AwardYear: 1996-1997 EnterChapterNo: 10 EnterChapterTitle: Federal Family Education Loan Programs: Federal Stafford Loans, Federal PLUS, and Federal Consolidation Loan Programs SectionNumber: 8 SectionTitle: Payment to The Student PageNumbers: 89-95 The lender disburses loan proceeds to the school for delivery to the student. Loan proceeds may be credited to the student's account, paid directly to the student, or a combination of both. The steps required before payment is made to the student's account (or to the student directly) are outlined below. The lender must provide the borrower with a copy of the completed promissory note and repayment information with the first disbursement of loan proceeds. The lender must return the original promissory note to the borrower when the loan is repaid in full. Please note that in order to separate the functions of authorizing payment and delivering loan proceeds, no single office at the school is permitted to carry out both functions. REQUIREMENTS FOR DISBURSEMENT [[Financial aid transcript required for school(s) previously attended]] If a student has received student financial aid while attending another school, the financial aid administrator must request a financial aid transcript from any eligible school previously attended before releasing Federal Stafford Loan proceeds to the student. As explained in Section 7, "The School's Portion," the financial aid administrator may certify a borrower's loan application (except for Federal PLUS) prior to receipt of a financial aid transcript. Procedures for obtaining financial aid transcripts are described in Chapter 3. As noted in the December 1, 1995 Federal Regulatory Review Final Rule, the financial aid administrator must request a financial aid transcript from each institution that each student previously attended or must use National Student Loan Data System (NSLDS) information for each student after the Secretary publishes a notice in the Federal Register that NSLDS is available for this purpose. Until the institution receives a FAT from each of a student's previously attended schools, the institution may decline to certify the student's FFEL or the parent's Federal PLUS application, and also may not deliver Federal Stafford Loan proceeds to a student. This is stated in the same Final Rule cited in the previous paragraph. Please refer to Chapter 3, Section 4 (under "Requesting a Transcript") for additional information. The section explains that a FAT is not required in some cases -- for example, when the school the student previously attended has closed. A school may NOT release funds to the student if information provided by any school he or she previously attended indicates that the student is in default on a subsidized or unsubsidized Stafford Loan, PLUS, SLS, Consolidation Loan, NDSL, or Perkins Loan--or if that the student owes a repayment on a Pell, FSEOG, or SSIG grant. See Chapter 2 for more information on grant overpayments. However, a student who is in default may regain eligibility for federal student financial aid if he or she repays the defaulted loan in full or makes satisfactory repayment arrangements with the holder of the loan. At least six consecutive monthly payments must be made under such arrangements. This is stated in section 668.35, "Student debts under the HEA and to the U.S.," in the December 1, 1995 Federal Regulatory Review Final Rule effective July 1, 1996. (Criteria for regaining eligibility through consolidation of a defaulted loan are somewhat different. Please refer to Section 5, "Consolidation loan eligibility," for additional information.) [[Reaffirmation of loan eligibility]] The school must determine that the student has maintained eligibility for the Stafford Loan before each disbursement of loan proceeds. Reaffirmation of loan eligibility requires the school to verify Pell Grant eligibility (if applicable), to establish that the student has maintained satisfactory academic progress standards, and to verify enrollment status. Generally, if the student drops below half-time status after receiving the first disbursement of a loan, the student is no longer eligible, and cannot receive the second loan disbursement. However, as stated in section 682.604(b)(2)(iv), if a student resumes enrollment on at least a half-time basis and the student continues to qualify for the entire amount of the loan and these conditions are documented in the student's file, then the school may transmit the proceeds of the second or subsequent disbursements to the borrower. [[Disbursement by EFT or master check]] The money borrowed by the student under the Stafford Loan Program must be sent by the lender to the school in the form of a check or through electronic funds transfer (EFT) requiring endorsement or other written certification by the student. The check must be made payable to the student or (if required by the guaranty agency) must be made copayable to the student and the school. A student's loan proceeds may be disbursed via a master check; the borrower's written authorization for the release of the funds is still required. EFT and master check authorization are collected on the common Stafford Loan application. If Federal PLUS Loan proceeds are disbursed through EFT, the school must obtain the parent borrower's authorization before delivering the loan proceeds to the student. Authorization is collected on the common PLUS Loan application. The parent's authorization must be kept in the student's file. The Higher Education Amendments of 1992 require PLUS loans first disbursed on or after October 1, 1992 to be disbursed either to the school through EFT, by master check, or by check made copayable to the school and the parent borrower. The lender must provide the school with the name and Social Security Number of the student for whom the parent is borrowing. While copayable PLUS checks must be disbursed to the school, the school is not required to endorse the check before sending it to the parent