| AwardYear: 1995-1996 ChapterNumber: 1 ChapterTitle: Direct Loan Participation PageNumbers: 1-9 Chapter 1 - Direct Loan Participation Essential Questions * What are the different levels of participation for Direct Loans? * Is it better for my school to participate in a consortium or as an individual institutional entity? * Do I want to participate 100 percent in Direct Loans, or should I phase it in? * Can I change my level of participation once I am in? * Do I receive an administrative fee for originating loans? How is it paid? * How do I withdraw from the program? General Information All schools are required to meet specific criteria to be eligible to participate. For 1995-96, schools can participate in two categories: - Originating schools - Schools using the U.S. Department of Education as an alternative originator (See the chart on page 1-6 for a description of the functions each category performs.) Schools may participate individually or under a consortium agreement. To participate in 1995-96, a school must have a current Program Participation Agreement (PPA) under the Federal Family Education Loan (FFEL) Programs. For 1995-96, participating schools must also - have a cohort default rate in the FFEL Program that is less than 25 percent in one of the two most recent years for which cohort default rates are available (FY 1991 or FY 1992) - have the capability to administer the Direct Loan Program (see the selection criteria in the February 17, 1994 regulations) - have now, or will have in the near future, the technological capacity to participate electronically Originating Schools (Levels 1 and 2) Schools that meet additional criteria are permitted to originate loans. There are two levels of origination for 1995-96. Level 1 schools handle the complete loan process, including fund drawdown functions. Level 2 schools perform the same functions, except the Departments loan originator initiates funding requests. To be eligible to participate as a Level 1 school, the school must 1. be currently participating in the Federal Perkins Loan or Federal Pell Grant Program, or if a graduate or professional school, a similar loan or grant program 2. if participating in the Federal Perkins Loan Program, have a default rate no higher than 15 percent for the most recent fiscal year for which data is available 3. have participated in at least one of the Title IV programs for the three years preceding July 1, 1995 4. not be provisionally certified to participate in the Title IV programs 5. not be on the reimbursement system of payment in the Federal Pell Grant Program 6. not have received notice that the school is subject to an emergency action, or a proposed or final limitation, suspension, or termination action 7. not have had severe performance deficiencies for any program under Title IV of the HEA for the preceding five years 8. if participating in the Federal Pell Grant Program, have submitted Student Aid Reports on a timely basis 9. not be overdue on the federal cash transaction reports under Title IV of the HEA 10. not be overdue on program or financial reports or audits required under Title IV of the HEA 11. not have any delinquent outstanding debts to the federal government To be eligible to participate as a Level 2 school, the school must meet criteria 5, 6, and 7 of the above list. Origination fees. For 1995-96, Level 1 schools will be paid $10 per borrower. Level 2 schools will be paid $7 per borrower. Schools will be paid the appropriate fee for any borrower whose first disbursement has been reconciled during the academic year. Schools will be reimbursed by a separate ACH/EFT payment three times per year. Alternative originating schools (Level 3) A second group of schools participate in the Direct Loan Program by using the Departments alternative loan origination services. Additional administrative support is provided to these schools because - they have chosen to originate loans; or - they do not meet the origination criteria established in regulations. These schools provide loan origination information to the Department's Direct Loan Servicing Center. They maintain responsibility for disbursing and reconciling funds; however, the Departments Servicing Center estimates schools funding needs and initiates funding requests. There is no provision in the law for payment of administrative fees to schools participating under alternative origination. Consortia Schools may participate in Direct Loans through consortia arrangements. A consortium is a group in which each of the schools may perform some of the school-based functions; however, only one school communicates with the Department for all the schools in the group. Each school in a consortium is required to sign an individual Direct Loan Program Participation Agreement and be responsible for its information supplied through the consortiums lead school. Participation in a consortium arrangement may be beneficial for schools that wish to use the administrative and computer resources of one school rather than obtain such resources themselves. A consortium allows a school to form a group with other schools to reduce the individual effort by one school and save resources. The consortium may participate at Level 1, 2, or 3. If a consortium wishes to participate at Level 1, all schools in the consortium must be Level 1 schools. Withdrawal Procedures Participating schools may withdraw from the Direct Loan Program at any time by submitting a written request to the Department indicating the reason and an effective date, which must be at least 60 days later than the withdrawal request. Unless the Secretary approves an earlier date, the withdrawal date will be the date selected by the school or 60 days after the Secretary receives the request. The Department may also initiate a schools withdrawal if there are performance or eligibility problems. Certain activities related to program withdrawal are necessary, such as close-out audits and a process for making additional required disbursements. Implementation and Management Tips Type of Participation. Participating schools must meet specific criteria to originate loans in the Direct Loan Program. These criteria affect the type of participation that is permitted. There are several choices your school will need to make as you enter this