| AwardYear: 1995-1996 ChapterNumber: 5 ChapterTitle: Origination Records and Promissory Notes PageNumbers: 1-16 CHAPTER 5 - ORIGINATION RECORDS AND PROMISSORY NOTES Essential Origination Record Questions - What does it mean to originate a loan? - What data elements are needed to create a loan origination record and where do they come from? - Do you need a loan origination record for a Direct PLUS Loan? - What is a loan ID and what does it have to do with a loan origination record? - When is it appropriate to create a loan origination record and, once complete, what happens to it? Essential Promissory Note Questions - May a school print its own promissory note instead of using the preprinted Department note? - Does the Servicing Center print promissory notes for originating schools? - What promissory note function does the Servicing Center provide to alternative originating schools? - May a school mail the promissory note to a students local address? - How long can a school maintain promissory notes before submitting them to the Servicing Center? - When must the Servicing Center inform the school of the Centers acceptance or rejection of the note? - Is it necessary to reprint a promissory note if the initial loan amount increases/decreases? - What causes the Servicing Center to reject a promissory note? Essential Promissory Note Questions (contd) - How does the software know that a promissory note is ready to print? - Can any promissory note be sent to the Servicing Center before the transmission of the loan origination record? - Is one promissory note used for a student who has both a subsidized and unsubsidized loan, or are multiple notes necessary? General Information LOAN ORIGINATION RECORDS. In the Direct Loan Program, you can compare the origination process to the process of certifying a student loan application. In both cases, data are collected and either reported on a student loan application for certification (for the Federal Family Education Loan Program) or entered onto a loan origination record (for Direct Loans). In both cases, the data become the original source or the basis for making a loan. For Direct Loans, there are actually fewer data elements than under FFEL because the Expected Family Contribution (EFC) and Cost of Attendance (COA) are not required to be entered on the Direct Loan record. The Direct PLUS application/promissory note requires additional information from the parent that is not contained on the FAFSA and may not be available in your schools records. Therefore, you will need to develop a method for collecting this additional information so that a loan origination record can be created. ESSENTIAL RECORDS. The school must send the following records and documents to the Servicing Center for the Center to book a loan: - loan origination record - promissory note - disbursement record These records and documents form an official and binding obligation between the borrower and the federal government. CREATING LOAN ORIGINATION RECORDS. Schools participating at all levels of origination will create loan origination records. The loan origination record - is part of the borrowers permanent loan record in the Departments loan data base - consists of the necessary demographic, financial, and statistical information - becomes the foundation required for the Department to book a loan - must be submitted while the borrower meets all loan eligibility requirements A minimum number of data items is necessary to establish the loan origination record. Information comes from various sources, including - the students FAFSA - the school - the Departments software To get started with origination, you should know the data elements that are required for the loan origination record and where they come from. The chart on the following page will help you. This chart describes the process for schools using the Direct Loan software on a PC exclusively or in combination with PC software and/or mainframe. Schools using a mainframe exclusively will want to devise their own charts. LOAN RECORD DATA ELEMENTS CHART Use the following key: F = Data come from FAFSA I = Data come from the school and may require manual key-punching G = Global parameters; the data are universally set by Direct Loan system set-ups and parameters S = System generated; the Direct Loan software calculates the data element Note: Some data elements such as year in school could come from the FAFSA or the school. For purposes of this chart, if the data element is on the FAFSA, it is coded F. The source of data could also vary by loan type. For example, borrower demographic data may come from the FAFSA for Direct Subsidized and Direct Unsubsidized Loans, but from institutional sources for Direct PLUS Loans. Direct Loan Record Data Items Borrower/Student Data items F - borrowers Social Security Number F - borrowers name F - borrower's address F - borrower's home phone number F - borrower's drivers license number and state F - borrowers date of birth F - borrowers citizenship status (including alien registration number if eligible noncitizen) F - student's anticipated graduation date F - students year in school I - student's anticipated enrollment program start date I - borrower defaults on education loan or owes repayment on a grant I - student's enrollment status I - student's enrollment