AwardYear: 1998-1999 EnterChapterNo: 11 EnterChapterTitle: William D. Ford Federal Direct Loan Program SectionNumber: 5 SectionTitle: School Responsibilities PageNumbers: 71-86 Institutional responsibilities under the Direct Loan Program largely, but not entirely, focus on the items basic to "booking" a loan (the loan origination record, promissory note, and disbursement record). Responsibilities and procedures associated with these items vary depending on the school's origination level. Origination levels, their corresponding functions, and procedures for requesting and maintaining Direct Loan funds are covered in the Department's Direct Loan School Guide. For information applicable to all schools on requesting and maintaining SFA funds, see Chapter 3. To help schools understand other requirements and procedures necessary to administer the Direct Loan Program, the Department provides Direct Loan publications in addition to the Direct Loan School Guide and conducts training with accompanying written materials. Information includes the Reconciliation Guide for Direct Loans, user's guides on the Department's Electronic Data Exchange (EDE) and EDExpress software, and trainee guides for the Department's Direct Loan and EDExpress workshops. This section will not repeat information covered in these materials but will focus on schools' other Direct Loan responsibilities. For a broad discussion of institutional responsibilities, see Chapter 3. DETERMINING THE LOAN PERIOD ------------------------------- The period of enrollment or loan period is the period for which the Direct Loan is intended. This period must coincide with one or more of a school's academic terms (such as academic year, semester, trimester, or quarter) for schools that use terms. Loan periods for schools that do not use terms are generally based on the length of the program or academic year. The cost of attendance, estimated financial assistance, and Expected Family Contribution must relate to the loan period. The minimum period for which a school may originate a loan is - at a credit-hour school using standard terms (semesters, trimesters, or quarters), a single academic term, or - at a clock-hour school or a credit-hour school using nonstandard terms or no terms, the shortest of the following three periods: - the academic year, as defined by the school in accordance with the General Provisions regulations, - the length of the student's program at the school, or - the remaining portion of the student's program that exceeds the school's academic year. The maximum loan period is generally the school's academic year but cannot exceed a 12-month period. [[Summer sessions overlapping award year]] If a summer school session overlaps two award years (that is, begins before July 1 and ends on or after July 1), the financial aid administrator can decide to which of the two award years the loan period will apply. This is the only case in which a financial aid administrator has such discretion. If a student in a summer school session that overlaps two award years is also receiving campus-based aid (a Federal Perkins Loan, a Federal Supplemental Educational Opportunity Grant [FSEOG], or Federal Work-Study [FWS]), both the Direct Loan and the campus-based aid must apply to the same award year. If a student's Direct Loan is originated after an enrollment period begins, the loan may retroactively cover the entire enrollment period, as long as that period does not exceed the maximum loan period allowed. For example, suppose a school's academic term begins on September 6 and runs through December 20. A student admitted to a program contingent on the school's receiving an acceptable academic transcript from a previous school begins the academic term on September 6. The school receives the transcript on October 15. The school may originate the loan for the full enrollment period (September 6 through December 20). If the student plans on enrolling for the subsequent term and that term is part of the same academic year as the first term, the school may originate the loan to cover the period from September 6 to the end of the second term. [[Charging tuition and fees at the start of a program longer than an academic year]] If a school charges a student tuition and fees at the beginning of a program that is longer than an academic year, the cost of attendance for the Direct Loan Program should include the full amount of the tuition and fees charged in the enrollment period in which the loan is made. For example, suppose a school with a 1,350-clock hour program defines its academic year as 900 clock hours and charges each student the full $3,000 in tuition and fees at the beginning of the program. An enrolling student may receive two Direct Loans during the program (provided all eligibility criteria are met) because the program exceeds one academic year. The tuition and fees component of the cost of attendance for the first Direct Loan is $3,000; there is no tuition and fees component in the cost of attendance for the second Direct Loan. Also, the second loan must be prorated because the remainder of the program (450 hours) is shorter than the school's academic year. See page 11-19 for more information on loan proration. DISBURSEMENTS ---------------- Before disbursement, schools must take certain steps: - The school or the Department's Loan Origination Center, depending on the school's origination level, must have a completed, signed promissory note from the borrower. - The school must confirm the borrower's eligibility (see Section 1). - If a student has received financial aid from another school, the financial aid administrator must request a financial aid transcript from