EnterChapterTitle: Federal Family Education Loan Program
Part B of Title IV of the Higher Education Act of 1965 (HEA), as
amended, created the guaranteed student loan programs. The Higher
Education Amendments of 1992 (P.L. 102-325) reauthorized the
HEA and renamed the guaranteed student loan programs the Federal
Family Education Loan (FFEL) Program, which now comprises
Federal Stafford Loans (formerly Guaranteed Student Loans),
Federal PLUS Loans, and Federal Consolidation Loans. The FFEL
Program makes these long-term loans available to students attending
institutions of higher education; vocational, technical, business, and
trade schools; and some foreign schools.
State or private nonprofit guaranty agencies insure FFELs, and these
agencies are reimbursed by the federal government for all or part of
the insurance claims they pay to lenders. The federal guaranty on a
FFEL replaces the security (the collateral) usually required for a
long-term consumer loan.
Note that although all FFEL-related guaranty agency procedures and
policies must accord with the federal requirements discussed in this
chapter, INDIVIDUAL GUARANTY AGENCIES MAY HAVE
ADDITIONAL PROCEDURES AND POLICIES. To obtain specific
information about a guaranty agency's policies and procedures,
contact that agency. Appendix A of this chapter contains a list of
guaranty agencies and their addresses and telephone numbers.
The different types of FFELs serve different purposes:
- Both undergraduate and graduate students can receive Stafford
- Parents of dependent students can receive PLUS Loans.
- Federal Consolidation Loans allow a borrower to combine several
loans into one to facilitate repayment. The loans may be
consolidated if the borrower meets certain conditions. (These
conditions and the types of loans that may be consolidated are
discussed in Section 5.)
The following changes affecting the FFEL Program were published
on November 29, 1996 and become effective July 1, 1997:
[[Uniform payment period definition--34 CFR 668.164]]
- The definition of a payment period is now uniform throughout all
Student Financial Assistance (SFA) Programs. All SFA funds
(other than Federal Work-Study funds) must be disbursed on a
payment period basis. With the exception of late disbursements, a
school may disburse SFA funds to a student or parent only if the
student is enrolled for classes for that payment period and is
eligible to receive those funds. For information on how this
change affects the FFEL Program, see Section 3.
[[Maintaining funds--34 CFR 668.163]]
- A school is no longer required to maintain a separate bank account
for FFEL Program funds.
[[Disbursing funds--34 CFR 668.164]]
- A disbursement is considered to have occurred on the date that a
school credits a student's account or pays the student directly,
regardless of whether the funds used are funds received from a
FFEL lender or institutional funds advanced in anticipation of
receiving funds from a FFEL lender. See Section 3 for more
- A school is required to disburse FFEL funds
- within 30 calendar days of receipt if received by check and
- within 10 business days of receipt if received by EFT or master
check. Beginning on July 1, 1999, this 10-day timeframe will be
reduced to three business days.
- A school using the reimbursement method of disbursement may
not disburse FFEL funds until the Department approves the
school's request to do so. (For information on the reimbursement
method, see Chapter 3, Section 3.)
- The Department may require that a school under reimbursement
not certify a loan application until the Department approves the
school's request to do so.
[[Notification requirements--34 CFR 668.165]]
- There are new notification requirements for schools:
- NOTICE 1: Before disbursing SFA funds for any award year, a
school must notify the student of the amount of funds that he or
she can expect to receive under each SFA Program and how and
when those funds will be disbursed. The notice must indicate
which FFEL amounts are subsidized and which are
unsubsidized. (See Section 2 for more information on
subsidized and unsubsidized FFELs.)
- NOTICE 2: If a school credits a student's school account with
FFEL funds received via master check or EFT, the school must
notify the borrower (student or parent) of
- the date and amount of the disbursement and
- the procedures and the time by which the borrower must
notify the school that he or she wishes to cancel the loan or
[[Borrower's right to loan cancellation--34 CFR 668.165]]
- A borrower has a right to have his or her loan or loan
disbursement canceled if a request to do so is made with 14
days of notice 1. If the school sends the notice more than 14
days prior to the first day of the payment period, the borrower
has a right to have the loan or loan disbursement canceled if a
request to do so is made by the first day of the payment period.
- NOTICE 3: If the school receives FFEL funds from a lender
through an electronic funds transfer (EFT) or master check and
credits the student's school account with those funds, the school
must also notify the borrower of his or her right to cancel all or
a portion of that loan or loan disbursement and have the loan
proceeds returned to the holder of that loan.
- A school is required to send the aforementioned notices either
in writing or electronically no earlier than 30 days before and
no later than 30 days after crediting the student's school
account. If a notice is sent electronically, the school must
require the recipient to confirm receipt of the notice and must
maintain a copy of that confirmation.
- A school must inform a borrower in writing or electronically
about the outcome of any cancellation request.
- A change in the General Provisions affects late disbursements of
FFELs. If a lender disburses 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. The other
provisions regarding late FFEL disbursements have not changed.
They are discussed in Section 3 and are found in 34 CFR 682.207.