| AwardYear: 1998-1999 ChapterNumber: 1 ChapterTitle: Direct Loan Participation PageNumbers: 1-6 Essential Questions * What are the administrative requirements? * Is my school prepared to implement an Electronic System for processing student loans? * What resources are available to assist the school to participate electronically? * Which level is appropriate for my institution? * What are the different levels of participation for Direct Loans? * What are the functions of each level? * Should my school participate 100 percent in Direct Loans, or should my school phase in? * Does the school receive an administrative fee for originating loans? * Is it better for my school to participate in a consortium or as an individual institution? * How does the school withdraw from the program? Eligibility Criteria To qualify for initial participation in the Direct Loan Program, a school must * meet the eligibility requirements of section 435(a) of the HEA * have a cohort default rate of less than 25 percent for at least one of the three most recent fiscal years, unless the school is exempt under section 435 (a)(2)(C) * not be subject to emergency action or a limitation, suspension, or termination action. A school must also execute a Direct Loan Program Participation Agreement (PPA) (Direct Loan Addendum) separate from the PPA for Title IV programs and have or will soon have the technological capacity to participate electronically. To maintain eligibility, a school must continue to meet the eligibility requirements of section 435(a) of the HEA and have a cohort default rate of less than 25 percent for at least one of the three most recent fiscal years, unless the school is exempt under section 435(a)(2)(C). Payment for Origination Services For 1998-99, there are no payments for origination services. Origination Options There are three origination options under which a school may participate in the program-- Standard, Option 1 and Option 2. The chart on the next page identifies the functions associated with each origination option. Once a school expresses interest in Direct Loan participation, the Department reviews the schools eligibility for each origination option and notifies the school of the origination options under which they are eligible to participate. Any school participating in the Direct Loan Program under 685.400 of the regulations is eligible to participate under Standard Origination. Schools meeting the additional criteria shown below may originate loans under Option 1 and Option 2. Additional Criteria for Originating Loans Under Options 1 and 2 Schools must * be currently participating in the Federal Perkins Loan Program or in the Federal Pell Grant Program. A graduate or professional school must have participated in a similar program for the three most recent years * not be on the reimbursement system of payment in the Federal Pell Grant Program * have had no severe performance, audit, or program review deficiencies for any Title IV program * be financially responsible in accordance with the standards of 34 CFR 668.15 * be current on program and financial reports and on Title IV audits for the 12 months immediately preceding the Direct Loan application date * be current on required Federal cash transaction reports and have no final determination of cash on hand that exceeds "immediate need" * have no material findings in annual financial audits submitted for the three most recent years preceding the Direct Loan application date * provide assurance that the school has no delinquent debts to the Federal government (unless the debts are being repaid under an arrangement satisfactory to the government, or unless the Department of Education decides the appropriate federal agency has not determined the existence or amount of the debts). [[This file contains the Direct Loan Participation - "Functions" on page 3 in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software.]] Deciding on the Type of Participation Before your school enters the Direct Loan Program, you must consider the option under which you wish to participate and the option under which you are eligible to participate. It is important to understand the responsibilities associated with each option and to determine if it is appropriate for your school. As you make this decision, think about your staffing levels, service to students, demands your campus makes on you, and commitment from institutional resources. You must decide what is best for your school 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. 100 Percent Participation vs. Partial Participation In addition to 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 Federal Family Education Loan Program (FFEL) loans? Keep in mind that a student cannot receive both types of loans for the same loan period, but your institution can participate in both programs. When determining how you will participate, you may want to consider the following factors: * your ability to manage two programs--consider staffing training possibility of confusion (for students and staff) how much support you have at your school for a new program the efficiency and cost effectiveness of the FFEL Program to determine how easy it would be for you to run parallel programs. * your student population--consider the importance of keeping students 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 (graduate students may have many years of loans behind them from their undergraduate education). Changing Origination Status At any time, an Option 1 or Option 2 school may participate under an option with less responsibility and control. To do so, the school must notify the Department in writing and await a reply with an effective date. A Standard Origination or Option 1 school can apply to participate under an option with more responsibility and control after one full year of participation at the initial origination status. The Department considers these applications annually and bases its decision on a schools prior year performance, as well as the criteria found in 34 CFR 685.402. * Schools can request participation changes by writing to: School Selection Team/PAIB/IPOS U.S. Department of Education Room 3925, ROB-3 600 Independence Avenue, SW Washington, DC 20202-5232 Or by faxing requests to 202-708-9485, ATTN: Daniel Dietz * Before deciding if you want to change your origination status, review the Direct Loan School Guide chapters on origination records, promissory notes, funding requests and disbursement. * Establish a plan and timeline for implementation. * Identify procedural changes that may be needed and implement new procedures as appropriate. * Develop a processing schedule for creating and submitting records. Consortia Schools may participate in the Direct Loan Program through consortia arrangements. A consortium is a group in which each school may perform certain school-based functions shown on page 1-3; however, only one school communicates with the Department for all schools in the group. Each school in the consortium must be eligible to participate in Direct Loans, must sign an individual Direct Loan Addendum, and must meet the criteria to originate loans at the chosen level of participation. Each must participate at the same level and is responsible for the information it supplies through the consortiums lead school. Participation in a consortium arrangement may benefit schools that wish to use the administrative and computer resources of one school rather than obtain such resources themselves. A consortium can reduce the individual effort by one school and save resources. * For example, a group of small schools currently operating manually might form a consortium and develop one of the schools as a "site" or "destination" for all computer activity associated with the Direct Loan Program. This arrangement may benefit schools with similar missions and populations. Points to Consider in Managing Direct Loans * Develop a list of your constituents, including prospective students, their parents, high school counselors, other campus administrators, regents, etc. * Make sure that all who need to know about the schools decision to participate in Direct Loans are kept informed. * It might be appropriate to designate one or two people in your office as official Direct Loan spokespersons. * Develop a team approach to Direct Loans at your school. As you can see from the discussion in this chapter, the issues to consider will involve staff other than financial aid office personnel. Teams, committees, working groups, and task forces are all ways to encourage communication and commitment. * Assess your schools resources, including mainframe and/or personal computer systems. Depending on your level of automation, you may want to phase-in the Direct Loan Program. * Use the "Five Steps" outlined in the Direct Loan Planning Guide to implement the Direct Loan Program and your Direct Loan Quality Assurance System. These steps are progressive and serve as a base for launching a quality Direct Loan program that has recurring assessment activities for continuous improvement. * Develop a collaborative problem-solving approach. Use the Direct Loan Program to re-think the process of providing customer service to your students. Identify the issues that need to be explored and the timeframe for resolution. Withdrawal Procedures Participating schools may withdraw from the Direct Loan Program at any time by submitting a written request to the Department (see the address on the previous page), giving the reason for withdrawal and an effective date, which must be at least 60 days later than the date of the notification or the withdrawal request date. Unless the Department approves an earlier date, the withdrawal date will be the date the school selects or 60 days after the school notifies the Department. The Department may initiate a schools withdrawal if there are performance or eligibility problems. Certain activities related to program withdrawal are necessary, such as closeout audits (Title IV Audits) and a final reconciliation of Direct Loan funds, including the submission of all disbursement records and return of excess cash. |