the other school(s) or use National Student Loan Data System (NSLDS) information to ensure the student is not in default on an SFA loan and does not owe a repayment on an SFA grant. Schools also must determine the borrower's outstanding Direct Loan/FFEL balance to determine remaining eligibility. See Chapter 2, Section 2 for information on financial aid transcripts and NSLDS. [[Notification of funds student AND parent will receive]] - The cash management regulations state that schools must notify students not only of the amount of SFA funds the students can expect to receive but also the amount that parents can expect to receive. The notice must also specify how and when students' and parents' expected SFA funds will be disbursed. If those funds include Direct Loans, schools must delineate in the notice which Direct Loan funds are subsidized and which are unsubsidized. For additional school notification requirements, see page 11-77. [[Cash management regulations]] For a detailed discussion of cash management regulations, including the general definition of "payment period," see Chapter 3. The discussion here covers disbursement provisions affecting Direct Loans. [[Definition of disbursement]] SFA funds are considered disbursed when a school credits a student's account or pays a student or parent directly, either from SFA funds received from the Department or from school funds labeled as SFA funds before any SFA funds are received. Note that there are certain limitations on how early disbursements can be made that may affect whether a payment is considered a disbursement (see page 11-75). Number of Disbursements If a school's program uses standard academic terms (semester, trimester, or quarter) and measures progress in credit hours, the term is the payment period, and disbursements are made as follows: [[Standard term credit-hour]] - If there is only one term, a school disburses a Direct Loan in equal amounts at the beginning of the term and at the term's calendar midpoint. If the loan period equals one payment period and more than half the payment period has elapsed, schools may include in the disbursement the loan proceeds for the entire payment period. - If there is more than one term, schools must disburse funds over all terms of the loan period. For example, if a loan period includes all three quarters of an academic year, the loan must be disbursed in three equal payments, one per quarter. Previously, quarter-based schools could have disbursed loan funds for all three quarters in two disbursements. If one or more payment periods have elapsed before a school makes a disbursement, the school may include in the disbursement the loan proceeds for the completed payment periods. [[Clock hours/nonstandard terms/nonterm]] If a school's program measures progress in clock hours or in credit hours without using standard terms, disbursements are made as follows: - A school disburses a Direct Loan in equal amounts. The school makes the first disbursement at the beginning of the loan period. The second disbursement may not be made, however, until the later of - the calendar midpoint between the first and last scheduled days of class of the loan period, or - the date (determined by the school) that the student has completed half the academic coursework (for credit hour schools) or half the clock hours (for clock hour schools) in the loan period. - If the calendar midpoint of the loan period has passed and the borrower has completed one-half the credit hours or clock hours in the loan period before the school makes any disbursement, the school may disburse the loan in a single installment. Timing of Disbursements As discussed earlier, generally an SFA disbursement occurs when a school credits a student's account or pays a student or parent directly, either from SFA funds received from the Department or from school funds labeled as SFA funds before any SFA funds are received. Schools may make the first Direct Loan disbursement 10 days before the first day of classes, except for first-time, first-year undergraduates. In these cases, schools must wait until 30 days after the first day of the student's scheduled classes. A standard-term credit hour school can make a second or subsequent disbursement 10 days before the first day of classes of any subsequent term. Second disbursements for clock hour or nonstandard-term credit hour schools are described on the previous page. If a school pays the student (either directly or by crediting the student's account) with institutional funds more than 10 days before the first day of classes, the disbursement is considered to have occurred on the 10th day before the first day of classes. Similarly, if a school pays a first-time, first-year, undergraduate borrower with institutional funds earlier than 30 days after classes start, the disbursement is considered to have occurred on the 30th day after classes start. If a school makes a credit and indicates on the account that the credit is a Direct Loan, the school has made a Direct Loan disbursement, as long as the timing of the credit is within the relevant periods discussed above. If a school makes a memo entry for billing purposes and does not identify it as a Direct Loan credit, the school did not make a Direct Loan disbursement. [[Delay in attendance]] If a student delays attending school, the school may consider the student to have maintained eligibility for the loan from the first day of the enrollment period. [[Student temporarily drops below half-time status]] If a student temporarily ceases to be enrolled at least half time before any Direct Loan funds are disbursed, the school may still make a first disbursement (and subsequent