status change date General Loan Record Data Items I - Loan type (Federal Direct Stafford, Federal Direct Unsubsidized Stafford, Federal Direct PLUS) I - requested loan amount (cannot be more than loan eligibility) I - loan amount approved I - user that created record G - school code number G - loan period start date G - loan period end date S - loan identifier S - loan year S - loan sequence number S - origination record transmit date S - anticipated loan fees S - anticipated gross loan amount S - anticipated net loan amount S - loan origination status S - origination date S - date/time record created Promissory Note Data Items I - date borrower signed promissory note I - date signed promissory note verified by school G - location of promissory note printing (required if Servicing Center is to print notes) S - promissory note transaction+ S - batch number S - promissory note status S - date promissory note printed S - date/batch signed promissory note sent to Servicing Center S - date Servicing Center confirms receipt of notes Disbursement Data Items I - reason/date disbursements cancelled I - date disbursements made I - reason/date disbursements refunded G - anticipated disbursement dates S - gross anticipated disbursements S - anticipated disbursement fees S - net anticipated disbursements+ S - date disbursement records sent to Servicing Center S - disbursement batch number and drawdown date S - Disbursement reconciliation dates - Required for loan origination record transmission to Servicing Center The loan ID is part of the loan record and contains - students Social Security Number - loan type - loan year - school code - sequence number - promissory note sequence The loan ID is created at the time you create the loan record. The loan ID will appear on the bottom of the promissory note and will tie the promissory note and loan origination record together. Direct Subsidized or Unsubsidized Loan origination records may be created electronically using either the software provided by the Department or other software that meets the Departments specifications. The school may produce the records by - importing data from the EDExpress ESAR or packaging system data base (which could contain data from the ESAR data base); - importing data from the schools data base; and/or - key entering the necessary data from the Student Aid Report and other hard copy documents. - for originating schools, loan origination records do not have to be transmitted or accepted by the Servicing Center before requesting or disbursing funds. - for alternative originating schools, loan origination records must be accepted by the Servicing Center before disbursement. - Some of the causes for origination record rejection are - incomplete demographic information (name, address, drivers license number, alien registration number); or - anticipated disbursement inconsistencies (fewer than two, not within loan period, not in date order, or greater than total approved loan amount). - A complete listing of the reject edits is included in the appendices. The school creates an electronic Direct PLUS Loan origination record for the parent(s) of each student eligible to receive a Direct PLUS Loan. Only the students Social Security Number and students name (last name, first name, and middle initial) are required to create this initial record. - The school reviews the Direct PLUS Loan application/promissory note for completeness and accuracy. The school then - enters the application data into the Departments software, or - sends the Direct PLUS application/promissory note documents to the Servicing Center for data entry. The Servicing Center transmits keyed data to the school for entry of disbursement information and origination. PROMISSORY NOTES. Promissory notes can be distributed anytime between determining loan eligibility and disbursement. They must always be completed, signed, and dated by the borrower before the loan is disbursed. - When an approved loan amount is entered into the loan origination record, the software flags the promissory note as ready to print. - Schools can choose to print their own promissory notes or have them printed by the Servicing Center. If schools print their own promissory notes, the notes must meet Department specifications. - The Direct Loan software automatically defaults to printing two copies of the promissory note. One copy of the promissory note is kept by the borrower, and the other copy is signed and returned to the school for transfer to the Servicing Center. Schools are not required to keep a copy of the promissory note. - Your school may choose to print one promissory note for each loan program or use one promissory note for both Direct Subsidized and Direct Unsubsidized Loans. A separate note is required for Direct PLUS Loans. - The promissory note can be mailed to the borrowers local address or permanent address. - Some information on the promissory note can be changed as long as adjustments do not involve the signature, interest rates, or fee rates. The language printed in the body of the promissory note that explains the terms and conditions of the loan may not be changed. A list of promissory note edits and acceptable alterations is included in the appendices. - The loan origination record and the promissory note must be forwarded to the Servicing