Posted Date:January 29, 2014
|Author:||Sue O'Flaherty, Service Director, Program Management, Federal Student Aid|
Subject: Direct Loan Processing Information - Accurately Reporting Direct Loan Disbursement Dates
We take this opportunity to remind schools of the importance of accurately reporting Direct Loan actual disbursement dates to the Common Origination and Disbursement (COD) System. If the date when Direct Loan funds are made available to a borrower (the actual disbursement date) is different than the original anticipated disbursement date, it is critical for the school to ensure that the actual disbursement date is reported.
Definition of Actual Disbursement Date
As defined in 34 CFR 668.164(a), the disbursement date is the date that a school credits a student’s account at the school or pays a student or parent borrower directly with Title IV funds received from the U.S. Department of Education (the Department) or with institutional funds in advance of receiving Title IV program funds. This is the date that a school must report to the COD System as the actual disbursement date for a Direct Loan, as distinguished from the anticipated disbursement date.
The anticipated disbursement date is the date that a school expects to disburse Direct Loan funds. The actual disbursement date is the date the funds are made available to the borrower. In many cases, the anticipated disbursement date that a school initially reports to the COD System may not be the same as the actual disbursement date.
Note that if a school uses institutional funds in advance of receiving Direct Loan funds from the Department to credit a student’s school account earlier than 10 days before the first day of classes of a payment period or, for a first-year, first-time Direct Subsidized Loan or Direct Unsubsidized Loan borrower, earlier than 30 days after the first day of the student’s program of study, the school must report the actual Direct Loan disbursement date as the 10th day before the first day of classes or the 30th day after the beginning of the student’s program of study, as applicable.
Importance of the Actual Disbursement Date
As explained above, the actual disbursement date is the date that Direct Loan funds are made available to the borrower. Because several terms and conditions of Direct Loans are tied to the actual disbursement date, this date must be accurately reported. These terms and conditions include the following:
Interest Accrual – The actual disbursement date is the date when interest begins to accrue on a Direct Loan. The actual disbursement date is passed on to a borrower’s federal loan servicer. The borrower is responsible for paying all interest that accrues on a Direct Unsubsidized Loan or Direct PLUS Loan during all periods, beginning on the actual disbursement date. For a Direct Subsidized Loan, the federal government subsidizes the interest that accrues during certain periods. If the actual disbursement date is reported inaccurately, the periods when the borrower is responsible for paying interest or the federal government subsidizes the interest will not be correctly determined.
120-Day Rule (Returning Funds) – A borrower is not responsible for paying any interest or loan fee on Direct Loan funds that are returned to the Department within 120 days of the actual disbursement date. If the correct actual disbursement date is not reported, the borrower may not have the full 120 days from the date the loan funds were made available to return the disbursement without having to pay interest and loan fee charges.
Origination Fee and Interest Rate Percentages – In many cases, the date of the first actual disbursement determines the specific origination fee and interest rate that apply to a Direct Loan. If the first actual disbursement date is reported incorrectly, the origination fee or interest rate that is applied to a loan may differ from the fee or rate that is required under the law and regulations for loans first disbursed on or after a particular date.
Reporting inaccurate actual disbursement dates may also result in unnecessary COD System warning edits being returned on school records or could lead to an audit or program review finding.
Updating Anticipated Disbursements to Actual Disbursements – Check the Disbursement Date
A school must confirm the disbursement date information when updating an anticipated disbursement (Disbursement Release Indicator [DRI] = “False”) to an actual disbursement (DRI = “True”). In many cases, the anticipated disbursement date on file does not reflect the actual date the funds were credited to the student’s account or otherwise made available to the borrower.
Example of correct reporting:
A school originates a Direct Unsubsidized Loan in July 2014 with anticipated disbursement dates of 9/10/2014 and 1/10/2015. This information is accepted on the COD System. As of the 9/10/2014 anticipated disbursement date, it is determined the borrower has not met all eligibility requirements and the disbursement cannot be made. The borrower meets all eligibility requirements on 11/1/2014 and the school disburses the funds to the borrower on that date.
The school changes the disbursement date from 9/10/2014 to 11/1/2014 and updates the DRI from “False” to “True.” Assuming the changes pass all other COD System edits, the borrower’s loan record will accurately reflect the actual date he or she received funds.
Note: If the school did not change the disbursement date as shown in the example, the borrower would be charged interest on the Direct Unsubsidized Loan beginning on 9/10/2014, even though the borrower did not actually receive the loan proceeds until 11/1/2014.
Guidance on the definition of the date of disbursement and reporting disbursements can be found in:
Federal Student Aid Handbook, Volume 4 – Processing Aid and Managing FSA Funds
November 2010 Electronic Announcement – Direct Loan Processing Information – Making Disbursement Adjustments and Reducing Direct Loan Awards to Zero
For information about COD System disbursement processing, refer to the COD Technical Reference (Volume II, Section 1 – Implementation Guide).
If you have questions about reporting disbursement dates, contact the COD School Relations Center at 800/848-0978. You may also e-mail CODSupport@ed.gov.