disbursement) if the student resumes enrollment at least half time. The school must review the student's cost of attendance, revising it as necessary to ensure the student still qualifies for the entire Direct Loan amount even though the cost of attendance may be lower. The school must document this review in the student's file. [[Student no longer enrolled]] If a student becomes ineligible for Direct Loans because he or she is no longer enrolled as at least a half time student for the loan period, the school may still make a disbursement to that student. Certain conditions must be met: - The student incurred costs for the period in which the student was enrolled and was eligible. - If the student was a first-year, first-time borrower, he or she must have completed the first 30 days of the program of study. - The school must have a SAR or ISIR with an official EFC for the student. - The school must have created a complete, electronic loan origination record while the student was enrolled and eligible. The school must make the late disbursement no later than 90 days after the date the student becomes ineligible. Note: The November 29, 1996 cash management regulations provide that schools are no longer required to document exceptional circumstances in the student's file for any late disbursements made from 61 to 90 days after the student stopped attending. For a discussion of late disbursements, see Chapter 3. The school cannot make a late second or subsequent Direct Subsidized or Direct Unsubsidized Loan disbursement unless the student has graduated or successfully completed the enrollment period for which the loan was intended. Additional Disbursement Requirements [[Written authorization]] As specified in the promissory note, a school may apply Direct Loan proceeds to the student's account without the borrower's written authorization or acknowledgment. However, if a school applies payment to charges other than current tuition, fees, and room and board, the borrower must provide written authorization. See Chapter 3 for more information. [[Crediting funds to student account]] A school that credits its students' accounts with Direct Loan funds must post those funds directly to the account for tuition and fees and room and board (if the student contracts with the school for room and board). As noted above, with the borrower's written authorization, the school may credit funds to the student's account for cost of attendance charges other than current tuition, fees, and room and board. A school that disburses Direct Loan funds by crediting the student's school account must use those funds for outstanding current and authorized charges before disbursing any funds directly to the student. [[Credit balance paid to student or parent]] If a school applies SFA funds to a student account and determines that those funds exceed allowable charges, the school must pay the student or parent the excess within 14 days of one of the following events, whichever is latest: - the date the balance occurs, - the first day of classes of the enrollment period, or - the date the borrower rescinds his or her authorization for the school to hold funds or use the excess funds to cover other expenses. [[Excess PLUS funds]] If a student's account shows a credit balance and a Direct PLUS Loan has been credited to the account, the school must distribute the excess PLUS funds to the parent borrower, unless the parent has provided written authorization allowing the school to give the funds to the student. [[Correspondence study]] A school that offers courses of study by correspondence and that wishes to disburse Direct Loans must establish a lessons submission schedule and give that schedule to prospective students before they enroll. The course schedule must include - a due date for each course lesson, - if available, a description of any options for altering the sequence of lesson submissions, - the course completion date, and - the date that resident training must begin, its location, and the time frame for completing the resident training. [[Disbursement notification]] Schools must notify students or parents electronically or in writing when crediting the student's account with Direct Loan funds. Schools must send the notice no earlier than 30 days before, and no later than 30 days after, crediting the student's account. Schools must provide in the notice - the date and amount of the disbursement, - the borrower's right to cancel all or a portion of the loan or loan disbursement, and - the procedures and time by which the borrower must notify the school that he or she wishes to cancel. A school that sends the notice electronically must require the borrower to confirm receipt and must keep a copy of the confirmation. For example, if a school notifies a borrower through electronic mail, the school must request a "return receipt" message and keep a copy of the receipt on file. [[Disbursement cancellation notification]] Borrowers who wish to cancel all or a portion of a Direct Loan must notify the school. The school must honor the request if it is received no later than - 14 days after the date the school sends the notice that it is crediting the borrower's account, or - the first day of the payment period, if the schools sends the notice more than 14 days before the first day of the payment period. [[Reporting disbursement information]] Schools must report required information on actual disbursements, disbursement cancellations, and disbursement adjustments--within 30 days after these occur--to the Loan Origination Center. For information on these procedures, including how to handle excess cash, see the Direct Loan School Guide. For information on the reconciliation process, see the Reconciliation Guide for Direct Loans. [[Returning funds after disbursement--34 CFR 685.303(b)(3)]] If, after making a Direct Loan disbursement, a school determines that a student withdrew or was expelled before the first day of classes for the loan period or failed to attend school during that period, the school must return to the Department any loan proceeds credited to the student's account within 30 days of the date established for the student's withdrawal.1 If the school disbursed loan proceeds directly to the student, the school also must return any payments the student made to the school, to the extent that no payments exceed the amount of loan proceeds the school disbursed to the student. 