() Summary: Operational Guidance Reminder - Implementation of Origination Fee Reduction for Direct Subsidized Loans and Direct Unsubsidized Loans

Publication Date: August 2007

Bulletin ID: DLB-07-17

Summary: Operational Guidance Reminder - Implementation of Origination Fee Reduction for Direct Subsidized Loans and Direct Unsubsidized Loans

Posted on 08-10-2007

Dear Partner:

As we reminded schools in DLB-07-14, we have provided important operational guidance about the student loan program changes that became effective on July 1, 2007 as required by the Higher Education Reconciliation Act of 2005 (the HERA), Pub. L. 109-171. Schools can find this guidance in the following Direct Loan Bulletins available on the Information for Financial Aid Professionals (IFAP) Web site:

Currently, many Direct Subsidized Loan and Direct Unsubsidized Loan awards are rejecting because the correct origination fee has not been included for the award and/or used to calculate the award and its disbursements. For this reason, we want to highlight some guidance that is critical to successfully implementing the origination fee reduction for Direct Subsidized Loan and Direct Unsubsidized Loan awards.

• If an award's earliest disbursement date is before July 1, 2007, the origination fee for the entire award (meaning all of its disbursements) is 3 percent.

• If an award's earliest disbursement date is on or after July 1, 2007, the origination fee for the entire award (meaning all of its disbursements) is 2.5 percent.

• When determining an award's earliest disbursement date, actual disbursements (Disbursement Release Indicator or DRI value equal to "true") will take precedence over anticipated disbursements (Disbursement Release Indicator or DRI value equal to "false").

• The earliest disbursement date and the origination fee for an award must correspond as follows:

  • Earliest disbursement date before July 1, 2007 - origination fee must be 3 percent

  • Earliest disbursement date on or after July 1, 2007 - origination fee must be 2.5 percent

  Note: The correct origination fee must be used to calculate the net amount of the award and all of its disbursements.

• A school that has originated a Direct Subsidized Loan or a Direct Unsubsidized Loan award with a 3 percent origination fee, but has made or will make the first disbursement on or after July 1, 2007, must change the origination fee for this award to 2.5 percent.

Likewise, a school that has originated a Direct Subsidized Loan or a Direct Unsubsidized Loan award with a 2.5 percent origination fee, but has made the first disbursement before July 1, 2007, must change the origination fee for this award to 3 percent.

To successfully change the origination fee for an award in either case, the school must complete the following actions:

1. Determine if the original award contains only anticipated disbursements or at least one actual disbursement.

2. Follow all applicable steps outlined in the appropriate document attached to this bulletin.

   The two documents attached to this bulletin are as follows:

• "3 to 2.5 Percent Origination Fee Change for Direct Subsidized Loan and Direct Unsubsidized Loan Awards"

• "2.5 to 3 Percent Origination Fee Change for Direct Subsidized Loan and Direct Unsubsidized Loan Awards"

The steps outlined in the attached documents were originally included in Q&A #7 of DLB-07-06. In that Q&A, we presented the information in the context of changing the origination fee from 3 to 2.5 percent and noted that the steps were applicable to changing the origination fee from 2.5 to 3 percent.

For this bulletin, we have modified the original presentation in the following ways:

• We have created two versions of the steps for changing an award's origination fee. One version illustrates the 3 to 2.5 percent change, and the other version illustrates the 2.5 to 3 percent change.

• We have expanded the original presentation of steps by noting that a school must wait for the change(s) made in one step to process before moving on to the next step. An accepted acknowledgement from the Common Origination and Disbursement (COD) System is evidence that a change has processed. This is consistent with normal COD System change record processing.

At this time, we ask that you share this bulletin with the appropriate staff at your school. If you have questions about any of our origination fee guidance or need assistance with implementing the origination fee reduction, please contact the COD School Relations Center at 800/848-0978 or by e-mail at CODSupport@acs-inc.com.

Thank you for your ongoing partnership in the Direct Loan Program.

Sincerely,

William Leith
Acting General Manager, Application, Operations and Delivery Services