Bulletin ID
DLB - 99 - 74
| PublicationDate: 12/1/99 BulletinID: DLB - 99 - 74 December 1999 DLB 99-74 Subject: Returning Direct Loan Funds Dear Partner: Based on the questions that we are receiving from Direct Loan schools, there still appears to be some confusion concerning Direct Loan Program regulations that were published in the Federal Register on November 28, 1997 (62 FR 63428). These regulations changed the conditions under which a Direct Loan Program borrower is obligated to pay loan fees and interest charges when a school returns all or a portion of the borrower's loan to the Department of Education. In particular, many schools have asked about the significance of returning funds within 120 days of the disbursement date vs. more than 120 days after disbursement. We have prepared this Bulletin in order to clarify the regulatory change and explain how it affects the procedures for returning Direct Loan funds. How did the Direct Loan Program regulations change? The November 28, 1997 regulations amended 34 CFR 685.202(c) by changing the conditions under which a borrower must pay loan fees and interest charges on any portion of a loan that is returned by a school. Under the new regulations, which took effect July 1, 1998, a borrower is not charged loan fees and interest on any portion of a loan that a school returns in order to comply with a regulatory or statutory requirement, regardless of when the school returns the funds or when the action that required the return of funds occurred. Under the regulations that were in effect before the July 1, 1998 change, a borrower was not charged loan fees and interest on funds returned by a schoolwithin 120 days of the disbursement date. However, if a school returned the funds more than 120 days after the disbursement date, a borrower was not charged loan fees and interest only if the school should have returned the funds within 120 days of disbursement because of an action that occurred within that 120-day period (for example, if the student had withdrawn or dropped below half-time status within 120 days of the disbursement date). The November 28, 1997 regulations did not change the 120-day provision that applies when a borrower returns loan funds. A borrower must still return loan funds within 120 days of disbursement in order to avoid incurring loan fees and interest charges on the portion of the loan that is returned. For a more detailed discussion of this regulatory change, please see pages 63429-63430 of the preamble to the November 28, 1997 Final Rule. You may obtain this document by going to the Department's Information for Financial Aid Professionals web site, ifap.ed.gov. Click on Bookshelf, then Federal Registers and By 1997 Publication Year. How does this change affect schools? When you are returning all or a portion of a borrower's Direct Loan Program loan in order to comply with a regulatory or statutory requirement, it no longer matters whether more than 120 days have elapsed since the date of disbursement. In all such cases, you make the appropriate downward adjustment to the borrower's loan record(s) and follow the same procedures that apply for returning excess cash. If you need to make an adjustment or cancellation for a closed year (for example, 1995-96 or 1996-97), please contact the Direct Loan Program Operations Team at 202-205-6466. Example: More than 120 days after you disbursed a loan, you must return a portion of the loan in order to comply with 34 CFR 668.22 (the regulations that govern the return of Title IV funds when a student withdraws). You adjust the borrower's loan record downward by the appropriate amount and return the funds. The borrower is not charged loan fees or interest on the portion of the loan that you return. Now that the regulations have changed, does the 120-day provision ever apply when a school is returning Direct Loan funds? Yes. The 120-day rule still applies when you are returning funds for reasons other than to comply with a regulatory or statutory requirement, such as when you are assisting a borrower in returning all or a portion of a loan because the borrower has determined that he or she does not need the funds. In this situation, the following rules apply: If you are returning loan funds at the borrower's request within 120 days of disbursement, follow the procedures for returning funds in order to comply with a regulatory or statutory requirement (see above). If you are returning funds at the borrower's request more than 120 days after disbursement, send a check to the Direct Loan Payment Center as a payment on the borrower's account. Do not make any adjustments to the borrower's loan record(s). Examples: A borrower determines that he does not need the full amount of a disbursement and returns a portion of the loan funds to your school 30 days after the disbursement date. You make the appropriate downward adjustment to the loan record and return the funds. The borrower is not charged loan fees or interest on the portion of the loan that you return. A borrower determines that she does not need the full amount of a disbursement and asks you to return a portion of the loan 130 days after the disbursement date. You return the funds by check to the Direct Loan Payment Center. You do not make a downward adjustment to the borrower's loan record. The returned funds will be applied to the borrower's account, and the borrower will be charged loan fees and interest on the entire loan amount. Where can schools find additional guidance on the correct procedures for returning Direct Loan funds? We have attached a revised Excess Cash/Borrower Payment Transmittal form that reflects the change made by the November 28, 1997 regulations and provides detailed instructions for: returning excess cash, returning loan funds in order to comply with regulatory/statutory requirements, returning loan funds at a borrower's request within 120 days of disbursement, and returning loan funds at a borrower's request more than 120 days after disbursement. You may use this form when you return funds (for any of the above reasons) by check. The form also provides information on returning funds by electronic funds transfer (ACH/FEDWIRE). We hope you find the information in this Bulletin helpful. Thank you for your ongoing partnership in the Direct Loan Program. Sincerely, Margaret E. White Acting Lead, Title IV Delivery Schools Channel Attachment Enclosure |