1 To establish a student's withdrawal date, schools must follow the procedures in Chapter 3. Note that for a student who does not return for the next scheduled term following a summer break, a school must determine the student's withdrawal date no later than 30 days after the next scheduled term starts. [[34 CFR 685.211(d)]] If a school disbursed loan proceeds directly to a student who, without the school's knowledge, provided false information or took actions to cause the borrower to be ineligible for the loan, the student must repay all or part of those proceeds, as appropriate. OTHER SCHOOL RESPONSIBILITIES ---------------------------------- Counseling Borrowers Schools participating in the Direct Loan Program are required by law to provide entrance and exit loan counseling. Exit counseling is for all student borrowers; entrance counseling is only for first-time student borrowers. A first-time borrower is someone who has not previously received a Direct Subsidized Loan, Direct Unsubsidized Loan, Federal Stafford Loan, Federal Unsubsidized Stafford Loan, or Federal SLS Loan. A school must maintain documentation in each student borrower's file substantiating the school's compliance with entrance and exit counseling regulations. Note that loan counseling requirements do not apply to parent borrowers. This section offers an overview of counseling responsibilities. To help schools provide complete and effective counseling, the Direct Loan Program offers entrance and exit counseling guides for counselors and borrowers, plus companion videos. Schools receive annually an order form for these materials. Entrance Counseling Schools must conduct entrance counseling before making the first disbursement of a Direct Subsidized or Unsubsidized Loan, unless the student is enrolled in a correspondence program--or a study- abroad program--approved for credit at the home school. In these cases, the home school must mail the borrower written counseling materials before disbursing the loan proceeds. Counseling may be conducted in person, by videotape presentation, or by computer-assisted technology. In each case, a person knowledgeable about SFA Programs must be available to answer borrowers' questions after the counseling session. Although each school and each student's situation is different, the following suggestions may be useful for presenting entrance counseling's required information. - Schools must emphasize to the students the seriousness and importance of the repayment obligation they are assuming Schools should advise students to read carefully the loan application, the disclosure statement, and the promissory note containing the borrowers' rights and responsibilities before signing any of these documents. Because a student loan is usually the borrower's first loan, schools should explain clearly the basic terminology to ensure that borrowers are fully aware of their obligations. - Schools should mention that a borrower's exact repayment schedule will not be provided until loan repayment begins. Although the disclosure statement and the promissory note contain the loan's total dollar amount, including the interest rate and fees, these documents do not necessarily specify each payment amount or the payment frequency. Schools should remind students that certain fees will be subtracted from the loan amount before the loan is disbursed but that repayment of the full loan amount is required. Schools should emphasize that loan repayment is required even if the program is not completed or does not meet the borrower's expectations. This is a point at which schools could explain their refund policy, so that students know that if they leave school (for whatever reason), a portion of their loan disbursement may be returned to the Department. [[Keeping Direct Loan Servicing Center informed]] - Schools also should explain to borrowers that they must inform their Direct Loan Servicing Center if they - fail to enroll in school for the period for which the loan was intended, - change schools, - change their name or address (including changing their permanent address while in school), - graduate or withdraw from school, - wish to apply for a deferment, - wish to request forbearance, or - are having difficulty repaying the loan. - Schools must describe in forceful terms the likely consequences of default, including adverse credit reports, wage garnishment, and litigation. For information on default's effect on borrowers, see Section 4. - Schools must provide information about average indebtedness. Schools are required to provide each borrower with general information about the average indebtedness of students who obtained Direct Subsidized or Direct Unsubsidized Loans for attendance at the school or in a borrower's program of study. - Schools must inform the student about the average anticipated monthly repayment based on the average indebtedness. Borrowers should be told the financial aid office is there to help