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(Direct Loans) Subject: Updated Guidance on Making Direct Loan Refunds of Cash

Posted Date:February 12, 2015

Author: Sue O'Flaherty, Service Director, Program Management, Federal Student Aid

Subject: Updated Guidance on Making Direct Loan Refunds of Cash

Each year, we remind schools of the correct process for making a Direct Loan refund of cash (i.e., returning unused Direct Loan funds) to the Department of Education (the Department). All Direct Loan funds that are not disbursed to student or parent borrowers within three business days from the date that the drawdown is received (or within seven calendar days in certain circumstances) must be returned to the Department in accordance with the cash management regulations at 34 CFR 668.166.

As a reminder, Direct Loan funds are not student-specific, but are school, program, and award year-specific. This means that when one student will not use the funds or returns them to the school, the funds can be disbursed to other eligible students who will be receiving Direct Loans for the same award year at the same school. If the funds cannot be disbursed within the regulatory timeframes, they must be returned for the same school, program, and award year.

To ensure the most accurate and timely processing, a school should refund cash electronically via the G5 Web site, unless instructed otherwise. If a school needs assistance in making electronic refunds, it should contact the G5 Hotline using the contact information below.


  • Beginning January 1, 2015, the Department no longer accepts paper checks for Direct Loan refunds of cash. For further information, refer to the February 26, 2014 Announcement posted on the Information for Financial Aid Professionals (IFAP) Web site.

  • Schools should not use drawdown adjustments in G5 to make a refund of cash. Also, refunds of cash are school, program, and award year-specific and refunds of cash should not be netted with a drawdown from another school, program, or award year.

  • If a school is required to refund cash as part of a liability assessed in an audit or program review, it must follow the instructions provided by the issuing office.

  • If a school is returning cash as a result of refunds made to a borrower’s account, a corresponding downward disbursement adjustment must also be reported to the Common Origination and Disbursement (COD) System. For further information regarding making disbursement adjustments, refer to the November 21, 2011 Electronic Announcement posted on the IFAP Web site.

  • Also, remember that Direct Loan disbursements, disbursement adjustments, and refunds of cash, should be reported or submitted in whole dollar amounts only. The use of pennies in Direct Loan processing will impact a school's ability to successfully complete its monthly reconciliation because its Net Drawdowns may not match the Net Disbursements reported to the COD System. For further information, refer to the November 21, 2011 Electronic Announcement posted on the IFAP Web site.

Note to Foreign Schools: The way a foreign school will refund Direct Loan funds varies depending on whether the school has a U.S. bank account or a foreign bank account. For further information, refer to the document (page 8) found on the Foreign School Information Web page.

Contact Information

For additional information on refunding cash via G5, refer to the G5 Web site or call the G5 Hotline at 888/336-8930 or 202/401-6238 for assistance.

For questions about this announcement, contact the COD School Relations Center at 800/848-0978 or 571/392-3737. You may also e-mail

Last Modified: 02/11/2015