Center before, or along with, a disbursement record. - For originating schools, promissory notes do not have to be transmitted or accepted at the Servicing Center before funds are requested or disbursed. - For alternative originating schools, promissory notes must be accepted before funds are disbursed. - The loan record, promissory note, and the disbursement record are the three components of a booked loan. - Fully executed promissory notes must be sent to the Servicing Center with the first monthly reconciliation report following the schools first disbursement for that loan. - Certain edits will cause the promissory note to be rejected. The complete list of edits is included in the appendices, however, the main reasons may be related to - missing data - borrower alterations - promissory note amount is greater than the loan approved amount in the origination record - Schools are not required to create a new promissory note if the amount of the loan decreases. When the amount increases after the promissory note has been printed, a new promissory note, covering the incremental difference, is required. If a new note is prepared based on the new total loan amount, the old note must be cancelled. Loan Amount Increase Situation: After the loan origination record is created but: - Before the promissory note is printed but before it is signed. - After the promissory note is printed but before it is signed - After the promissory note is signed but before it is sent to the Servicing Center Action: The approved loan amount may be increased without creating a new loan record or loan ID. Situation: - After the promissory note is sent to the Servicing Center but before loan funds are actually disbursed Action: A new loan record and loan ID number must be created and a new promissory note must be printed (or requested to be printed) for either the incremental increase or the entire new loan amount If a new record is created for the entire new loan amount, the prior loan record must be manually cancelled. Situation: - After loan funds are disbursed Action: A new loan record and loan ID number must be created and a new promissory note must be printed (or requested to be printed). This is a new loan. There are now 2 loans unless the first is cancelled. Loan Amount Decreases/Stays the Same Situation: If the approved loan amount decreased or if the approved loan amount stays the same but there are other loan record changes Action: No action is required unless the origination record and promissory note are sent to the Servicing Center. In that case, the school may create a new loan record (you must manually cancel the original loan record) and loan ID number and print a revised promissory note or request that a revised note be printed by the Servicing Center. - The Servicing Center is responsible for obtaining the credit check information on Direct PLUS applications. CONVEYING RECORDS AND NOTES. The school must PROMPTLY send loan origination records and promissory notes (and, ultimately, the disbursement record) to the Departments Servicing Center. (See the appendices for mailing addresses.) Schools may submit these documents separately and await confirmation from the Servicing Center between each submission. Alternatively, an originating school may submit all three records simultaneously, although it is strongly recommended that origination records be submitted and accepted before disbursement records to avoid unnecessary record rejections. Another option is that a school submit the origination record and promissory note before disbursement and submit the disbursement record after the student is paid. From an institutional management perspective, it is desirable to establish a regular schedule for submitting all records and documents to the Servicing Center to make the reconciliation process manageable and efficient. The Department recommends that schools submit records in batches of 50 or less. Although there are no specific school security requirements for promissory notes, it is important to remember that the school must safeguard all promissory notes in its possession. It may be desirable for the school to submit notes frequently to minimize the possibility of loss or destruction of the note. The following steps outline the typical sequence of events for submitting Direct Subsidized and Direct Unsubsidized Loan records: - The school transmits an electronic origination record to the Departments Servicing Center. The record must include all required data elements. - Originating schools may submit origination records and promissory notes before transmitting the actual disbursement information, or schools may submit all three records simultaneously. However, the disbursement record will not be accepted by the Servicing Center unless they have received a valid origination record from the school. - Alternative originating schools must submit loan origination records and promissory notes to the Servicing Center before funds will be sent to the school for disbursement to the borrower. - Upon receipt, the Servicing Center verifies the loan origination record for completeness and accuracy, and returns an electronic acknowledgment the following morning. - The Servicing Center resolves directly with the school any problems such as incomplete loan origination records or