if they have questions about their Direct Loans. In addition, borrowers should be informed they also can get help by calling the Direct Loan Servicing Center. Because many students leave school before the scheduled end of their academic programs, aid administrators should emphasize during entrance counseling that borrowers are obligated to attend exit counseling before they cease to be enrolled at least half time. [[Alternative approach]] Schools may adopt alternative approaches for entrance counseling as part of the schools' quality assurance plans, described in section 685.300(b)(9) of the Direct Loan Program regulations. Schools adopting an alternative approach need not meet all the entrance counseling requirements described above, unless the Department determines that a school's approach is inadequate. Schools using an alternative approach must - ensure that each first-time borrower is given written counseling materials containing the required information on the previous pages and in Direct Loan regulations; - target those students most likely to default and provide them with more intensive counseling and support services; and - include performance measures with objective outcomes demonstrating the alternative approach's effectiveness, such as levels of borrowing, default rates, and withdrawal rates. Exit Counseling Schools must conduct in-person exit counseling for Direct Subsidized or Direct Unsubsidized Loan borrowers shortly before they cease at-least-half-time study, except - in the case of a correspondence program, schools must mail borrowers written counseling materials within 30 days after the borrowers complete the program; and - if borrowers withdraw without a school's prior knowledge or fail to attend exit counseling sessions as scheduled, schools must mail written counseling materials to the borrowers' last known addresses within 30 days after learning the borrowers have withdrawn or failed to attend the scheduled session. When sending exit counseling materials, return receipts are not required. However, schools should maintain documentation in borrowers' files verifying compliance with the regulatory counseling requirements. If borrowers fail to provide a name, address, references, or an employer and employer address, schools are not required to take further action. Much of the same material presented at the entrance counseling session will be presented during exit counseling. For example, schools must inform borrowers about the seriousness and importance of their repayment obligation and describe in forceful terms the likely consequences of default (see Section 4). The emphasis for exit counseling shifts, however, to loan repayment obligations and debt management strategies. At the exit counseling session, the following points must also be covered: - Schools must inform borrowers of the average anticipated monthly repayment amount based on their indebtedness. This information permits borrowers to begin short- and long-term financial planning. - Schools must review borrowers' available repayment options (the Standard Repayment, Extended Repayment, Graduated Repayment, and Income Contingent Repayment plans and loan consolidation). Schools should explain that all Direct Loans must be repaid under the same repayment plan, except that borrowers with Direct PLUS Loans or Direct PLUS Consolidation Loans may repay those loans separately. Section 2 describes available repayment options; Section 3 covers loan consolidation. - School must provide debt management strategies that would facilitate repayment. Schools should encourage borrowers to avoid excessive debt whenever possible. Borrowers should try to spend no more than 5 to 15% of their net income for monthly payments on student loans and consumer debts, including credit card and car payments. Borrowers using more than 15% of their monthly net income for these payments may need to make some budget adjustments. - Schools must explain to borrowers how to contact the Direct Loan Servicing Center. The Direct Loan Servicing Center maintains toll-free telephone numbers and special mailing addresses to answer borrower inquiries. This information is in the Direct Loan Program entrance and exit loan counseling guides; the phone numbers are also provided in Chapter 1 and on the inside front cover of this handbook. - Schools must review with borrowers deferment and discharge conditions. Schools should inform borrowers that they can postpone loan payments by applying, and receiving approval, for a deferment or a forbearance through the Direct Loan Servicing Center. Section 2 describes deferments and forbearances. - Schools must require borrowers to correct school records concerning name, address, address of the borrower's next of kin, Social Security number, references, driver's license number and the state where it was issued, and the name and address of the borrower's expected employer (if known). Within 60 days after exit counseling, schools must provide the Direct Loan Servicing Center with any corrections to the name, latest known address, employer and employer address, and address of the borrower's next of kin. (This latter item is a statutory requirement, although it is not yet in the regulations.) Verification As is true for all schools participating in SFA Programs, Direct Loan schools must comply with verification requirements, explained in The Verification Guide. These requirements apply to Direct Subsidized Loan applicants but not to Direct Unsubsidized Loan or Direct PLUS Loan applicants. Overawards If a school becomes aware before Direct Loan funds are disbursed that a student has obtained additional financial assistance resulting in an overaward (that is, an award in excess of the amount for which the student is eligible), the school must take steps to eliminate the overaward. For example, the school may reduce the second or subsequent disbursement of the loan, or return excess loan proceeds to the Department. See Chapter 2 for a detailed discussion of overawards and a school's options. Refunds All schools must establish a fair and equitable refund policy for returning unused tuition, fees, and room and board charges connected with a student who receives SFA funds but who has stopped attending school after attending at least one class. Schools must send all refunds directly to the Loan Origination Center--funds must not be given to students or parents. See Chapter 3 for a discussion of refunds. Reconciliation Schools participating in the Direct Loan Program create and transmit loan origination records and promissory notes, request and disburse funds, and report the maintenance and expenditure of those funds. A school's records of these activities are matched monthly to the records the Loan Origination Center maintains. Procedures for this monthly data match, called reconciliation, are covered in the Direct Loan School Guide and in the Reconciliation Guide for Direct Loans. Student Status Confirmation Report Requirements Schools are required to comply with Student Status Confirmation Report (SSCR) requirements. Schools complete and return these reports to the Department at least semiannually. The reports inform the Department of the address and enrollment status of students who borrowed Direct Subsidized and Direct Unsubsidized Loans and of students for whom parents borrowed Direct PLUS Loans. Schools must complete and return an SSCR to the Department within 30 days of receiving it. Schools must report to the Department if the student - has ceased to be enrolled on at least a half-time basis, - was accepted for enrollment at the school but did not enroll on at least a half-time basis for the period for which the loan was intended or, - has changed his or her permanent address. If a school does not expect to submit an SSCR within 60 days of becoming aware that any of the above information has changed for any student, the school must inform the Department within 30 days of becoming aware of the change. For complete information, see the NSLDS Student Status Confirmation Report (SSCR) User's Guide. Schools that have successfully submitted SSCRs to NSLDS are exempt from the requirement to provide SSCRs directly to guaranty agencies. However, these schools must still respond to requests for borrower information from guaranty agencies, lenders, and loan servicing companies. Although the Department hopes to eventually eliminate the need for these requests, schools must continue to provide loan holders and loan servicers with a borrower's enrollment status or enrollment history for deferment and other repayment purposes, or other information needed to locate a borrower, such as last known address, change in surname, and employer's name and address. Recordkeeping and Audits Chapter 3 contains complete information on recordkeeping and audit requirements. Highlights of those requirements are discussed here. Schools must maintain records to document compliance with the statute and regulations. These records include but are not limited to - the amount of the loan and the loan 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 a student's budget or the school's itemized standard budget used in calculating the student's estimated cost of attendance, - for Direct Subsidized Loans, the data used to determine the student's EFC, - documentation of the student's eligibility to receive a Direct Loan, - the amount and date of tuition and fees paid for the loan period, - the amount of a refund paid to, or on behalf of, a student and the date and basis of the refund calculation, - the date and amount of each loan disbursement, - the student's job placement, if known, - borrower information collected at the exit interview, and - documentation that the student received both entrance and exit counseling. Loan program records pertaining to borrower eligibility must be kept for three years after the end of the award year in which the student borrower last attended the school. Other program records that are not borrower specific and that pertain to the school's participation in Direct Loans--including records such as the Program Participation Agreement and drawdown records that are not borrower specific--must be kept for three years after the end of the award year in which the school submits the records to the Department. Each school may establish a fiscal and administrative recordkeeping system maintained in a variety of formats, for example, hard copy, microform, computer file, optical disk, or CD-ROM. In the event of a school's closure, termination, suspension, or change of ownership, the school or its successor must provide for the retention of records and for ready access to them by designated federal officials for auditing and examination purposes. A school must cooperate in the conduct of audits, investigations, program reviews, or other reviews authorized by law. Cooperation includes providing timely access to records for Department and other authorized officials. Each year, an independent certified public accountant must audit the school; the audit must cover the period since the previous audit. Any records involved in a federal audit procedure must be retained until the later of (1) the date the audit is completed or (2) the end of the record retention period. In addition to Chapter 3, the Department's Student Financial Assistance Programs Audit Guide provides information. |