Publication Date: July 2002
Bulletin ID: DLB-02-23
Summary: Guidance Reminder on Processing Adjustments to Actual Disbursements
July 2002
DLB-02-23
Subject: Guidance Reminder on Processing Adjustments to Actual Disbursements
Dear Partner,
We would like to take the opportunity to reiterate the process for making adjustments to disbursements. COD does NOT change the fundamental rules on processing adjustments and these rules apply regardless of whether you are sending in the Common Record or the current DL record layouts to the COD system. This information was first presented in DLB 99-66 sent out in November 1999.
Here are the key points to keep in mind. A more detailed review and several examples follow these points.
- Adjustments are applied to the borrower's account as of the date of the actual disbursement date, not the adjustment date or transaction date.
- Downward and upward adjustments should be used to correct the amount of money given for a particular disbursement. Interest will be recalculated based on the actual disbursement date.
- The date the disbursement is adjusted is not relevant.
- The date the disbursement is made is relevant and should only be changed (via a #Q transaction or revised common record) when the originally reported disbursement date is incorrect.
- Adjustments should NOT be used to increase the loan amount for any reason. A new disbursement should be created in that case.
When should I adjust the amount or date of an actual disbursement?
You should adjust the amount or date of an actual disbursement when you need to change the amount of the disbursement or the date that the disbursement was made. You must not adjust the amount of an actual disbursement for the purpose of giving a borrower more money later during the same loan period. In other words, adjustments may not be used to make additional disbursements on a loan.
Downward adjustment of an actual disbursement amount
Various situations may require you to adjust the amount of an actual disbursement downward. For example, you would adjust an actual disbursement amount downward when --
you incorrectly reported the amount of the disbursement as more than the amount that you actually disbursed;
at the borrower's request, you are returning all or a portion of the loan within 120 days of the date of disbursement; or
you are returning all or a portion of the loan (at any time) to comply with a statutory or regulatory requirement.
Upward adjustment of an actual disbursement amount
You may adjust an actual disbursement amount upward only when --
you incorrectly reported the amount of the disbursement as less than the amount that you actually disbursed, or
you adjusted a previous actual disbursement amount to $0, but are now using that disbursement number to make a subsequent disbursement.
Adjustment to an actual disbursement date
You may adjust an actual disbursement date only when --
you incorrectly reported the date that you made a disbursement, or
you adjusted a previous actual disbursement amount to $0, but are now using that disbursement number to make a subsequent disbursement.
Examples:
Downward Adjustment: You made a first disbursement of $1,313 on 8/30/02. On 9/15/02, per the borrower's request, you adjust the amount of the first disbursement to $1,000. You do not adjust the 8/30/02 disbursement date. Interest will be recalculated from 8/30/02 based on the reduced disbursement amount of $1,000.
Upward Adjustment: You made a first disbursement of $1,313 on 8/30/02, but later discover that you incorrectly reported the disbursement amount as $1,000. You correct the error by adjusting the first disbursement amount to $1,313. You do not adjust the disbursement date, because you actually disbursed $1,313 on 8/30/02.
Upward Adjustment and Change in Date: You made a first disbursement of $1,313 on 8/30/02. On 9/15/02, per the borrower's request, you adjust the first disbursement amount to $0. On 9/25/02, the borrower requests $1,000 for the first disbursement. You adjust the first disbursement amount from $0 to $1,000, and adjust the date of first disbursement from 8/30/02 to 9/25/02.
In this example, you must adjust the date to reflect the date that the borrower actually received the funds. Otherwise, interest would be calculated from 8/30/02, even though the borrower did not receive the loan funds until 9/25/02.
Date Adjustment: You made the first disbursement of a loan on 9/15/02, but incorrectly reported the disbursement date as 8/30/02. You correct the error by adjusting the first disbursement date to 9/15/02 so that interest will be recalculated from the date that the borrower actually received the loan funds.
When do I need to make a new disbursement?
You must make a new disbursement when you have already made one or more disbursements and you are giving a borrower additional loan funds later during the same loan period. This situation might occur when a borrower's loan eligibility increases (for example, due to a change in financial need, grade level, or dependency status), or when a borrower who previously requested a lesser loan amount later wishes to borrow the full amount for which he or she was eligible.
You may not increase the loan amount simply by making an adjustment to a prior actual disbursement. An adjustment to an actual disbursement amount is treated as if it occurred on the date of the actual disbursement, and interest on the adjusted loan amount is calculated from the date of the actual disbursement. This means that if you process a loan amount increase by making an adjustment to a prior disbursement, interest on the increased amount will be calculated from the date of the prior disbursement rather than from the later date when the borrower actually receives the additional funds. In the case of an unsubsidized loan, the borrower will then be charged interest on the increased loan amount for a period before the borrower had use of the funds. In the case of a subsidized loan, the federal government -- and therefore the taxpayer -- will be responsible for paying the interest on the increased amount before it was given to the borrower.
Example:
New Disbursement: A borrower is eligible to receive a first disbursement of $2,000, but requests only $1,000. You make the first disbursement of $1,000 on 8/30/02. On 10/1/02, the borrower requests the additional $1,000. You make a new disbursement for this amount with a disbursement date of 10/1/02. You cannot simply adjust the first disbursement upward to $2,000, because interest would then be charged on the full $2,000 beginning on 8/30/02, the date of the first disbursement.
We hope that this guidance will clarify any outstanding questions or concerns that remain. If you have any questions, please contact COD School Relations Center at 800/848-0978. We thank you for your ongoing partnership in the Direct Loan Program.
Sincerely,
Jane Holman
Acting Director, Title IV Delivery
Schools Channel