complete portions of the loan application
regarding student eligibility, the student’s estimated COA, the
student’s estimated financial assistance, and, if applicable, the
expected family contribution. The school also must meet the
requirements of section 682.603 of the regulations, which pertain
to loan certification.

- The institution must follow prescribed procedures in the FFEL
Program regulations (Sections 682.604 and 682.606) for handling
loan proceeds--which vary depending on whether the student does
or does not enroll and on whether the proceeds are payable to the
student only or jointly to the student and to the institution.

- When an institution becomes aware that: (1) a student with a
deferment no longer meets the conditions for an in-school
deferment, (2) a student who received a loan or for whom a PLUS
Loan was received failed to enroll at least half time for the period
for which the loan was intended or was otherwise ineligible for the
loan, or (3) a student’s permanent address has changed, such
information must immediately be reported to the lender or the
guaranty agency.

- The institution must establish adequate entrance and exit
counseling procedures.

- The institution’s refund policy must conform to applicable
standards.

- If applicable, the institution must establish procedures to identify
students eligible for a pro rata refund and must provide the refunds
as required.

The Higher Education Amendments of 1992 added a number of
requirements to the Program Participation Agreement. Two of those
requirements apply specifically to the FFEL Program: (1) A school
beginning participation in the FFEL Program after a change of
ownership or a change in the school’s status must develop a Default
Management Plan for approval by the Department and must maintain
the plan for two years after certification; (2) If a student is unable to
pay costs of attendance owed a school because of a delay in delivery
of FFEL proceeds and the delay is the fault of the school or is a
result of adhering to SFA Program requirements, the school may not
penalize the student.

Other FFEL-related provisions of the Program Participation
Agreement require a school to

- provide students with recent data on employment and graduation
statistics when advertising job-placement rates to recruit students;

- inform enrolled eligible borrowers of the availability of state grant
assistance from the state in which the school is located, and
provide a source of information for programs in the home state of
the eligible borrower; and

- certify the availability of a drug abuse prevention program for
officers, employees, and students of the school.

The agreement (as well as program regulations) also prohibits
schools from charging students fees for processing applications or
data required to determine eligibility for SFA Programs or for
processing FFEL Program deferment forms and prohibits the
certification of loans in excess of the student’s eligibility.

VERIFICATION REQUIREMENTS

Of the FFEL Programs, only subsidized Stafford Loans are covered
by the verification requirements of the General Provisions
regulations. PLUS Loans, unsubsidized Stafford Loans, and Stafford
Loans made for study at foreign schools are not covered by
verification requirements. For details about verifying applications for
federal student aid, see The Verification Guide, 1996-97.

The items to be verified on a student’s financial aid application used
in computing the EFC for subsidized Stafford Loans are:

- adjusted gross income (or income earned from work) for the base
year;

- U.S. income tax paid for the base year;

- number of family members in the household;

- number of family members attending postsecondary education
institutions as at least half-time students; and

- the following untaxed income and benefits for the base year (if
applicable):

- Social Security benefits,

- child support,

- untaxed payments to IRA and/or Keogh plans,

- foreign income exclusion,

- earned income credit,

- interest on tax-free bonds, and

- other untaxed income included on the U.S. income tax return
(excluding schedules).

PROHIBITED SCHOOL AND LENDER ACTIVITY

An eligible school may not employ or use commissioned
salespersons to promote the availability of loans. A commissioned
salesperson is any person who receives compensation that is related
to, or calculated on the basis of, student applications, enrollments, or
acceptances. "Promote the availability" means providing prospective
or enrolled students with applications, names of lenders, or other
information designed to encourage students to apply for a Stafford or
PLUS Loans. This term does not prohibit a commissioned
salesperson from providing prospective or enrolled students with
general financial aid information. However, the Higher Education
Amendments of 1992 prohibit any commission, bonus, or other
incentive payments based on an employee’s success in securing
enrollment, admissions, or the awarding of student aid. (This
prohibition does not apply to the recruitment of foreign students who
are not eligible for SFA funds.)

Similarly, guaranty agencies and lenders are prohibited by law from
offering inducements (such as points, premiums, or payments) to
schools or individuals as a means to market loans. Lenders and
guaranty agencies are also forbidden to mail unsolicited loan
application forms to a student, unless the student has previously
obtained a student loan from that lender or agency.

A school may not make payments to induce lenders to make loans to
students (or to the parents of students) at that school. Examples of
prohibited inducements are provided in Section 682.212(b) of the
FFEL Program regulations, and in Section 682.401(e)(2)(i) under
"Basic Program Agreement" in the FFEL Final Rule published June
28, 1994.

[[NEW]]
In addition, a March 1995 DCL (95-G-278) provided further
guidance on prohibited inducements by lenders as a result of special
arrangements with schools and on limitations on lending by schools.