borrower. However, the school must verify the student's eligibility. The school has 45 days to verify student eligibility and forward the check to the parent borrower. If the parent is required to endorse the check and return it to the school, the Department of Education recognizes that the school has no control over how prompt the parent borrower may be in resubmitting the endorsed check. For a FFEL disbursed by EFT or by master check, a school may not request the disbursement by the lender of the borrower's loan proceeds until the 13th day before the first day of the student's period of enrollment. For first-year, first-time borrowers, disbursement by the lender may not be requested until the 24th day of the student's period of enrollment. If loan proceeds are disbursed by EFT or master check from the lender to the school, the borrower's written authorization for release of the initial and any subsequent disbursement must be obtained not more than 30 days prior to the first day of classes of the enrollment period. Written authorization is not required for disbursement if authorization was provided in the loan application. The student and parent are not required to provide authorization. This authorization may be rescinded at any time by the student or parent. The authorization is valid for that award year. If a student is attending an eligible school located outside the United States or is enrolled in a study-abroad program, the check may be sent directly to the student or to the home school (if the student provides a power-of-attorney to endorse the check or to complete an EFT authorization). Please note that disbursement and overaward time frames were established in the December 1, 1994 General Provisions and FFEL Final Rule. This regulation was developed to ensure comparability in cash management procedures among all Title IV programs. Section 668.165 of the regulations explains disbursement methods for the FFEL Program; section 682.604 covers school delivery of loan proceeds to borrowers. [[Multiple disbursement requirements]] Multiple disbursement is required for most Stafford and PLUS Loan proceeds regardless of the amount of the loan or the length of the loan period. No installment amount may exceed more than half the amount of the loan proceeds. A second or subsequent disbursement must be made no earlier than 10 days before the first day of classes of the period of enrollment for which the loan is intended. The date of the second scheduled disbursement may be on the earlier of the midpoint of the loan period for which the loan was made, or a date which coincides with the beginning of the next scheduled term. Only if the first disbursement would take place on or after the time scheduled for the second disbursement can the proceeds be disbursed by the lender in a single disbursement. Please note that multiple disbursement requirements do not apply to the Federal Consolidation Loan Program. These requirements also do not apply to students attending an eligible school outside the United States. However, students enrolled in a study-abroad program through a U.S. institution are still subject to these requirements. [[Disbursement schedule requirements]] Schools are required to provide the lender with a schedule for disbursement of loan proceeds for each student that meets Stafford and PLUS Loan disbursement requirements. Lenders may not disburse loan proceeds without first receiving a disbursement schedule from the school. The student is not required to sign the disbursement schedule. Remember, these are disbursement dates, not anticipated delivery dates; the financial aid administrator should allow time for mail delivery when establishing disbursement schedules for lenders. The disbursement schedule must comply with the multiple disbursement requirements just described and with the 30-day restriction on delivery to first-year, first-time undergraduate Stafford Loan borrowers (see next page under "Restrictions on loan delivery"). In developing a disbursement schedule, the financial aid administrator must consider both the mandatory 30-day delayed delivery requirement and the 45-day limit on holding loan proceeds, and construct a schedule that will meet both of those requirements. The disbursement schedule item on the school's portion of the Stafford or PLUS Loan application may be used to fulfill the requirement for a disbursement schedule. Or, the school may provide disbursement schedules directly to the lender (or to the guaranty agency, if the agency is serving as an agent for its lenders for this purpose). The Higher Education Amendments of 1992 provide that with the permission of the borrower, loan proceeds may be disbursed on a weekly or monthly basis, as long as the disbursements are substantially equal over the period of enrollment. Schools with standard academic terms must develop disbursement schedules based on their academic calendars unless charges are assessed at established points in the program or academic year. Schools WITHOUT standard academic terms must base their disbursement schedules on the requirements for multiple disbursement described in this section. For non-term schools, the disbursement schedule should reflect the scheduled start date and mid-point of the student's program. However, school delivery of the second disbursement cannot take place until the actual midpoint-- when the student has earned the required credits or clock hours. This may require the school to reschedule the second disbursement with the lender. [[Restrictions on loan delivery]] As explained in section 668.165 of the June 30, 1995 Institutional Eligibility Final Rule, the school may deliver FFEL proceeds to a registered student either by paying the student directly or by crediting his or her account no earlier than 10 days before the first day of classes of the period of enrollment for which the loan is intended. An exception to these general guidelines is the delayed delivery restriction for