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 schools 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 schools 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 students 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 schools refund policy for any prospective student. This information must be provided prior to the students 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 students 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 students 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 students 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 students 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 borrowers permanent address. The school also must (on request) provide a lender or guaranty agency with the borrowers 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 borrowers student aid records with updated information about the borrowers future permanent address, Social Security Number, identity and address of expected employer, address of next of kin, and the drivers 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 borrowers 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 borrowers 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 students budget or the schools itemized standard budget used in calculating the students estimated cost of attendance (COA); - the amount of the students 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 students 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 students job placement, if known; and - documentation of the students 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 schools records periodically to verify compliance with SFA regulations. The Department has published regulations that require an annual audit of a schools 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 schools 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 schools 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 Departments 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 schools 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 schools 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 Offices (GAOs) 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 students estimated COA, the students 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 students 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 institutions 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 schools 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 students 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 students 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 employees 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. |