program. One is to determine the level at which you want to participate and the level at which you are eligible to participate. It is important to understand the responsibilities associated with each level to determine the amount of control you will have. The chart on the next page provides a reference of functions and responsibilities for originating and alternative originating schools. Selected 1995-96 Participation Functions Function: Determine loan eligibility Level 1 - Performed by school Level 2 - Performed by school Alternative Originating School - Performed by school Function: Create loan origination record Level 1 - Performed by school Level 2 - Performed by school Alternative Originating School - Performed by school Function: Print promissory note Level 1 - Option of school or Servicing Center Level 2 - Option of school or Servicing Center Alternative Originating School - Option of school or Servicing Center Function: Distribute promissory note to borrower Level 1 - Performed by school Level 2 - Performed by Servicing Center Alternative Originating School - Performed by school Function: Completed promissory note Level 1 - Returned to school Level 2 - Returned to Servicing Center Alternative Originating School - Returned to school Function: Calculate and initiate drawdown request Level 1 - Performed by school Level 2 - Performed by Servicing Center Alternative Originating School - Performed by Servicing Center Function: Administrative fee Level 1 - $10 per borrower Level 2 - $7 per borrower Alternative Originating School - None As you look at the functions and make your decisions, think about your staffing levels, service to students, demands on you by your campus, and commitment from institutional resources. You must decide what is best for your institution and how much control you want to have. Also consider the level of support your school will provide, for example, from the computer center and the business office. Schools that meet levels 1 and 2 origination criteria may choose to participate using the alternative originator. However, alternative originating schools cannot change their level of participation, without providing documentation to support the desired change, if they are required to be in that category. A school may change its level of participation by contacting the Department as long as the school meets criteria for the level of participation requested. 100 Percent Participation vs. Partial Participation. Along with deciding your level of participation, you will need to determine if you want to participate fully in the Direct Loan Program. In other words, should all students receive Direct Loans? Or, should some of your students receive Direct Loans and some receive FFELP loans? Keep in mind that an individual student cannot receive both types of loans at once, but your institution can participate in both programs. In making this decision, you may want to consider the following factors: - Your ability to manage two programs. Consider: · staffing · training · confusion factor (for your students and staff) - Your student population. Consider: · importance of keeping student in one loan program (grandfathering Direct Loans into your school by using the program only for new students) · the mix of graduate/professional and undergraduate students (your graduate students may have many years of loans behind them already from their undergraduate education) - Administrative concerns. Consider: · how much support you have at your institution for a new program · the efficiency and cost effectiveness of your FFEL Program to determine how easy it would be for you to run parallel programs Consortia. Consortia provide another choice to schools as they consider Direct Loan resource management issues for their campuses. - For example, a group of small schools that are currently manual may wish to form a consortium and develop one of the schools as a site or destination for all of the computer activity associated with the Direct Loan Program. This may be beneficial for schools with similar missions and populations because it is a way to automate the process and save resources. Individually, schools forming a consortium must all be eligible to participate in Direct Loans and, if the consortium will originate loans, all of the schools in the consortium must meet the criteria to originate loans at the chosen level of participation. Making Changes. Schools have the flexibility with the Direct Loan Program to change both their level of participation and the amount of participation. Schools can request participation changes by sending revised information in writing to Direct Loan Task Force U.S. Department of Education Room 4025, ROB-3 600 Independence Avenue, S.W. Washington, D.C. 20202 1(202) 708-9951 (telephone) 1(202) 401-3424 (fax) TIP - Before deciding if you want to change your level of participation, review the chapters on origination records, promissory notes, requesting funds, and disbursement. TIP - Consider developing a list of your constituents. It may include prospective students, their parents, high school counselors, other campus administrators, regents, etc. TIP - Make sure that all those who need to know about the schools decision to participate in Direct Loans are kept informed. TIP - It might be appropriate to designate one or two people in your office as official spokespersons on Direct Loans. TIP - Start now at your school to develop a team approach to Direct Loans. As you can see from the discussion in this chapter, the issues to consider will involve staff other than just financial aid office personnel. Teams, committees, working groups, and task forces are all ways to encourage communication and commitment. TIP - Consider involving staff from the computer center, the business office, and the registrar/bursars office, in addition to the financial aid office. TIP - Assess your schools resources, including mainframe, personal computer, or local area network capability. Depending on your level of automation, you may want to phase-in the Direct Loan Program. TIP - Develop a collaborative problem-solving approach. Use the Direct Loan Program as an opportunity to re-think the process of providing customer service to your students. Identify the issues that need to be explored and the time frame for resolution. |