first-year, first-time undergraduate Stafford borrowers. For such a borrower, the school may not release funds until 30 days after the first day of the student's classes. The delayed delivery rule for first-year, first-time borrowers is not applicable to PLUS loan borrowers. [[NEW]] A school must expeditiously provide written notification to a student or parent, as applicable, that the school has credited the student's account with FFEL Program funds. This is stated in the June 30, 1995 Institutional Eligibility Final Rule. A school may not hold Stafford or PLUS Loan proceeds before delivery to the student or parent or to the student's account for more than 45 days after receiving them. If all required financial aid transcripts have not been received by then, the school must immediately return the loan proceeds to the lender. If for any reason the loan check is returned uncashed to the lender, the portion of the origination fee deducted from that disbursement should be returned by the lender to the borrower. The lender must credit any refund of tuition or other school charges to the borrower's loan principal. If the school discovers that a student did not register for the period of enrollment covered by the loan or did not begin delayed attendance within the first 30 days of enrollment, the school must return the loan proceeds to the lender within 30 days of this determination. If a student registers, receives the loan proceeds, but never attends classes for the period of enrollment covered by the loan, the student has failed to qualify for the loan, and the lender must immediately demand full loan repayment. [[School administration of excess loan proceeds]] In the case of excess loan proceeds, a school must pay the balance directly to the student within 14 days of the date of the balance occurred or the first day of classes of a payment period (whichever is later). In the case of a PLUS Loan, the balance must be paid no later than 45 days after the school's receipt of the funds. Any additional loan proceeds in excess of those necessary to cover allowable school charges owed by the student may be held by the school (for use during the remainder of the academic year) ONLY with the written authorization of the student. The excess proceeds must be deposited in a separate account; the school may not mix them with other funds or use them for any other purpose. If the student, at a later date, requests the excess loan proceeds, the financial aid administrator must release them. The institution has certain responsibilities concerning its administration of such accounts. For one, it must maintain cash in its bank account for an amount equal to the amount of the funds the school holds for the student. Also, the school must provide each student for which it holds funds in subsidiary ledger accounts with an annual notice. The notice must include an explanation of any interest that the institution earns on the student's funds, and must explain whether the institution will provide that student with the interest. The school may retain any interest earned on the student's funds while the school is holding those funds. If a student completes the academic program and has Stafford Loan funds remaining in his or her account, the school should either promptly send the excess money to the student or return the remaining funds to the lender and notify the student that the funds have been returned. Any credit balance remaining in a student's account after the student has dropped below half-time status, withdrawn, or left school before completing the academic program must either be given to the student or returned to the Student Financial Assistance (SFA) Programs; this is also explained in Chapter 3, "Refunds and Repayments." SFA funds can be paid to the student only for noninstitutional educational costs incurred prior to withdrawal; otherwise, these funds must be returned to the SFA Programs. FFEL funds must be returned to the lender. LATE DISBURSEMENT If the lender disburses the loan proceeds after the end of the period of enrollment for which the loan was made, the proceeds must be returned to the lender within 30 days (unless the proceeds are the first disbursement of the loan and come with a notice from the lender stating that this represents a late first disbursement). Similarly, if the lender disburses the loan proceeds before the end of the enrollment period but after the student has left school or dropped below half- time status, the school must return the loan proceeds to the lender within 30 days unless this disbursement is a late disbursement. Under FFEL Program regulations, a lender may disburse loan proceeds after the student is no longer enrolled on at least a half-time basis (known as a late disbursement)--if one of these circumstances exists: - the loan proceeds are used for costs of attendance incurred while the student was enrolled at least half time; - in the case of a first disbursement made to a first-year undergraduate Stafford borrower, the student completed the first 30 days of the loan period for which the loan was made; - in the case of a second or subsequent disbursement, the student successfully completed the period of enrollment for which the loan was made; - the disbursement is received by the school within the earlier of 60 days after the date the student drops below half-time status or 60 days after the period of enrollment for which the loan was made. Effective July 1, 1996, FFEL regulations provide that in exceptional circumstances, a lender may make a late disbursement within 30 days after the period described in the last item above. Within this additional 30-day period (between the 61st and up through the 90th day), a lender may presume that exceptional circumstances exist and make the disbursement. The school is responsible for documenting the exceptional circumstances in the student's file, or, if none exist, then the school is responsible for returning the disbursement to the lender. |