Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Obtaining, Managing, and Returning Title IV Funds

PublicationDate: 7/1/95
ChapterNumber: 4
ChapterTitle: Obtaining, Managing, and Returning Title IV Funds
SectionNumber: 6
SectionTitle: Obtaining Federal Family Education Loan Program Funds
PageNumbers: 102-105


The Federal Family Education Loan (FFEL) Program includes
Federal Stafford Loans (subsidized and unsubsidized), Federal PLUS
(parent) Loans, and Federal Consolidation Loans. (The Federal
Supplemental Loans to Students [SLS] Program was eliminated by
legislation as of July 1, 1994.) The discussion that follows concerns
only subsidized and unsubsidized Federal Stafford Loans (Stafford
Loans) and Federal PLUS Loans (PLUS Loans).

The means by which a school obtains FFEL Program funds differ
from methods used to request and receive other Title IV program
funds. FFEL Program loans are made to students and parents by
banks, savings and loans, credit unions, and other financial
institutions. A school obtains a borrower's funds directly from the
borrower's lending institution or servicer.

Federal statute requires that proceeds from Stafford and PLUS Loans
be disbursed directly to schools for delivery to borrowers.
(Formerly, lenders were allowed to send PLUS checks directly to
parent borrowers.)

For FFEL Program funds, the following distinction is made between
the terms "disbursement" and "delivery."

((Disbursement of FFEL funds))
- Disbursement refers to the process by which a lender cuts a check
and sends it to a school or transmits funds to a school
electronically. Disbursement is considered to have occurred on
the date that a lender writes and mails a check or deposits funds
directly into a school's bank account.

((Delivery of FFEL funds))
- Delivery refers to the process by which a school makes FFEL
funds available to a borrower. A school may deliver loan
proceeds by paying a borrower directly or by crediting a student's
account. Delivery is part of the disbursement process.

There are three methods by which a lender may disburse FFEL funds
to a school on behalf of a student or parent borrower--electronic
funds transfer (EFT), master check, or individual check.

4.6. 1 Electronic Funds Transfer (EFT) and Master Checks

((EFT))
A school may receive a borrower's FFEL funds from a lender by
electronic funds transfer (EFT). To do so, a school must enroll in
EFT with the lender to enable the lender to deposit FFEL funds
directly into the school's designated bank account.

((Master check))
A school may also receive a borrower's loan proceeds by master
check if the school and lender have entered into an agreement to use
master checks. A master check is a single check, written by a lender,
that contains all the lender's FFEL Program funds for the school's
borrowers as of a given disbursement date.

((EFT and master check rosters))
Both EFT and master check disbursements must be accompanied by
a list of names, Social Security Numbers, and loan amounts of
borrowers who are to receive a portion of the EFT or master check
disbursement. The list enables a school to identify individual
borrowers to whom loan proceeds must be delivered. A school must
deliver loan proceeds to a student or parent borrower within 45 days
of the date the funds were received by the school, notwithstanding
other federal disbursement requirements. (See sections 4.7.2.3,
4.7.3, and 4.7.4.)

((Time frames for requesting funds))
In no case may a school request loan proceeds by EFT or master
check earlier than 13 days before the first day of a student's
enrollment period. If a Stafford Loan borrower is subject to delayed
disbursement (see section 4.7.4), disbursement by EFT or master
check may not be requested until the 24th day of the student's
enrollment period.

((Borrower authorization))
A school must obtain a borrower's written authorization to receive
his or her loan proceeds by EFT or master check. Authorization may
be given in the borrower's loan application, or it may be obtained
separately. If written authorization to disburse by EFT or master
check is not given in the borrower's loan application, it must be
obtained not more than 30 days before the beginning of the
enrollment period for which the loan is intended.

4.6.2 Individual Checks

((Co-payable checks))
A school may receive a borrower's Stafford Loan or PLUS Loan
proceeds from a lender in the form of an individual bank check made
co-payable to the borrower and the school. The school then delivers
the loan proceeds to the borrower. A school must deliver loan
proceeds to a student or parent borrower within 45 days of the date
the funds are received by the school, notwithstanding other federal
disbursement requirements. (See sections 4.7.2.3, 4.7.3, and 4.7.4.)

((PLUS checks))
Co-payable PLUS checks must be sent directly to a school by a
lender. A school must deliver PLUS loan proceeds to a parent
borrower within 45 days of receiving a check. However, a school is
not required to endorse a PLUS check before sending it to a parent
borrower. The school may require the parent borrower to return the
endorsed PLUS check to the school for the school to endorse it. The
school then deposits it, and credits the student's account.

((Time frames for requesting checks))
In no case may a school request loan proceeds by co-payable check
earlier than 30 days before the first day of student's enrollment
period. If a Stafford Loan borrower is subject to delayed
disbursement (see section 4.7.4), a school may not deliver Stafford
Loan proceeds until 30 days after the beginning of the student's
enrollment period. For these borrowers, a school must time its
requests for Stafford Loan checks to ensure that funds are not held
for more than 45 days before they are delivered to the student AND
that funds are disbursed within the required time frames. (See
section 4.7.2.3.)

Last Modified: 06/30/1995