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(L-02-231) Expiration of the Current Statutory Exceptions to Certain Loan Disbursement Rules for Low-Default Rate Schools

Publication Date: August 2002

DCL ID: L-02-231

Expiration of the Current Statutory Exceptions to Certain Loan Disbursement Rules for Low-Default Rate Schools


August 2002

GEN-02-06
G-02-337
L-02-231


SUBJECT: Expiration of the current statutory exceptions to certain loan disbursement rules for low-default rate schools.

SUMMARY: This letter discusses the impending expiration of statutory exceptions to certain loan disbursement rules for low-default rate schools in the Federal Family Education Loan Program (FFEL) and the William D. Ford Federal Direct Loan (Direct Loan) Program. These exceptions will expire on September 30, 2002, unless legislation to extend them is enacted.

Dear Colleague:

Section 428G(a)(3) and (b)(1) of the Higher Education Act of 1965, as amended, (HEA) provide exceptions to the multiple disbursement and 30-day delayed disbursement requirements. These exceptions apply to FFEL and Direct loans made to students for attendance at a school whose cohort default rates (as determined under section 435(m) of the HEA) are less than 10 percent for the three most recent years. Under, section 428G(a)(3), such schools may disburse an FFELP loan or Direct Loan in one installment if the loan period is only one term or, for non-term and non-standard term programs, the loan period is equal to or less than four months in length. Section 428G(b)(1) exempts such low default rate schools from the 30-day delayed disbursement requirement that normally applies to first-time, first-year undergraduate borrowers.

Both exceptions expire on September 30, 2002. Recent attempts to pass legislation to extend these provisions have been unsuccessful and it is unclear if legislation will be enacted to extend these exceptions. Therefore, after these exceptions expire on September 30th, loans certified in the FFEL Program or originated in the Direct Loan Program on or after October 1, 2002 for students at these schools will be subject to multiple disbursements and 30-day delayed delivery of loan proceeds. If legislation is enacted to extend these provisions prior to September 30, we will notify you immediately.

To avoid possible disbursement problems and borrower confusion related to a sudden reversion to the regular disbursement rules, schools that are currently operating under the exceptions permitted by sections 428G(a)(3) and 428G(b)(1) of the HEA should consider making the necessary changes now and advising their borrowers of the changes. Thank you in advance for your efforts to prevent problems that could result from the impending termination of these loan disbursement exceptions.

Sincerely,

Jeffrey R. Andrade
Deputy Assistant Secretary for
Policy, Planning, and Innovation
Office of Postsecondary Education

Last Modified: 08/12/2002