inconsistent information. The Servicing Center edits and validates electronically received loan origination data within one business day. If the school cannot correct the problem, the school contacts the borrower for resolution. The Servicing Center stores these records until the loan is booked or the record is cancelled or purged. - The Servicing Center will accept promissory notes anytime during the origination process for schools participating at all levels, but cannot electronically acknowledge receipt unless there is a valid origination record and an ELECTRONIC MANIFEST has been transmitted to the Servicing Center. - Completed promissory notes are to be sent to the Servicing Center along with a promissory note paper manifest. - The Servicing Center will verify receipt of promissory notes against the manifest and return the paper manifest signed by a representative at the Servicing Center. - The school should transmit an electronic manifest to the Servicing Center immediately to avoid any delay in receipt of an electronic acknowledgment. - The Servicing Center will review each promissory note to ensure that the note is complete. - If the note has been accepted, the note is processed, and if an electronic manifest is present with the exact loan ID and print sequence number, the school will receive an electronic acknowledgment in three business days. If an exact match cannot occur the acknowledgment may be delayed an additional three business days. - If the note has been REJECTED at the Servicing Center, a new note must be printed. The original note is returned to the school for reissue, and if the electronic manifest is present, a rejected electronic acknowledgment is transmitted to the school in three business days. - If the note is incomplete (this means the note requires some alteration to be accepted), the note is returned to the school for completion. The Servicing Center will not send an electronic acknowledgment for these notes until the note is completed and returned to the Servicing Center. There is no need to retransmit electronic manifest for promissory notes in this status. - When the Servicing Center accepts the note, that means the Department has taken responsibility for it and the schools liability for the note ends. The schools liability for drawdown of funds continues until the funds drawn down match booked loans and excess cash is returned. The school may retain or destroy its copies of accepted promissory notes. The Departments software will track the status of items submitted to the Servicing Center. The school will be able to select certain error codes to look at records that have not been accepted and determine what additional action is necessary. If the school cannot correct the problem, the school contacts the borrower for resolution. Implementation Issues and Management Tips The loan origination record must be created in order to print a promissory note. When to originate or begin the loan process is up to the school. However, you must create and transmit the origination record while the student is eligible. If your school creates award notifications, you can create a loan origination record with an offered loan amount or an accepted loan amount. You will need to consider: - Do you want to send promissory notes with your award notifications? If you send award notices and promissory notes together, you will most likely produce promissory notes from offered loan amounts which means you will need to create a loan origination record early in your process. If you decide to create a promissory note after borrowers accept their loan offers, you would create the loan record and the promissory note at a later date. - Use the chart at the end of this chapter* to help determine how your process will operate. It demonstrates the pros and cons of creating the loan record/promissory note at different intervals. (*NOTE: The chart referenced in the above paragraph is not available on the SFA BBS at this time. Please see page 5-16 of the paper 1995-96 Direct Loan School Guide for this information.) - During periods of non-enrollment, you might mail your promissory notes separately from your award letter. However, once school starts you may want to mail them together to speed up the process. - How will you handle students to whom you mail promissory notes but who fail to return them? Will you have duplicate notes available during the first days of school? - You may reduce financial liability by minimizing the length of time you store signed notes before mailing them to the Servicing Center. However, if you keep notes in your office, be sure to keep them in a secure area. They wont be considered financial assets by an auditor, but there may be contingent liabilities (if disbursements have been made) until the Servicing Center accepts the notes. TIP - Consider safeguarding promissory notes in your possession by placing them in a locked fireproof cabinet. TIP - Consider retaining a copy of each promissory note until it is accepted by the Servicing Center. TIP - Consider mailing your promissory notes in small batches via a traceable overnight carrier. TIP - Maintain a log of promissory note rejections. Use this information to improve your instructions to borrowers and the promissory note review process. This can save you time and money in the future. |